Boeing spent $43B on stock buybacks between 2013 and 2019 while paying their CEO ~$30M/year.
> To support its share price, the company under McNerney poured billions into stock buybacks instead of investing profits into the kind of research and development needed to stay competitive. McNerney decided not to spend billions of dollars building a new plane to replace the 737. Instead, Boeing tweaked and updated the existing model and called it the 737 Max, outfitting it with larger, more efficient engines for increased economy. Compensating for the resulting instability was a secretive automated system called MCAS that would adjust the plane’s pitch without input from the pilot.
> McNerney also fought to deeply cut costs. On his watch, the company opened its first non-unionized aircraft production line and initiated a program called “Partnering for Success” that pushed suppliers to cut their prices by 15 percent or more. Many feared that squeezing suppliers would harm the quality of their components, but McNerney was determined to recoup the cost of the 787’s development; if the subcontractors complained, they could find their work taken away from them, as happened to landing-gear-maker United Technologies Aerospace Systems.
> McNerney retired in 2015, handpicking his successor, president and COO Dennis Muilenburg. Over the next three years, Boeing’s stock price more than doubled as it sold new planes the world over. (As Bloomberg News reported, Muilenberg and McNerney “had personal reasons to emphasize productivity and cost-cutting” because their compensation was tied to share performance. Together they took $209 million in total pay over seven years.)
It's kinda fun, right? The whole point of tying executive compensation to share price was to have them have some rough stake in the business, but even that didn't prove enough: there's always a longer term, and doing a visible, clear NPV boost is usually accretive to market cap even if it introduces long-term risk, because the long term risks are usually hidden from public eye and very mushy.
Ironically, I think the poster child for how to properly structure compensation away from this is Hank Greenberg's AIG, where not only was his compensation basically all deferred stock options, they were deferred until retirement, so about as long-term a view as you can get. He was very risk-averse, and his biggest flaw wasn't under his operational ownership but under successor and personnel selection (looking at you, Welch).
But at some level, it was just bad people making bad calls. I don't think McNerney thought that this would wreck Boeing, he was just wrong. Even if he was left predictably destitute at the end of such a failure, he probably wouldn't have changed his choices because he thought they were good. You could claim that this is a failure of boards and governance (and, truly, I think boards are by and large really bad and I wish there was a much more pervasive activist investor culture) but at some level I'm not sure how much of this is solvable.
I don't know. There's probably a way to do boards well enough that this isn't a problem.
We all know boeing won't be "wrecked"; they're too critical for state interests to be allowed to fail. If they're smart they'll either nationalize the company to remove the profit inefficiency or force the company to split to remove the profit inefficiency. Either way, the profit motive and lack of any competition is clearly a national security risk.
> We all know boeing won't be "wrecked"; they're too critical for state interests to be allowed to fail
People keep repeating this without context. The auto companies are strategically significant. That didn't prevent them from going bankrupt [1][2]. Wiping shareholders doesn't mean blowing up the factories.
I'm increasingly convinced Boeing needs to go bankrupt. It can then shed unprofitable units--through spin-offs, sales or liquidations--and restructure its obligations. I'm not convinced the union comes out of that better off than it is now. But America sure does.
> The auto companies are strategically significant.
Not really, they're more politically significant than economically critical. I've certainly never owned an american car and never plan to. We'll be fine continuing to rely on foreign companies to produce our vehicles. Foreigners certainly don't want our cars (outside of maybe tesla in the nordics, i guess?). None of this is true for the plane market, or at least not until boeing acquired its current popular reputation of not being very good at making planes (deserved or not)
The fact we bailed out the companies but refused to take ownership should be considered treason. Same for the banks, the car companies, the airline industry we bailed out for more than its entire value, etc etc. completely corrupt and incompetent governance
The auto companies are strategically significant because war footing America will turn those F150 lines into tank lines in a matter of months instead of the years it would take to spin them up from scratch.
No it won't, because only about 30% of F150 parts are made in the US. The rest are made elsewhere - mostly China.
This is not 1940, and the US simply doesn't have the strategic industrial base it used to.
Off-shoring made some people a lot of money and lowered consumer costs (while simultaneously cutting consumer pay.)
But it was economically and strategically unwise. The US is set up to run small-scale wars against technologically inferior opponents. It has no ability to sustain a prolonged multi-year slug-fest against an opponent with a superior manufacturing base.
> This is not 1940, and the US simply doesn't have the strategic industrial base it used to.
this is just wrong.
The US didn't really have that industrial base in 1940 either. We developed it fast over a couple years of war.
To the extent the US had an industrial base, we still do. US manufactures more than we did in 1940 - we just do it with far fewer people in factories via automation.
This is really the key - there's a ocean of difference between "we manufacture literally nothing" and "we don't manufacture/assemble as much as we could".
