House Democrats have reintroduced a bill that would prohibit companies from buying back shares on the open market. The Reward Work Act aims to prevent companies from increasing the value of their market shares through buybacks and would level the playing field for workers by preventing trillions in spending on buybacks instead of salaries. The bill also proposes giving workers a voice on corporate boards. The legislation is sponsored by Reps. Jesus Garcia, Ro Khanna, and Val Hoyle, all Democrats.
Increase in buyback transparency
The US Securities and Exchange Commission recently introduced rules to increase the transparency of buyback behaviour. The new rules, starting in the fourth quarter of this year, will allow investors to better assess issuer buyback programmes as corporate repurchasing reaches record highs. The total amount spent on US corporate stock buybacks grew from $950bn in 2021 to over $1.25tn last year. The legislation comes after Alphabet announced it had approved $70bn in stock buybacks this year, and Apple will repurchase $90bn in shares this year.
Record stock repurchasing began in 1982 after the SEC passed a rule exempting buybacks. However, the Tax Cuts and Jobs Act signed into law by former President Donald Trump also enabled corporations to freely repurchase shares to pay out shareholders and executives. Compensation for top executives is often tied to stock performance. The lawmakers behind the Reward Work Act believe that transformative change is necessary to recenter workers and consumers in the country’s economy. Banning stock buybacks is seen as a good place to start.
Eleven Democratic members of the House, along with four senators, including Sen. Bernie Sanders, I-Vt., signed onto the Reward Work Act when it was first introduced in 2019. Garcia and Khanna reintroduced it again last year as a companion to legislation proposed by Sen. Tammy Baldwin, D-Wis. The Republicans hold a slight majority in the House, making it unlikely that the bill will be passed. Garcia stated that rail company Norfolk Southern spent $3.4bn on buybacks in the year before the February train derailment in East Palestine, Ohio, that spilled hazardous chemicals in the area. “Now Norfolk Southern plans to spend almost 1,000 times the amount that they are paying the victims: $7.5 billion on buybacks,” he said. “That’s money that could instead be spent on basic safety improvements and worker benefits.” Norfolk Southern declined to comment on the legislation.