I keep hearing people say CEOs who did buybacks are evil.

They aren't.

...mostly.

In many cases, buybacks are simply a better way to give excess cash back to shareholders.

That said, SOMETIMES, they are really dumb or benefit the CEO in a sketchy way.

I'll explain...

Let's say a company has a dollar of profit in the bank...

They have 4 options:

1. Keep it in the bank for later

2. Invest it back into the business (research and development, more factories, growth, etc)

3. Dividend it: give it back to shareholders

4. Buy back shares

Now, let's say a business has EXTRA cash that it doesn't need. It has enough in the bank for operations and growth, etc.

Shareholders/boards don't usually like it when companies it on large piles of cash they don't need, so most companies have two options: dividends or buybacks.

If they issue a dividend to shareholders, the money leaves the company and goes to the owners of the stock, which the government taxes massively, so it's not ideal...

The better way to give the money back to the shareholders is simply to increase the value of their shares by decreasing the share count and buying back stock.

The company uses its extra cash to buy shares on the public market "for cancellation", meaning they no longer exist.

This makes the pie smaller and makes each piece of pie (stock) owned by existing shareholders more valuable.

So:

If I own $1 worth of shares and the company buys back 10% of its shares, suddenly mine are effectively worth $1.10.

Pretty simple right? Not evil so far...

BUT, there are two bad buyback things CEOs do. One very dumb and one morally wrong.

1. Go into debt to do buybacks at a very high stock price, making them far less effective and overpaying for stock that won't pay itself back with earnings.

Dumb. Bad analysis. Overconfidence.

This is particularly intoxicating for CEOs. They like seeing their stock price go up and it usually does that.

2. Go into debt to do buybacks at a very high price, IN ORDER TO HIT THE CEO'S BONUS TARGETS based on stock price or earnings per share. Selfish and morally wrong.

The former is usually just plain dumb. CEOs like seeing the stock price go up and are often not good allocators of capital. Plus debt was super cheap, so it seemed like a no brainer.

The latter, obviously, is a gross abuse by the CEO....

But outside these two scenarios, stock buybacks aren't inherently evil.

So don't hate on all these CEOs who bought back stock over the past few years only to see their companies on death's door over the past month...

...unless they were dumb and overpaid or did so to hit their bonus targets. In that case give them hell.

In many cases, it was the logical thing to do. It would have been absolutely impossible to predict this, and it would have been lunacy for Marriott etc to have 6 mo+ of cash in the bank.

*Additional Note:

Companies using bailout money to do buybacks is also morally wrong, in my opinion

Should absolutely go towards ensuring people have employment, suppliers get paid, and the business can continue as a going concern.