Considering the US hasn't won a single war against technologically and numerically inferior opponents since the turn of the century, I think we have even more fundamental problems than just a rusty war machine dependent on Chinese blue jeans.
Now granted I might be unfair to the US here; the Middle East is known as the graveyard of empires for a reason.
The US did not lose the war against Saddam. The war was started under false pretenses and they made a mess of the reconstruction after, but that's different from a military defeat. If one side of a war manages to destroy the other's military, execute its leader, and set up shop in his palaces; that's a win on the military front.
2) I’m not sure the military was doing just fine in all of those. Vietnam comes to mind, but also Afghanistan—reading the Afghanistan papers, the brass seems to have given up on any kind of actual goals or accountability in favor of a system that let them continually cycle officers through and let them claim they succeeded at their mission (funny, they all keep achieving their mission, but facts on the ground remain exactly the same or worse!), for years and years. Fighting fitness may have been OK throughout, but military leadership in the military itself was absolutely not committed to any kind of winnable mission, let alone to actually winning it. That may have been driven (I’m sure it was) largely by civilian leadership, but the entire upper echelon of military leadership betrayed their commands and the soldiers counting on them, to keep up a convenient (to their careers, and a bunch of junior and mid-tier officers who got a big boost to their careers…) political fiction at the cost of any hope of something resembling actual success, and all it took was shitting all over their soldiers and the trust of the American people.
I bet Iraq (part 2) was similar. I have some grave concerns about the state of our more-politicized-and-static professional officer corps since roughly Vietnam.
Disagree on point #1. We occupied Afghanistan for 20 years. We operated with nearly absolute impunity in all population centers, through all trade routes, and all agricultural areas. Our casualties were a minuscule amount our total forces. Our culture completely transformed theirs (in a way that old school hardliners lament publicly). We killed a huge number of Taliban (and foreign fighters).
Clausewitz says that "the political object is the goal, war is the means of reaching it." Can you tell articulate what the political goal of the war was?
Thinking back to 2001 (I was in middle school), the goal was retribution. I believe the military achieved that in spades. Yes, in the end Afghanistan did not turn into a US vassal state or a US colony. But was that the goal?
>Can you tell articulate what the political goal of the war was?
The goal was to eradicate the Taliban, remove terroristic sentiments, rebuild Afghanistan, bring the country to 21st century democratic standards, and prevent future 9/11s.
Did we achieve it? Hell no.
Verdict: We lost. Over 20 years of bloodshed and misery on both sides for fucking nothing. We failed on every single fucking count. Every. Single. Count.
The discussion was more about if the military fumbled Afghanistan or if it was a political failure.
You haven't shown a military failure.
I also disagree with that list of objectives and their current status. Let's go through 1 by 1:
+Eradicate Taliban. Complete. This is a new gen of fighters and the movement shares very little outside the name. Nearly all the Taliban from 2001 are dead of violent causes.
+Remove terroristic sentiments. Not a goal, but also has Afghanistan committed many terror acts in the last 15 years? Current status is trending green.
+Rebuild Afghanistan. Not an original goal (ie in Oct-2001). Also not a DoD goal, this was a State Dept goal after the military victory was secured. Also I'd argue that Afghanistan today has better infra than it did in Aug-2001, so this is complete.
+Democratic standards. Not an original goal. Also not a DoD goal, this was a State Dept goal after the military victory was secured. Not met.
+Prevent future 9/11s. Current status is trending green.
So we met all but 1 goal. That's not bad as wars go.
>The discussion was more about if the military fumbled Afghanistan or if it was a political failure.
While I started off with the former, overall it is both.
>You haven't shown a military failure.
It has been demonstrated by Afghanistan, Iraq, Vietnam and others that the best way to defeat America is to engage in low tech guerilla warfare. We have lost every single one of them.
Even more embarrasing is that the Houthi are demonstrating that the age old adage of "Don't touch America's ships!" also isn't true anymore. Our Navy hasn't adequately responded to some deranged goat herders lobbing missiles into one of the world's biggest sea lanes.
>Eradicate Taliban. Complete.
Are you drunk? The Taliban is literally back in power ruling over Afghanistan with an iron fist.
>Remove terroristic sentiments. Not a goal,
Lest we forget, we waged "The War On Terror".
>Rebuild Afghanistan. Not an original goal
You can not remove hate until the people thereof can live comfortable lives, which is still not the case.
>Democratic standards. Not an original goal.
See above.
>Prevent future 9/11s. Current status is trending green.
I've lost count on the acts of terror we've seen across the west, America and otherwise.
You've moved the goal posts of this discussion. We've been talking about military success or failure.
Democracy (and "comfortable lives") was not a military objective. The military provided security for the State Dept and NGOs to pursue those goals.
