New Legislation Targets Stock Buybacks

November 16, 2018

Rep. Ro Khanna (D-CA) and Sen. Bernie Sanders (I-VT) have introduced a bill that would prohibit large employers from buying back stock unless they meet certain requirements and which could be the subject of House hearings early next year.

In order to buy back stock, publicly-held companies with more than 500 employees would have to:

  • Pay all employees at least $15 per hour, including part-time employees, independent contractors, and franchisee employees;
  • Allow employees to earn up to seven days of paid sick leave; and
  • Ensure CEO compensation (or the highest paid employee) is not more than 150 times the median pay of all employees.

The messaging bill could be used to highlight the practice:  Although the Senate is unlikely to debate the bill, the House could hold hearings on the issue and require certain large employers to testify before one or more committees.

The bill is consistent with other recent criticisms of buybacks.  In a June speech, Democrat SEC Commissioner Robert Jackson argued that "the SEC should rescind safe harbors in the securities laws, which allow companies to avoid liability for stock price manipulation when conducting buybacks if the company allows executives to 'cash out during a buyback.'"  Two weeks later, 20 Democratic Senators urged SEC Chairman Jay Clayton to open a public comment period on the issue. 

Outlook:  Although the bill is unlikely to be brought to the House floor for a vote, it will certainly be used to set up an issue for the 2020 presidential campaign.