STL associate professor Nitzan Shilon’s article “Stock Buybacks as an Executive Compensation Problem” was recently released and made SSRN top ten download list for “executive compensation and corporate governance”. This paper is the first academic endeavor to systematically analyze the overall ability of stock buybacks to enhance executive compensation. It reveals that buybacks can not only artificially improve accounting measures and annual bonuses, as current literature analyzes, but also stock price measures and long term incentive awards. Based on a comprehensive study of all CEOs included in the S&P 500 index the article reports that stock buybacks can enhance a record high amount that equals almost one third of total CEO compensation. It further discusses the incentives it creates for executives to conduct buybacks excessively and manipulatively, and proposes a novel remedy that would make executive composition protected from undue impact of stock buybacks.
Professor Shilon presented his research in the Canadian Law & Economics Annual Conference, Canada; Free University, Berlin and Tel Aviv University, Israel.