Since 9/11, Afghanistan has not prosecuted any terrorist acts on the West in my recent memory.
The Taliban of 2001 was largely killed off. Yes, there are people in charge of Afghanistan today who call themselves Taliban, have some limited pre-9/11 leadership, but are largely a completely different set of people than existed back then and this occurred because of military action, not old age.
When the participation trophy generation grows up and becomes generals you'll hear things like, we would've won that war if it wasn't for all that attrition!
Roughly 2.2 trillion on the credit card for Afghanistan alone. That's without the interest that will be paid on it. Your grandkids children will be paying for that war.
The only time anyone cares about that debt is when democrats are in control of the government - then republicans care. (sometimes when republicans control congress and the democrats control the president they care, but it is not as much then)
The only president in my lifetime to not start any wars isn't really liked by either the democrats or the establishment republicans. Both parties are big fans of losing wars for some reason.
> An armed conflict between Israel and Hamas-led Palestinian militant groups[ad] has been taking place in the Gaza Strip
and Israel since 7 October 2023.
> The United States has given Israel extensive military aid and vetoed multiple UN Security Council ceasefire resolutions.
> United States provided advice and intelligence to Israeli forces during the raid, through its "hostage cell" stationed in Israel. The attack resulted in the deaths of 274 Palestinians.
How would that work in your mind? Call that one for Harris because Biden is mentally unfit?
By that measure what the hell was bombing Suleimani? Or moving our recognised capital of Israel to Jerusalem? Or arms to Saudi Arabia during their war with Yemen?
Neither Trump nor Biden started a war. They had wars happening around them that we were to various degrees involved.
By my quick count, Obama (awarded the Nobel Peace Prize) started seven wars, Trump started zero wars, and Biden so far started one war. All three Presidents were involved in a war started by a predecessor.
So, yeah. Trump started no wars, and he is the most rejected POTUS by the Powers That Be(tm) for that and other reasons.
Reading a bit more into the war started by Biden against the Houthis, I... didn't quite realize the Navy had straight up admitted we are weak and useless.
>“We’re sort of on the verge of the Houthis being able to mount the kinds of attacks that the U.S. can’t stop every time, and then we will start to see substantial damage. … If you let it fester, the Houthis are going to get to be a much more capable, competent, experienced force.”
The comment I'm replying to said that and it was said frequently about Vietnam. What they didn't do is use the clear language I used and instead blamed the public for not wanting to spend every last penny on a pyrrhic victory as if that isn't attrition.
I agree that the dollar cost is real attrition too. Vietnam and Afghanistan were so wildly costly because we made the (political) choice to limit how we could engage the enemy, while our enemies were not limiting themselves
Vietnam: limiting Cambodia ops, the DMZ, limiting bombing of N Vietnam
Afghanistan: limiting Pakistan ops, focusing on creating a stable democracy rather than killing Taliban then leaving
We made political choices on how to wage war, and then blamed the military for those poor choices.
A war effort involves the entire country: The entire economy beyond just the military industrial complex, all branches of politics, and the military including both officers and rank-and-file soldiers.
Yeah, we could use biological weapons or drop hydrogen bombs as a few examples. We could send marines house to house executing anyone who even looks like a bad guy. Trouble is giving a few million civilians radiation poisoning or the bubonic plaque to "stop communism" or to "spread democracy" is evil and insane.
Years of startup problems but when it finally started humming they were building a B-24 every 63 minutes! In the meantime existing factories were winning the war.
As Americans we tend to glorify the industrial feats of WWII but the US government used a very heavy hand to pull that off. Public-private partnership is the preferred euphemism today but essentially we were a socialist economy.
I agree. We should also stop subsidizing agriculture, there is enough food grown around the world for everyone. All this waste is very inefficient!
In fact, we dump our cheap overproduced food on third world countries and collapse their ag. sector. If we stopped producing and switched to importing we would boost their economies.
Since food can be grown in almost any country on earth, we would have a diverse supply chain. I'm sure nothing would go wrong with this plan./s
> Foreigners certainly don't want our cars (outside of maybe tesla in the nordics,
The Nordics are not all the same, Norway is far ahead (20% of private cars already full EVs) of the rest with Denmark a distant second when it comes to electrification of transport.
But also the Tesla Model Y was the best selling car in the WORLD in the last twelve months, not just Norway. Of course quite a few of those were built outside the US so perhaps they don't count as US cars.
Cool, i don't care about either of these things. Jobs are a poor index of economic health for americans and we should really be guaranteed one as a fundamental human right if we also refuse to implement modern welfare.
>I'm increasingly convinced Boeing needs to go bankrupt.
I agree and hope they do go bankrupt, but I hope so because the country needs a fucking wake up call: American Exceptionalism(tm) is simply no longer true.
