Before 1980, buybacks weren't all that common. More recently, they have become far more frequent. Between 2003 and 2012, the 449 publicly listed companies on the S&P 500 allocated $2.4 trillion—some 54% of their earnings—to buybacks, according to a Harvard Business Review report. And it's not just giants like Apple and Amazon.com Inc. (AMZN), with smaller companies also getting into the buyback game.
In 2019, stock buybacks by U.S. companies totaled nearly $730 billion. Companies have been steadily increasing the amount of cash they put into buying back their stock over the last decade.
According to recent Harvard Business Review research, more than half of corporate profits in the U.S. go toward share buybacks. Some economists and investors argue that using excess cash to buy up their stock in the open market is the opposite of what companies should be doing, which is reinvesting to facilitate growth (as well as job creation and capacity).
The biggest social concern about this has to do with opportunity costs—money that goes to shareholders in a stock buyback program could have been used for maintenance and upkeep. On average, fixed assets and consumer durable goods in the U.S. are now older than they’ve been at any point since the Eisenhower era (the 1950s). There is a lot of attention paid to the nation's crumbling roads and bridges, with private infrastructure also suffering neglect—although it's less talked about.
The scale and frequency of buybacks have become so significant that even shareholders, who presumably benefit from such corporate actions, are not without worry.
According to a Harvard Business Review report, in 2012, the 500 highest-paid executives named in proxy statements of U.S. public companies received, on average, $30.3 million each, with 42% of their compensation coming from stock options and 41% from stock awards.So C-suite executives have little incentive to scale back on buybacks, given the large positions in company stock they typically hold and therefore amount they have to gain.
By increasing the demand for a company’s shares, open-market buybacks automatically lift its stock price, even if only temporarily, and can enable the company to hit quarterly earnings per share(EPS) targets. All that said, buybacks can be done for perfectly legitimate and constructive reasons.