Source: United States Senator for Commonwealth of Virginia Mark R Warner
WASHINGTON – Today, U.S. Sens. Mark R. Warner (D-VA), Tammy Baldwin (D-WI), and Elizabeth Warren (D-MA) introduced the Advancing Long-term Incentives for Governance Now Act (ALIGN) Act to institute holding periods for stock buybacks and stock-based compensation – a measured move that would encourage company executives to prioritize investments that strengthen their companies over the long term, instead of focusing on short-term share prices.
Stock buybacks are when a public company uses cash to buy back shares of its own stock from the marketplace, rather than using it to invest in long-term growth opportunities, such as workforce development or research and development. Stock buybacks can be an important tool to allow companies to invest in themselves and increase value for shareholders, but when unregulated they can also encourage executives to prioritize raising the share price over making long-term investments.
“If I could wave a magic wand and change one thing about our financial system, I would reframe our economy to prioritize long-term investment in workers instead of short-term bottom lines,” said Sen. Warner. “The ALIGN Act is a measured step in that direction, as it allows companies to maintain their autonomy while also incentivizing investments in long-term growth. By instituting holding periods that would effectively cool down stock buybacks, the ALIGN Act would help executives focus on sustainable growth opportunities over short-term windfalls.”
The ALIGN Act is similar to proposals in both President Biden’s fiscal year 2023 and 2024 budgets. It would require executives to hold stock-based compensation for at least 3 years and to hold their stock for 12 months following the announcement of a stock buyback. Additionally, it would require the Securities and Exchange Commission (SEC) to establish public disclosure policy for a share repurchase authorization. These targeted reforms would align top corporate executives’ incentives with their company’s long-term success and discourage certain buybacks that would damage the company in the long-run. Together, these provisions work to relieve some of the pressures executives face to prioritize quarterly results at the expense of investments in workers, research and development, and long-term, sustainable growth.
Specifically, the ALIGN Act would:
- Require executives to hold stock-based compensation for at least 3 years and to hold their stock for 12 months following the announcement of a stock buyback.
- Provide exceptions if a sale or transfer is made under certain circumstances such as through a will, in connection to a change of control, or after becoming disabled.
- Direct the SEC to establish public disclosure policy for a share repurchase authorization within 24 hours.
Sen. Warner, a former technology entrepreneur, has pushed to update rule-making around stock buybacks for many years. He supported the Inflation Reduction Act, which instituted a 1% tax on all stock buybacks beginning in 2023, among other corporate tax requirements. The ALIGN Act also mirrors President Biden’s FY2023 and FY2024 budgets, which proposes an executive officer holding period on stock buybacks without including specific timing.
Full text of the legislation is available here. A two-page summary of the legislation is available here.
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