Amortization of shares as a remuneration formula falls by 15%

The repurchase and amortization of own shares as a formula to remunerate shareholders has been reduced by almost 15% this year – in the absence of December data – after the record figure in 2022, although it remains at historically high levels. The National Securities Market Commission (CNMV) has warned on several occasions about the possible conflicts of interest that companies that use this formula and have the variable remuneration of their directors linked to the evolution of earnings per share may incur.

Between January and November of this year, companies listed on the Spanish Stock Exchange redeemed own shares with a market value of 11,823 million euros, 14.9% less than in the same period in 2022, according to data from the 2023 Market Report of Bags. and Spanish Markets (BME). In 2022, the amortization of own assets shot up more than 300% and stood at 14,437 million in shares, a record figure for a full year.

This import, which is equivalent to everything amortized by listed companies between 2019 and 2021, was achieved through 27 operations. So far this year (January-November), the same number of amortization operations have already been addressed (27), but their import, 11,823 million, is lower than that registered in the same period of 2022.

However, without yet including the December data, the figure clearly exceeds those registered in 2021 (3,581 million), 2020 (4,553 million), 2019 (6,698 million) and 2018 (3,991 million). The amortization operations undertaken in the first months of the year correspond mainly to the Spanish banking sector.

Together, CaixaBank, Banco Santander and BBVA have redeemed capital for a market value of 4,687 million. According to BME’s calculation, if the payment of dividends is added to the repurchases and amortizations of securities, the remuneration of listed companies to shareholders will “widely” exceed 40,000 million this year.

The historical maximum was recorded in 2014, with a total remuneration of 44,315 million. Between January and November of this year, the payment of dividends by listed companies on the Spanish Stock Exchange rose to 27,443 million, 18.8% more than in the same period of 2022.

If the 149.8 million corresponding to the return of share premiums are added, the remuneration amounts to 27,593 million, 16.8% more than last year. The growing use of the repurchase of own shares and their subsequent amortization as a way to remunerate shareholders has raised doubts among regulatory bodies.

Last November, the president of the CNMV, Rodrigo Buenaventura, warned about the “conflicts of interest” that companies that resort to this route and have their executives’ bonuses linked to the evolution of earnings per share may incur.

Buenaventura, who proposed including additional elements in the analysis of this type of operations, also referred to the relationship between this practice and the evolution of surplus cash, a factor that influences the attractiveness of a company as a possible object of a takeover bid.

A third element to take into account, according to the president of the CNMV, is the tax issue, which would include the effects of this formula on tax revenues and the “experiments” of some countries such as Holland, which have decided to tax share buybacks. own.