I sincerely think we need to see one (Boeing), maybe even a few (Intel? US Steel?) paragons of American Excellence(tm) go down in smoking ruins so we have to accept that we are not 1970s America taking mankind to the Moon and beyond anymore.
Once we realize that, we can actually get started on Making America Great Again in a real, meaningful way instead of a dumb political catchphrase.
The Canadian government drove its primary aerospace company, Avro Canada, not just into bankruptcy/reorganization, but to completely shutdown operations. The country lost 14,000 aerospace professionals, but more importantly, it lost its leadership position in cutting edge aerospace. Its best engineers left for the USA or the UK. Canada, more than a half century later, has never recovered anything like the leadership role it had built during the post-war period. Be careful what you ask for.
Maybe so, but I would say cars are different than aerospace.
It’s clear that Boeing was able to squeeze costs centers at the expense of quality and business investment all while keeping the coin under shell in the form of regular old stock buybacks.
But if/when Boeing goes under who is going to vet all this NDI sitting in their portfolios? They’re just gonna spin it off to another buyer—consisting of who exactly? McDonnel Douglas? Elon Musk? Tencent?
Seems like a nightmare for someone, not sure for whom.
> But if/when Boeing goes under who is going to vet all this NDI sitting in their portfolios? They’re just gonna spin it off to another buyer—consisting of who exactly? McDonnel Douglas? Elon Musk?
Idk, pick one that's American or closely allied [1]. Ideally not one of the three larger than Boeing.
Worst case: audit and re-assign the contracts. We'll be better for it in the long run. And I'm not convinced it wouldn't result in quicker, higher-quality deliverables in the short.
Who even needs a specific buyer? Boeing itself is a publicly traded company, the spin-offs can be too. Put the business unit into its own corporate entity and give all the shares of the new entity to the existing Boeing shareholders to do with as they please, or sell them into the market.
The top secret stealth formula they could possibly be privy to is not publicly traded. I was making the point that you're going to have a board filled with people who in some instances could be hand-selected to say the quiet part loud, and the list of companies who makes some of this stuff has one item in it.
There are more than a million people with a US security clearance. Finding enough to fill the board of a new company shouldn't be prohibitively difficult.
You probably know more about this than I do since you claim "people keep repeating this without context." Looking at your links, it seems to me a confusion of terms. Yes, the legal entities behind GM and Chrysler went away...in order for the new entities to receive billions.
So, technically, you are correct. The business entities of June 2009 failed. However, the consumer DGAF who owns www.gm.com or www.chrysler.com. They can still go to their local dealer and purchase a vehicle "made by" these companies. The "companies" live on.
Some car manufacturers are definitely not critical to national security, they just employ tons of folks in few places. Company making weapons like choppers, planes etc for whole US military is on completely different level of importance.
Would love to see a shift towards something like deferred options for executives. Or, ya know, a fixed multiplier on median employee pay, like managers make 3x median, VPs 5x, CEOs 7x. I’m okay with people who have crazy responsibilities making good money, but it doesn’t have to be obscene.
> But at some level, it was just bad people making bad calls. I don't think McNerney thought that this would wreck Boeing, he was just wrong.
Well, he was stupid not to - there's no way he didn't know thay focusing on the short term stock price won't have negative effects on the quality and future of an engineering organisation whose main business, building and selling airplanes, is extremely capital intensive. He came from McDonnell Douglas who nearly bankrupted themselves doing the same sort of crap (pushing suppliers to the edge, cost cutting at every opportunity).
That being said, McDonnell Douglas' history was visible to everyone - what they were doing hadn't been working for decades (first as Douglas, then as McDonnell Douglas).
Then blame the board imo. They define the objectives for the CEO, the incentives for achieving them, and the governance framework for governing their execution. If shareholders want this “short term thinking” that always gets brought up, then they have every right to it.
Of course this “short term thinking” trope is just a meme that the armchair commentators like to pedal out. If the system was dysfunctional enough to prioritise short term profit seeking to this extent, then all a competitor would have to do to monopolise any market is do enough “long term thinking” to outlast all their failing competitors. Investors would notice this and reallocate their capital accordingly.
But none of this is what happens in reality. If anything I would say the market is over-interested in long term strategies. The popularity of the growth over profit model that we observe amongst most prolific capital allocators takes “long term thinking” to absurd lengths.
> If the system was dysfunctional enough to prioritise short term profit seeking to this extent, then all a competitor would have to do to monopolise any market is do enough “long term thinking” to outlast all their failing competitors.
isn't this exactly what's going on with Boeing?
> Airbus last year topped Boeing for the fifth straight year in the orders race, with 2,094 net orders and 735 delivered planes. Boeing had 1,314 net orders and delivered 528 aircraft.[0]
I 100% agree the majority of investors don't seem to take the long view, and that's been the case for a while.
