Dilution, Disclosure, Equity Compensation, and Buybacks

Abstract

Buybacks and equity compensation are two sides of a single coin. In a buyback, a company spends cash to repurchase its own shares, reducing its total outstanding share count. In the case of equity compensation, a company issues shares, receiving cash and tax benefits, increasing its total outstanding share count.

The two kinds of transactions — buybacks and equity compensation — are complementary, but their connection is obscured by the asymmetries in the timing, approval processes, and securities and financial disclosures for each. The article “Dilution, Disclosure, Equity Compensation, and Buybacks” (published The Business Lawyer, Vol. 74, 631-658, Summer 2019) describes those differences, and quantifies the share-denominated and dollar-denominated effects of buyback and equity compensation transactions over a 10-year period for selected Fortune 100 companies.

Keywords: buybacks, equity compensation, share repurchase, corporate finance