In this recent article: "Executive Compensation and Stock Buybacks: The Pros and the Cons," Gallagher Managing Director James Reda explains how stock buybacks work in the context of a company's capital allocation strategy, upsides and downsides, and the potential implications of buybacks on executive compensation via commonly-used incentive performance metrics such as EPS, return on equity (ROE), return on assets (ROA), and return on invested capital (ROIC).
A number of the benefits commonly associated with an increase in shareholder value are often tempered by investor concerns about "artificially" inflating executive pay. These types of concerns - specifically as relates to attainment of incentive plan performance goals as a result of a buyback's impacts on plan performance metrics - may be addressed at the outset via targeted bonus plan carve-outs or the Compensation Committee's reservation of negative discretion to reduce award amounts based on appropriate considerations, including but not limited to unbudgeted buybacks effected during the performance period.