The Board of Directors at most major corporations is made up largely of current or former executives, many of whom come from the same industry. It's in their personal interest to normalize lucrative and exploitable compensation plans.
You would also be shocked to know what people control the lion's share of investment dollars.
Its not like you have 30 competitors who can produce AH-64 Apache chopper equivalent out of blue with all support stuff required around it, its not perfect market and boeing c suite knows it very well.
Sure in 30 years they may be eventually pushed out but they can coast 2 generations of successful careers till then.
Half of them would look like job hoppers with such short tenures on their resume. Some of them have simultaneous executive positions at other companies.
If you want some evidence of short-term thinking not being a meme, it's probably that.
> If the system was dysfunctional enough to prioritise short term profit seeking to this extent, then all a competitor would have to do to monopolise any market is do enough “long term thinking” to outlast all their failing competitors.
This makes it sound like my broker, the finance community in general, or maybe the state is better able to handle long term thinking than our industry leaders, but why would anyone believe that? Aren’t they all looking quarter to quarter and retiring next year no matter how bad they wreck the company/economy/country?
Stock is sold and bought all the time with no tax. It's in the investor's intrest to sink a company for short-term profits. When the s*it hits the fan, they can sell the falling stock, short-sell even, to some clueless pension funds and invest the money in a competitor instead. When only one company remains, profit +++. This is how stock markets work. Why are you surprised?
Long term thinking is often incompatible with short term thinking. It doesn't matter if your company is long term sustainable if it's short term unsustainable. See dumping.
Tying compensation to short-term performance creates perverse incentives which make it much harder to accept the idea that your plans might be ruining the company.
Bad people brought to fruit by a MBAd culture whos claim to success is mostly inherited inertia..
Longterm Losers with an Attitude and shortterm numbers to silence doubters.
> The whole point of tying executive compensation to share price was to have them have some rough stake in the business
This reasoning was always flawed. The Stock Market is not real life. It consists of the opinions of a bunch of guys who sit in towers in New York, London, Shanghai, etc... In theory there are fundamentals that should drive the price, but in practice the market is not rational. It's not a good metric for the long term health of a company. Even worse, Goodhart's law applies in spades:
"When a measure becomes a target, it ceases to be a good measure."
Time and time again we see CEOs playing games with the stock price in order to get a big payday. We see management sacrificing long term stability in order to maximize their year end bonus.
Imagine if every time you remember a now dead company do a stock buyback they instead invested that money into R&D, or simply lowered their prices to be more competitive in the market? Maybe they paid their employees better and didn't have constant turnover problems and had higher quality output. How many of those now failed companies would still be around today?
Yeah, that's my point. A stock buyback is a visible boost to NPV, whereas the drawback (opportunity cost of not investing in core businesses) is much harder to measure. Sometimes, they don't need any additional investment. Other times, it's Boeing.
> Muilenberg and McNerney “had personal reasons to emphasize productivity and cost-cutting” because their compensation was tied to share performance. Together they took $209 million in total pay over seven years.
Absolutely stunning - those guys will walk away from this mess with more money than God and American aviation will take a backwards step that may take decades to fix if at all... fuming here.
Incentives matter. The extremist solution would be to ban executive compensation tied to stock price and some mechanism where every penny more that goes into buybacks/dividends than R&D/CapEx is taxed at 105%.
Oh, and make executive and BoDs personally and criminally liable for safety fiascos like the 737MAX. I bet you'll see culture change in a hurry under those circumstances
"Some mechanism" is called simply taxation. In 1944, the top income tax bracket in the USA was 94 %. Nowadays you'd also need a wealth tax to deal with the perverse incentives caused by past accumulation of stock.
Stock buy-backs are a tax efficient way to send distribute to shareholders. If you make them illegal then the only way left to distribute money to shareholders is via dividends. Want to make that illegal as well???
I have said this and I'll say this again: executives should never have a disproportionate pay comparing to their most senior trench workers (think a very senior, lead engineer). 3-5x should be the maximum.
The saying of "oh if you don't give big bucks then you won't hire good talents" is only true to certain extends. Einstein doesn't figure out GR because he wants the cash from Nobel's prize, actually none of the winners probably achieve because of the money. Scientists won't stop inventing because they don't get the big bucks (most don't get big bucks anyway). Carmack would still pump out great code if he stays indie. As long as properly paid, pretty much every real talent would be happy and do whatever they love to do.
Giving disproportional pay to executives ONLY attract bad players and TBH some 500 are probably better NOT have an executive. It also creates sort of toxic culture everywhere that people are forced to chase big bucks because average pay is screwed.
