Buybacks And Bonuses

A recent article discusses how buybacks at Humana earned CEO Bruce Broussard a $1.68 million bonus in 2014. Humana was on target to miss its target EPS of $7.50. However, the company announced a stock buyback of $500 million, which increased EPS to $7.51, triggering the bonus. In all, 255 of the S&P 500 companies have executive performance tied in part to EPS. As we have discussed, in our opinion, EPS is not an appropriate measure of performance as it is easily manipulated. Executive bonuses should be tied to measures that better align with increases in shareholder value. As an example of EPS manipulation, the article reports that, in 2012, then-CEO of Humana Michael McCallister received a $1.63 million bonus because the Board of Directors removed litigation expenses from the EPS calculation.