Buybacks can mask big transfers of shareholder wealth to managers. When executives sell shares, buybacks using shareholder funds relieve selling pressure on the stock. Insider selling at NVR has been torrid. Buybacks bolster the CEO's compensation because his incentive is based on earnings-per-share growth. If his compensation were based on aggregate earnings growth, NVR's buybacks would have little effect on his pay. But the buybacks have cut NVR's shares outstanding, increasing earnings per share greatly. If you wish to have a court take a look at this potential for conflict of interest, email email@example.com
I partially agree with this but take a look at AAPL. Revenue flat or dropping and shares outstanding increasing annually. Home builders come from the background of working hard for a living and are mose likely conservative. What you need to look at the earnings per share growth.
The #1 thing that can fix the stock market is eliminating options to employees. One of the dumbest ideas ever to come about.
06:19 NVR NVR Inc: Management's rewards may come at a higher cost than shareholders may realize (440.00 )
The New York Times reports that co's CEO Dwight C. Schar made $94 mln in 2002, mostly by exercising options, while noting that stockholders have become rich alongside Mr. Schar, who bought an interest in the Washington Redskins last year. A closer look at NVR, however, indicates that mgmt's rewards may come at a higher cost than shareholders may realize. Recently co started an aggressive share buyback plan. NVR has acquired 16.4 mln shares for $900 mln. As the stock soared, so did NVR's buyback costs. In 2002, when the company generated $381 mln in net cash from operations, it paid $400 mln to buy back shares. And in the first three quarters of 2003, cash from operations totaled $280 mln while $240 mln was spent on buybacks. NVR's buybacks enrich its executives two ways. First, when executives sell shares, buybacks using shareholder funds relieve selling pressure on the stock. Through the first nine months of 2003, as the company bought 644,000 shares, insiders sold around 563,000 shares. And buybacks also bolster Mr. Schar's compensation because some of his incentive pay is based on earnings-per-share growth. If his compensation were based on aggregate earnings growth, NVR's buybacks would have little effect on his pay. But the buybacks have cut NVR's shares outstanding, increasing EPS greatly. If insiders have been selling a lot of stock and the company has been buying a lot of stock, that presents the potential for conflict of interest," said Paul Hodgson, senior research associate at the Corporate Library, a governance research company in Portland
What if buying back stock is the best way to use profits? If not stock buybacks, what do you do with the profits. The other choices are dividends or aqquisitions. Buy backs have treated the shareholders well. Read the article. I think it is positive on NVR. Best wishes