Stock Buybacks Are On The Rise

This article illustrates one of the problems of executive compensation plans that are linked to earnings per share goals. It has led to underinvestment in R&D, which is important for long term growth, but negatively affects current earnings. It also provides an incentive to reduce the number of shares outstanding by purchasing the company's stock. Stock buybacks by major corporations are on the rise. Corporate executives faced with a decision to invest in the future frequently decide to invest in beating the earnings per share goal. That strategy has not paid off for long term shareholders.