Boards Often Misunderstand What Stock Buybacks Really Cost.

The article focuses on how boards of directors often misunderstand the true costs of stock buybacks, which frequently serve to offset dilution caused by stock-based compensation (SBC) rather than simply returning capital to shareholders. It explains that while SBC is commonly treated as a non-cash expense in adjusted financial metrics, buybacks to neutralize dilution require substantial cash outlays, making SBC neither cashless nor free. The article highlights governance challenges arising from the use of adjusted earnings in executive compensation decisions and offers five recommendations for boards to better measure the real cost of equity pay, improve incentive alignment, and enhance transparency. Ultimately, it urges boards to treat buybacks and SBC as interconnected components of compensation financing to ensure more accurate performance measurement and stronger shareholder value creation. [Extracted from the article]