Should Corporations Have to Pay Bonuses Equal to the Size of Their Share Buybacks? (S. 2505)

What is S. 2505?

(Updated April 18, 2021)

This bill — the Worker Dividend Act — would require corporations which use profits for stock buybacks to pay out a commensurate amount in bonuses to all of its employees. Bonuses would have to be equal in size for all employees (prorated for less than full-time workers), and paid out within 60 days of the end of the tax year unless the corporation chooses to increase regular compensation by that amount for one year. If a corporation fails to make such payments to employees, it would be required to pay a tax equal to the lesser of the amount of buybacks, or 50 percent of profits beyond $250 million.

Argument in favor

Corporations that have the profits to reward shareholders with share buybacks should be able to pay bonuses or raise wages for workers by an equal amount.

Argument opposed

Corporations buying back shares is just an example of financial markets working efficiently, Congress shouldn’t mandate those businesses pay bonuses too.

Impact

Corporations which buyback shares, along with their workers and investors; and the federal government.

Cost of S. 2505

A CBO cost estimate is unavailable.

Additional Info

In-Depth: Sponsoring Sen. Cory Booker (D-NJ) introduced this bill to require corporations to pay out bonuses equal in value to any share buybacks it undertakes:

“Today, a culture of ‘short-termism’ pervades industry and financial markets, as companies prioritize short-run returns to investors and executives over investments in workers, like higher wages and expanded training, which pay off over the long run… Indicative of this trend is the massive wave of stock buybacks, in which companies are using their profits to benefit wealthy investors, as opposed to reinvesting those profits in their workers, in the form of raises. Our bill would mitigate this disturbing trend by ensuring that if a company has the profits to reward its shareholders, it must also reward the very people that help the company prosper — its workers.”

A column in the Financial Times’ Alphaville took issue with this bill, raising questions about whether low-income workers would benefit if they’re employed as contractors by subsidiaries rather than directly by parent corporations. It also pointed to conflicting research on the efficacy of share buybacks and suggested an alternative to the bill:

“In any event, government policies meant to impose high standards for corporate governance would limit the shareholder-value-destroying types of buybacks and encourage the types that create value. One place to start could be corporate boards — while they are required to sign off on the specific dividend amounts and schedules, the same standards do not hold for share buybacks. Subjecting buybacks to the same amount of board scrutiny as dividends may not sound as exciting as Booker’s “Worker Dividend Act”, but it sure does sound like a common-sense approach.”

This legislation has the support of one cosponsor, Sen. Bob Casey (D-PA).

Media:

• Sponsoring Sen. Cory Booker (D-NJ) Press Release
  
• Financial Times
  
• Vox (In Favor)