[sokoloff]

If you were a shareholder, you're probably pretty interested in having the CEO's pay aligned to your investment value.

Trying to fix this in a way that has shareholders working against their own interest is difficult from an incentive perspective.

[btbuildem]

What is this "shareholder" creature?

Does hollowing out a company for a temporary bump in valuation one quarter count as against or for shareholder interests?

[smallmancontrov]

There are MANY institutional shareholders who buy/sell based on quarterly financial results and never extrapolate except by fitting lines and exponentials to past quarterly results. The C-Suite knows that this bottomless pool of money is available for pump & dump, so they do. If you can see what they are doing, you can ride along too.

[disgruntledphd2]

I mean, as a shareholder, I think you'd be more concerned with the long term value of the company rather than short term results.

As an example, if the CEO has an earnings per share target which is only met using all spare capital for buybacks then that may be rational for the CEO, but I think that a lot of investors would prefer less buybacks if it supports longer (10+ years growth). But most CEO's will be gone by then, and their comp methods predispose them to take the short-term bump rather than invest for longer term gains.

Like, I agree that this is a difficult problem to solve, but we are definitely not near a local or global maximum so its probably worth trying radically different approaches.

[sokoloff]

A buyback and a dividend are closer in effect than many people think. Both are returns to shareholders, while the second allows shareholders more control over the timing of their tax exposure.

Yet people seem to complain loudly about buybacks while treating dividends as "yeah, of course companies have to provide financial returns to shareholders... Otherwise, there would be no shareholders."

Long-term shareholders would prefer to optimize for, well, the long-term. Short-term shareholders flip that. Most companies have a mix of both.

[disgruntledphd2]

> Yet people seem to complain loudly about buybacks while treating dividends as "yeah, of course companies have to provide financial returns to shareholders... Otherwise, there would be no shareholders."

I'm one of those people!

Fundamentally, to me the difference is quite large. If I believe in a company, I don't want to sell my shares, rather I'd like a steady stream of income from their operations. Granted, it ends up being more tax efficient to use buybacks, but I think that's a flaw in our current model rather than a reason to prefer buybacks.

[sokoloff]

I understand that viewpoint (and agree with it way more than not). My governing beliefs are similar to "I'd like to invest in companies with strong leadership. Strong leadership tends to be rational. All else being equal, rational leadership tends to do things that are optimal under the taxation scheme in place. Therefore, strong leadership is somewhat more likely to be using share buybacks rather than dividends. Therefore, I'm happy/willing to invest in companies doing buybacks."

If you want to allow something like 1031 exchange for dividends or let investors decide when to withdraw dividends from their investment account and only tax them on withdrawal, you can fix the tax difference, at which point rational leadership would be more likely to pay dividends, which I think would be more transparent for all and better [at least no worse] for long-term investors.