How do we make sure companies don't rip off taxpayer investment in the semiconductor industry

Make sure companies don’t blow our tax dollars on stock buybacks and sky-high CEO pay.

By Sarah Anderson, Natalia Renta

The 2022 CHIPS and Science Act created a huge opportunity to boost domestic production of the semiconductors that power everything from refrigerators and trains to electronic devices.

The Biden administration has also taken important steps to make sure these investments create jobs that are actually good.

For instance, CHIPS grantees must submit plans to provide affordable, high-quality child care services for their manufacturing and construction workers. And President Biden has ordered all construction firms involved in large public infrastructure projects to negotiate collective bargaining agreements with their workers.

But if you look at corporations in line to pocket CHIPS manufacturing subsidies, you’ll understand why some Democrats are urging the administration to do more to prevent corporate executives from misusing these funds to enrich themselves and wealthy shareholders.

Our new report from the Institute for Policy Studies and Americans for Financial Reform Education Fund looks at the first 11 corporations to sign preliminary CHIPS agreements with the Department of Commerce — including giants like Intel, Samsung, BAE Systems, and others. 

These companies are in line for subsidies totaling nearly $30 billion. And when it comes to stock buybacks and CEO pay, it’s clear they need guardrails.

In stock buybacks, companies take money that might otherwise fund salaries or research and instead “buy back” their own stock. That artificially inflates their stock price — and the value of CEO stock-based pay.

We found that between 2019 and 2023, these 11 companies spent more than $41 billion on stock buybacks. That would have been enough to give 300,000 employees a $27,541 bonus every year — for five years.

With the more than $30 billion Intel alone spent on buybacks then, the giant chipmaker could’ve given each of its 124,800 employees an annual $48,000 bonus. Intel is in line to receive as much as $8.5 billion in CHIPS subsidies — the most of any firm.

In many of the high-profile labor battles of 2023, unions skewered corporate executives for blowing profits on buybacks while claiming they couldn’t afford to raise worker pay. Analysts have found that buybacks reduce innovation, exacerbate economic inequality, and widen the racial wealth gap.

In response, the Biden administration’s Commerce Department announced it would give a leg up in awarding CHIPS subsidies to companies that agree to forgo all stock buybacks. 

But so far, none of the companies in line for these subsidies have publicly committed to suspend existing share repurchase plans (which currently authorize $14.3 billion in buyback spending) or to refrain from adopting new plans during the grant period.

The CHIPS law does forbid subsidy recipients from spending CHIPS funds directly on stock buybacks. But since money is fungible, this is not a strong guardrail.

In a recent letter to Commerce Secretary Gina Raimondo, Senator Elizabeth Warren (D-MA), Rep. Pramila Jayapal (D-WA), and several other lawmakers note that the federal agency has the “statutory authority to fully ban CHIPS grant recipients from engaging in stock buybacks as a condition of award.”

Unless the administration asserts this authority, the lawmakers warn, they will “leave the door open for semiconductor companies to take millions or even billions in CHIPS grants, move some money around, and then engage in more stock buybacks.”

Our report found that CEOs with preliminary CHIPS agreements are sitting on company stock holdings worth more than $2.7 billion ($306 million on average). In other words, these executives are positioned to reap huge personal windfalls from share price pops related to continued buyback spending.

President Biden has spoken out repeatedly against wasteful stock buybacks. His economic agenda centers on an industrial policy to create good jobs and long-term prosperity, particularly for communities and workers who’ve been left behind.

Strong buyback restrictions in final CHIPS contracts would help maximize the benefits of these vital investments. Public money should serve the public good — not narrow private interests. 

Sarah Anderson directs the Global Economy Project at the Institute for Policy Studies. Natalia Renta is a Senior Policy Counsel at the Americans for Financial Reform Education Fund. They’re coauthors of the report “Maximizing the Benefits of the CHIPS Program.” This op-ed was adapted from Inequality.org and syndicated by OtherWords.org.