Earlier this
year I suggested that so-called most of the Companies are not ran in shareholders’ interest.
It took some
time to do the actual facts digging, but here they are:
Out of S&P
500 index 449 companies used 54% of their profits ….to buy back their own
stock, this represents $2.4 trillion dollars. Dividends payouts consumed
another 37% of the earnings. This was happening
last ten years from 2003 through 2012 and continues today.
There is three
main reasons for it:
- -
One
of the main metrics CEOs are being rewarded based on so called total shareholder
return. It combines share price appreciation and dividends paid to show the
total return to the shareholder expressed as an annualized percentage. It is
calculated by the growth in capital from purchasing a share in the company
assuming that the dividends are reinvested each time they are paid.
This means that they are inevitably
driven to push shares prices at all cost.
Average CEO salary in S&P 500 index is $30.3 million each in 2012,
42% compensation comes from stock options.
- -
In
Western Europe some countries actually establish minimum returns on pension
funds, meaning that the companies have to achieve it, or their shares will be
unloaded.
- -
Lack
of vision and talent to invest back home. Obviously, the leaders are run out of
profitable investment opportunities. One of the chief functions of top executives
is to discover new opportunities. Buying
the socks back begs the question whether the CEOs are doing their job. For example, the only money that Apple ever
raised from public shareholders was $97 million at its IPO in 1980.