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Columnist Gretchen Morgenson of the New York Times highlights Qualcomm in her column today (June 7), showing that stock buybacks don't always benefit shareholders.

Over the last five years, Qualcomm has repurchased 238 million of its own shares at a cost of $13.6 billion. However, the company's actual share count has risen 2 percent in that period, Morgenson shows.

What happened? Qualcomm has been issuing shares to its executives and other employees during that five-year period.

"The company is bounteous in its executive pay practices," writes Morgenson. And how. She mentions that chief executive Steven Mollenkopf got a $60.7 million pay package last year that includes $58 million worth of stock.

Morgenson does not mention that Paul Jacobs, executive chairman, who was replaced by Mollenkopf, had compensation of almost as much. Together, their sum was $117.7 million, although the company won't pay all that out in one year.

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ImJustABill June 7, 2015 @ 10:49 p.m.

Let's say for the sake of argument that one ignores all questions about social fairness and only looks at the bottom line for shareholders. Is high CEO pay justified?

Some recent research indicates the answer is no.

"Across the board, the more CEOs get paid, the worse their companies do over the next three years, according to extensive new research. "



Don Bauder June 8, 2015 @ 6:41 a.m.

ImJustABill: That is an interesting study. I hope it proves to be true. Ridiculously-paid CEOs and other top executives, along with obscene pay on Wall Street, represent a major reason for the huge pay gap between the upper 1% and one-tenth of 1% and the rest of us.

This gap is quite harmful to the economy. The middle class is fadng away. Extremely low incomes mean that middle class families can't consumer as much as they would like. Consumption is 71% of the total output of the economy. That total output -- gross domestic product -- is doing very poorly. The bad distribution of wealth and income is one of the reasons. The billionaires don't consume that much. Best, Don Bauder


Visduh June 8, 2015 @ 8:09 a.m.

For as long as I've heard of stock buy-backs as a way to return money to stockholders, I've struggled with the logic of that concept. If I own stock in a corporation and sell it, I'm no longer a stockholder. So, how is that returning money to me, unless I buy it back again? The reason that corporations have those programs is to artificially inflate the market price of the stock while their option holders (and some other insiders) to unload their stock. And we are seeing that it doesn't always work, or work well. Buy-backs are a racket perpetrated by management to mask the amount of overcompensation that top management receives.

If the corporation really wants to return earnings to the stockholders, dividends are the way to do that. That is especially true when the dividends are "qualified" and thus taxed more lightly than other unearned income. Wall Street knows that those buy-backs are a misuse of corporate funds that ultimately harm both the corporation and its long-term stockholders, yet goes along. Why? The buying and selling of shares generates revenue for the brokerage firms.


Don Bauder June 8, 2015 @ 8:59 a.m.

Visduh: Exactly. As far as I am concerned, stock buybacks are nothing more than financial engineering. Companies buy back their stocks to artificially pump up earnings per share and the stock price.

Why not spend the money on research and development, installation of production efficiencies, new products, or more aggressive marketing of existing products?

Qualcomm has said it plans to return 75 percent of free cash flow to shareholders through stock repurchases and dividends. I approve wholeheartedly of the dividend commitment but have no use for the stock buybacks. In making this commitment, is Qualcomm admitting that its prospects for business expansion are not so hot? Best, Don Bauder


ImJustABill June 8, 2015 @ 11:23 a.m.

If I understand it right the tax code is part of the issue. There is a limit of $1M on how much a corporation can write off for executive compensation. The stock compensation provides a loophole around that $1M limit.


Don Bauder June 8, 2015 @ 12:14 p.m.

ImJustABill: Any corporation will try to minimize taxes as part of any given corporate strategy. Stock compensation has other things going for it: supposedly, top management's compensation is tied to stock performance, and thus to management success.

However, stock performance is often not a result of operational success. (See financial engineering, stock buybacks, above.) Also, a company can pull a stunt like Callaway Golf did. It said its top executive pay was tied to performance. When performance smelled to high heaven, it switched: executive pay was tied to the desire to retain top managers. I wrote about this in my column of April 28, 2010. Best, Don Bauder


Ponzi June 8, 2015 @ 11:44 a.m.

They recently sold bonds. Having some stock myself (with QCOM inside an index), I wondered why they needed to raise cash having so much on the books. A deeper review, and some google searches, it appears the bond proceeds will be used to buy back stock... because QCOM doesn't want to repatriate about $25 billion in cash and pay US taxes.