Also, the only reasonable response to the saying of "oh if you don't give big bucks then you won't hire good talents" is "you mean the same talent that got you into this mess in the first place?"
My reply to this is that the potentially outsized rewards gives Carmack de facto leadership of his next project, because he’s the one paying the bills, and it lets him work on whatever he wants, in perpetuity, without ever having to consider money again. In a system where that’s not the case, then maybe his superior skills are enough to secure a leadership spot, or maybe not, because maybe he hasn’t invested enough in developing his political skills. This is generally a failing of engineers versus business people. Many of the engineer-led companies you see these days are because they were founders.
Pretty much this. If a potential leadership hire is willing to walk away solely because of the pay then they are clearly not the right hire. Of course they should be well-paid. But the job is about the job, not about the money.
If they aren't sufficiently excited by the mere idea of being in charge of the company's products, services, and future direction, doing a good job for customers, shareholders, and employees, then they should look for a different job.
Also, the 25% (over 4 years) they're bandying about as the offer includes (per [1]) a loss of a bonus with a 4% target, and that's an annual bonus. I don't understand how this person calculated, but one of the employees claims it's more like a 10% raise including the foregone bonus. Good deals don't need to be sold with lies.
Its not about one or two guys its financial engineering culture that Wall St rewards. You can make bank without being an engineer anymore. 2008 meltdown has not changed the culture.
> Boeing spent $43B on stock buybacks between 2013 and 2019 while paying their CEO ~$30M/year.
Boeing share price was up almost 400% in that period. If the business goal was to maximise share price and therefore return for investors over that period it was a cracking success.
Since the US government will always pick up the pieces in the event of a failure its a minimal risk stratagy.
Can someone explain to me the theory of stock buybacks? How is this not just financial engineering? How are you meant to differentiate companies who’s stock goes up because they’ve been productive and made great products from those that increase their stock prices using buybacks? Are there rules against taking out loans and using them to perform stock buybacks?
Aren’t they taxed differently, though? To my knowledge, dividends are taxed as ordinary income, whereas sales following a stock buyback may be taxed as capital gains (if they were held long enough before that point).
As a shareholder, dividends are income. Cash going in to your account that is taxed immediately.
A stock buyback of 1000 shares means that your one share now represents 1/999,000th of the company, not 1/1,000,000th. Thus the share is worth more. It isn't income until you sell the share and pay taxes on the gains. This flexibility is useful and can result in tax savings depending on the situation.
The real problem with dividends is they're taxed at the corporate level (corporate income tax) and then taxed when distributed to the shareholders (the shareholders pay income tax on the dividend).
Eliminating the double taxation of dividends would likely solve most of the buyback problems.
Rich people borrow against appreciated assets. They don't sell and incur capital gains tax. That's why company leadership loves buybacks.
Ordinary people have to sell assets to take advantage of appreciation. So unless they can time sales to optimize taxes - really only an option for retirees - they might as well get regular dividends.
> Ordinary people have to sell assets to take advantage of appreciation
> No one's talking about houses here. I thought that was obvious.
For most ordinary Americans, the largest asset they will ever own is their house. Owning that asset is the essence of the old American Dream. So it seems like your original comment was primarily about housing assets.
Anyone can get a home equity loan to access the appreciation the house might have. They don't pay taxes on the loan, and many people use the money on improvements that further increase at value of the asset. That combined with further asset appreciation and the loan pays for itself when the house is later sold.
Ordinary people can and do do this. The rich just do it at a much larger scale.
My original comment was about stock buybacks and how they boost stock prices. I repeat, no one was talking about houses. I thought it was obvious "assets" meant "stock" for the purposes of this comment thread. But since this is HN there's always at least one pedant.
Finally primary homes don't have any capital gains tax on sale (or at least not up to a pretty high limit). So this whole discussion is irrelevant. Ordinary people can always sell their "biggest asset" without paying much in tax.
If you're talking about the US, then no, dividends are given special tax treatment at a reduced rate if they are "qualified dividends". If they aren't, then yes, they are taxed as regular income.
You pay taxes in Dividends, which is one reason shareholders generally don't like them. A lot of shareholders are also in the savings phase of their life - they are working some other job and don't need the income from Dividends yet and so getting a dividend is a bad thing as it is more money they have to invest (particularly if you have to pay for each trade which is common). Shareholders who are retired like dividends because it is a simple paycheck without needing to sell their shares and they would be paying those taxes anyway.
> Stock buybacks used to be illegal in the States up until 1982. You can thank Raegan for that too
This is not true, but seems to come up a lot. I guess it makes for one of those fun "internet facts" that people like to repeat without any investigation. Bonus points for blaming Reagan.
Stock buybacks were not illegal before 1982. If you sit down even think through it, it doesn't even make sense they were illegal. Just like issuing new shares (or doing a stock split), companies have legitimate business needs to buy back stock (reduce the quantity of outstanding shares).
