Calling corporate stock repurchases a chief cause of wage and investment stagnation and a threat to the nation's future, Wisconsin Democrat Senator Tammie Baldwin sent a letter to SEC Chair Mary Jo White requesting that the SEC provide any analytical data it has gathered on the long-term impact of a 1982 SEC rule providing companies that engage in stock repurchases a safe harbor from stock manipulation liability. According to Senator Baldwin, prior to the 1982 safe harbor stock buybacks were near zero, a far cry from the over $500 billion spent on buybacks in 2014. According to Senator Baldwin, the issue with the amount of buybacks is that companies are devoting all their earnings to buybacks but sacrificing reinvestment into their own company. The letter cites research which states that companies have reduced the amount of reinvestment of earnings into their own company from an average of 70 percent in the early 1980s to a mere nine percent today. Baldwin calls for this money to be reinvested in "higher wages, research and development, training, [and] new equipment." Interestingly, Baldwin goes out of the way to tie increases in executive equity compensation to buybacks, citing forthcoming research from the Journal of Financial Economics noting that in 2013 the 500 highest-paid U.S. executives derived 84 percent of their compensation as a result of stock-based instruments and arguing that buybacks were a significant factor in sustained stock price appreciation. Further, the letter adds, the research states that buybacks are more common when CEO bonuses are tied to earnings per share.
Senator Baldwin's letter is the first letter from the Hill specifically targeting company stock buybacks. The letter, critical of the 1982 safe harbor it attributes as permitting buybacks, calls for the SEC to provide her office with any investigations as to violations of the 1982 safe harbor as well as an assessment as to whether allowing buybacks furthers the SEC's mission to prevent fraud and foster capital formation.