Companies with large cash hoards, particularly technology; semiconductor and IP licensing, paying taxes on repatriating cash is considered bad business. However, even when they were given a brief "tax holiday" companies with large offshore cash hoards didn't use the returned cash for much other than stock buybacks.

This is leading down the wrong path for the American economy on two notes. 1. Companies are not innovating or pressed to come up with breakthrough products because the CEO's are more concerned with chasing stock incentive bonuses by boosting the stock prices using buy backs. 2. The aversion to pay taxes on offshore cash drives the companies to find places to invest in other countries where the tax rules are more favorable. This accelerates "offshoring jobs" and neglects investment in the US economy and creating jobs. The only thing I can see the buybacks doing is enriching the top executives with excessive pay through stock options and the wealthiest 10% of Americans who own stock and benefit when it rises, regardless of the consequences to the rest of society.


Don Bauder June 8, 2015 @ 12:20 p.m.

Ponzi: You are correct on all points. Companies keep inordinate amounts of money offshore to protect themselves from paying taxes on money that is repatriated. Your and my taxes have to make up the difference as large corporations cheat on their taxes.

I don't say this is illegal. It simply shows that large American companies are not good citizens, no matter what they say in their advertising. They should be willing to pay the taxes they owe. You and I are. Best, Don Bauder


ImJustABill June 8, 2015 @ 8:07 p.m.

Large semiconductor companies BRCM (HQ in Irvine, CA) and AVGO (HQ in Singapore but with major operations in Silicon Valley) just merged. The headquarters of the combined company will be in Singapore.


Don Bauder June 8, 2015 @ 9:34 p.m.

ImJustABill: That is so typical of U.S. companies. Several firms, including large blue chips, have merged with smaller companies based in a countries with lower taxes and claimed the counties to be their new headquarters, thus dodging U.S. taxes.

It is not illegal, but it is unethical, and it shows disloyalty to the companies' home country. This characterization applies to U.S.. companies that keep inordinate piles of money overseas in low-tax or no-tax jurisdictions, where it would be taxed if repatriated to the U.S. These companies are anti-patriotic and disloyal to the country, the U.S., that made them prosper.

Best, Don Bauder


Visduh June 8, 2015 @ 5:54 p.m.

Ponzi, that was a marvelous summation of many issues. The use of that bond money by QCOM is exactly what I saw printed in the financial press. Nobody said anything about it that was critical, until now. And it meant that the corporation burdened itself with debt in order to keep the stock price at an artificial level, at least for a time. The sad part is that when the money is gone, and the drug has worn off, QCOM will be the worse for having loaded up all that debt.


Don Bauder June 8, 2015 @ 9:37 p.m.

Visduh: Precisely. Qualcomm and other companies go through these financial engineering exercises and try to fool their shareholders. Now, a few shareholders are waking up. This does no good, however, because the shareholders who control companies are on Wall Street and almost always vote with management in any unethical scheme put forward. Best, Don Bauder


Visduh June 9, 2015 @ 9:12 a.m.

Individual investors don't need to participate, however. But it takes some study, and close following of news, to avoid corporations that engage in such "engineering exercises." There are a few things to avoid, however. Don't buy IPO's, don't buy shares in companies that were taken private and then subsequently taken public again (they have been looted usually, and carry excessive debt), Another thing to avoid is a company sitting on a pile of cash--whether here or abroad--that refuses to pay it out in dividends.


Don Bauder June 9, 2015 @ 11:17 a.m.

Visduh: Agreed: don't buy IPOs (unless you have inside information.) These are usually rigged. A laddered runup is plotted out before the opening. But at some time the stock will come back to a sane value and only the insiders know when that is likely to happen.

It is a good idea to avoid companies that engage in financial engineering, except for one thing: almost all of them do it these days. You would find it difficult to buy good stocks.

If a company has gone public more than once, it has almost certainly gone private in a leveraged buyout by a private equity company, taken private, then gone public again. This should be illegal, but isn't. Such companies are loaded with debt. That is the scam: the private equity companies buy the company, greatly with its own money. Then they pile debt on the company and pay themselves an enormous dividend so they have little if any investment in the enterprise. So if a company has gone public more than once, it almost certainly is overleveraged. Best, Don Bauder


Don Bauder June 11, 2015 @ 6:24 a.m.

Ponzi: Amen. One of the reasons for the vast gap in income and wealth is low interest rates. They drive up the stock market. The upper 1 percent holds a huge amount of stocks, and reaps benefits therefrom. Best, Don Bauder


ImJustABill June 8, 2015 @ 5:31 p.m.