What happened in 1982 was that the government made Rule 10b-18, which outlined the "safe harbor" requirements for stock buybacks, where if followed, the company could not be found liable for stock manipulation.
Really? You think it's bad that the government is explicit in its rules?
I think that's a good thing. I'd rather have it be clear to all parties what is acceptable and what isn't, rather that a murky legal framework where you never know if you're breaking the law.
Being explicit is good unless it yields outcomes that are strictly worse, which seems to be where we are. I expect plenty of lobbying to clarify rules and be more explicit naturally comes with carefully crafted loopholes that permit unethical behaviour. In that case, being less explicit meant the regulators had discretion to go after truly abusive actors. This has upsides and downsides. I would always prefer more explicit rules if the rule-making process were not compromised.
This subject brings up so much rancor that I think you might have missed the possibility that there was no sarcasm intended in the post you responded to.
I mean, from what I can read online, it seemed the practice was generally regarded as market manipulation prior to 1982 and so was de facto illegal. So yeah, thanks Reagan indeed. There are good reasons to blame him for his part in the current state of affairs.
I'm not even American... When I say "blame Reagan", I obviously don't mean him personally, rather his government or his neoliberal ideology even.
And you keep acting like the 1982 law had no effect when it made the largely marginalized practice of stock buybacks mainstream. Maybe you should check your biases.
> Boeing spent $43B on stock buybacks between 2013 and 2019
Stock buybacks should be illegal or at least very difficult to do. They provide short-term gain to shareholders (and the executives who authorize them to prop up the stock price on which their bonuses depend) but can be extremely damaging to the company long-term (by which time the CEO is out anyway, and shareholders may have reaped their profits and moved on), with workers, and the local economy, left paying the price. The worst kind of capitalist poison.
> In 2019, following the discovery of exterior damage on planes manufactured in Charleston [the non-unionized factory], for a time Qatar Airways would only accept delivery of Dreamliners assembled in Everett [the unionized factory]. (from https://en.wikipedia.org/wiki/Boeing_South_Carolina#Quality-...)
But then they moved all 787 production to North Charleston, so problem solved.
> But then they moved all 787 production to North Charleston, so problem solved.
That better be some top shelf sarcasm.
It’s shameful what’s happened to Boeing. I worked there during the fall. After the bribery scandal, but before MD broke it. It was still okay-ish until they butchered their R&D dept. That’s not a healthy company.
I am very sympathetic to this line of criticism but I also find that "stock buybacks" are misunderstood and, as a result, overly demonized. So I just want to explain a few things for anyone who reads this.
The question with a corporation is what to do with surplus profits. The first iteration of this was to pay dividends. These legally are paid equally among shareholders. If you distribute $1B in profits and have 100M shares issued then each share gets a $10 dividend. Simple. Additionally, dividends had to be profits so corporate taxes were paid on those.
So there are two problems here:
1. Not every shareholder may want a dividend; and
2. The US tax treatment of dividends is bad, specifically double-taxing. as an example, the company may pay 15% corporate tax, pay a dividend with the remaining 85% and then the individual may 50% federal and state taxes on that, leading marginal tax rates of upwards of 60%, possibly higher.
(2) has led to some screwy legislation (eg passthrough corporation discounts) so solve what is otherwise a simple problem. Australia has completely solved this problem with so-called "franking credits". This means that $1B of profit is made, 30% taxes are paid and $700M is distributed but it comes with $300M in tax credits. So if you get a $700 dividend, you also get $300 credit with the ATO. If your marginal tax rate is higher than 30% is higher, you may have to pay a little more. If it's lower, you'll get a refund.
Now you generally can't borrow to pay dividends until you historically pay dividends. There are a lot of rules around this.
Enter share buybacks. This is where the company buys back its own stock on the open market. This reduces supply and hopefully raises the price for remaining shareholders.
Some will argue this is market manipulation but it really isn't. It's just a different way of distributin gmoney to shareholders. Unlike dividends, you can choose to take it or not by selling or not.
A share buyback has none of the dividend tax problems but it's even better. If you've held for 12+ months you're paying the long-term capital gains tax rate, which can be substantially lower than the marginal income tax rate.
But here's the big problem: it's completely fine to borrow money for a share buyback. This loophole needs to be closed.
Prior to the IRA and Trump tax cuts, it would work like this: you would leave profits overseas so you wouldn't have to pay corporate tax on them. You'd then borrow money used those overseas profits as collateral and do a share buyback. This should've been illegal. Or, in the very least, any borrowing against foreign profits should be treated by the IRS as repatriation of profits and thus tax is owed.
The Trump tax cuts changed how foreign profits are treated. The IRA further changed this with the 15% minimum tax, which was a very good change and one that didn't get a lot of attention.