And in other news - Faulconer just announced plans for a Dec 2015 vote on the stadium.


Don Bauder June 8, 2015 @ 9:47 p.m.

ImJustABill: Yes, I just read about that. Prepare for a barrage of propaganda spewed by local mainstream media. The one possible block here is the Chargers, however.

The Chargers still prefer L.A., but I am not sure they have the money to pull it off. If they return to Qualcomm, wagging their tails behind them, they may turn out to be the most unsuccessful franchise in the NFL for two reasons: 1. To get permission from NFL owners to move, they have deliberately alienated San Diegans, so they can say they were unwelcome, and should be given the right to relocate; 2. If there are one or two teams in L.A., the Chargers will lose 25 percent of their audience -- at least, Fabiani throws around that 25 percent figure. Even if it's only half-true, losing 12.5 percent of one's base is a ticket to perdition.

I am assuming here that the Chargers won't get a heavily subsidized stadium in San Diego, and I can't see the private sector jumping in, for the reasons I gave above. Best, Don Bauder


ImJustABill June 8, 2015 @ 10:08 p.m.

Yeah - I think the Chargers want to move so they want it to look like San Diego isn't giving them any corporate welfare. I think the basic thinking is that a move to LA instantly adds at least 1B to their value whereas the roughly 500M of corporate welfare from San Diego will add about 500M to their value.


Don Bauder June 9, 2015 @ 6:32 a.m.

ImJustABill: Yes, a move to L.A. could double the team's value -- rising $1 billion to $2 billion. But that move would require an investment of some money that the Spanos family does not have.

I will go over the figures again. Forbes says the family is worth $1.26 billion. Ownership of the Chargers accounts for about $1 billion of that. Would this multi-generational family risk $260 million for a move? If the entire family could be convinced that the value of the franchise would go up by $1 billion with little risk, there might be agreement among the family members. But there will be risk. Best, Don Bauder


ImJustABill June 9, 2015 @ 6:50 a.m.

As long as the NFL is in business I think moving to LA will increase the Chargers value by at least $1B. Even if there are zero die-hard Chargers fans in L.A. there will be a lot of NFL fans and more importantly a lot of companies willing to pay for pricey luxury boxes.

I'm not sure I see much risk for the Chargers.


Don Bauder June 9, 2015 @ 8:02 a.m.

ImJustABill: The amount of corporate welfare from San Diego will be more like $1 billion. Best, Don Bauder


danfogel June 9, 2015 @ 12:16 p.m.

The NFL is having a special meeting in August to "discuss the progress" of the L.A. NFL stadium proposals. My guess is that while they have said there will not be an actual vote, the decision will pretty much be a fait accompli one which teams will get the chance for a relocation vote. And if that turns out to be the case, Falconer will be a day late and a dollar short because I would ecpect the relocation vote to be held before the December 15 vote.

Just my opinion.

Opinions vary.


ImJustABill June 9, 2015 @ 5:04 p.m.

I suspect your guess is correct. The real negotiation is between the NFL team owners - those negotiations will determine which team(s) end up in L.A.


Don Bauder June 10, 2015 @ 8:38 a.m.

ImJustABill: Yes, the owners ultimately decide this question. There is another question: does the team(s) pay a hefty relocation fee? If so, the Chargers and Raiders may not qualify. Best, Don Bauder


Don Bauder June 10, 2015 @ 8:31 a.m.

danfogel: You may well be right that the NFL owners will decide -- secretly -- which teams will get the L.A. location before San Diego citizens vote. That would make the San Diego vote a huge waste of money.

I don't like the idea of a mail vote. It is too much like the so-called "polls" that newspapers and TV stations run. They ask people to click "yes" or "no" on some proposition. Trouble is, the people who do the clicking are the ones who are passionate about the question.

These are not scientific. A mail vote wouldn't be scientific either. The ones who would vote would be the ones with a strong feeling on the issue. Best, Don Bauder


Dennis June 9, 2015 @ 3:42 p.m.

Votes to spend large amounts of public money should be required to be held in a general election as opposed to a special election. Not only are special elections expensive they generally have a very low turnout, particularly if you schedule the election two weeks before Christmas


Don Bauder June 10, 2015 @ 8:33 a.m.

Dennis: I agree 100 percent with you on that one. Special elections, especially those done by mail, do not result in the true position of the electorate. Best, Don Bauder


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