Should a company pay out shareholders or pay its workers more? I absolutely favor the latter. But we shouldn't focus solely on share buybacks because that's a small part of the problem. I'd say what we need is:
1. A higher corporate tax rate;
2. An end to passthrough corporations;
3. End the double-taxing of dividends. Just do what Australia does;
4. All share buybacks have to come from profits only; and
5. An aggressive attack on profit-shifting / transfer pricing to offshore profits.
How about they tried using that money to be more competitive in the market? Lowering prices. Paying workers more. Spending more on R&D. That sort of thing. Why are shareholder considerations the only considerations?
>Enter share buybacks. This is where the company buys back its own stock on the open market. This reduces supply and hopefully raises the price for remaining shareholders.
Which if stocks come with voting rights means shedding influence of shareholders. You can't say that a buyback is equivalently classed to a dividend (by being a transfer of money to exiting shareholders), if you don't account for the second and higher order effects.
Doesn't it also increase the influence of existing shareholders? People have to decide to sell. It's really no different (to them) that they sell on the open market or to the company.
I'm not defending share buybacks, for the record. They're only one piece of the puzzle however. The real issue is what companies should do with profits and that includes share buybacks and dividends. You can't really be against share buybacks without being against dividends. And tit's fine to be against both. Being against one but not the other is kinda silly though.
I wonder if a non-profit aerospace competitor would be viable, if this would force all profits to be invested back into the company. Or maybe a hybrid with some kind of profit cap.
Why is the CEO pay relevant? It is not even within an order of magnitude of the amounts needed to pay for even the contract Boeing proposed to the union, let alone the union’s demands. People complain about CEO pay as if paying them less would get them what they want. Frankly companies need CEOs, and people who are qualified for the job are very few in number. Whereas the line workers represented by the machinist unions are in trades where there are massive quantities of workers available - which is why many took Boeing jobs even if they were not happy with the pay and benefits.
I am also not sure why the stock buybacks are worth mentioning. There are many reasons why a buyback may be the right thing for a company to do. I am aware that sometimes it can be a manipulation of executive compensation by artificially raising the stock price (and may have been so here). And obviously I don’t support that. But I feel like the practice of buying back is attacked by many without adequate understanding of what it is for and how it can be financially good for the company, helping support future investments.
CEO pay is relevant because Boeing haven't had a competent CEO in decades. Yet all of them were compensated handsomely for making pretty obviously bad choices (e.g. the 787 development was done McDonnell Douglas style, pushing most of the costs and risk to suppliers, and was highly problematic) or downright killing people through negligence.
> I am also not sure why the stock buybacks are worth mentioning
Because Boeing is a very capital intensive business that is currently in mountains of expensive debt, with multiple projects delayed with years, and a recovery time of 5 years minimum. The idiots in charge wasted billions on the wrong things, and now the company is a very bad situation.
CEO pay generally has a relationship to company size, and Boeing is pretty big. It would be hard to argue their CEO is overpaid if they paid the CEO that much and the CEO did a good job. Implying the problem is not how much they were paid but rather the quality of the work.
No, because the CEO who is paid $300/year and then likewise bankrupts the multi-billion dollar company is to a first order approximation the same amount of bad and what you actually need is the CEO who does a good job even if you have to pay them millions of dollars.
There is the real problem - we cannot evaluate how a CEO did today for another 10 years. Their job is to figure out where the company needs to be in 10 years and then get them there.
> To support its share price, the company under McNerney poured billions into stock buybacks instead of investing profits into the kind of research and development needed to stay competitive. McNerney decided not to spend billions of dollars building a new plane to replace the 737. Instead, Boeing tweaked and updated the existing model and called it the 737 Max, outfitting it with larger, more efficient engines for increased economy. Compensating for the resulting instability was a secretive automated system called MCAS that would adjust the plane’s pitch without input from the pilot.
> McNerney also fought to deeply cut costs. On his watch, the company opened its first non-unionized aircraft production line and initiated a program called “Partnering for Success” that pushed suppliers to cut their prices by 15 percent or more. Many feared that squeezing suppliers would harm the quality of their components, but McNerney was determined to recoup the cost of the 787’s development; if the subcontractors complained, they could find their work taken away from them, as happened to landing-gear-maker United Technologies Aerospace Systems.
> McNerney retired in 2015, handpicking his successor, president and COO Dennis Muilenburg. Over the next three years, Boeing’s stock price more than doubled as it sold new planes the world over. (As Bloomberg News reported, Muilenberg and McNerney “had personal reasons to emphasize productivity and cost-cutting” because their compensation was tied to share performance. Together they took $209 million in total pay over seven years.)
https://nymag.com/intelligencer/article/boeing-planes-proble...