REPORT: Maximizing the Benefits of the CHIPS Program

Introduction

The 2022 CHIPS and Science Act represents a huge opportunity to both bolster domestic semiconductor production and encourage more equitable and sustainable corporate practices.

This report zeroes in on the law’s $39 billion in subsidies for semiconductor manufacturing, and specifically on the Biden administration’s decision to grant preferential treatment in the awarding of these subsidies to firms that agree to forgo all stock buybacks for five years.

The semiconductor industry has been a major exploiter of stock buybacks, a financial maneuver that artificially inflates the value of company shares (and the value of executive stock-based pay) while siphoning resources from worker wages, R&D, and other productive investments.

The Biden administration’s incentives for firms to forgo this practice send a critical message about the importance of ensuring that public investment dollars are used for their stated purpose: to benefit working families and build a stronger economy, rather than to further enrich executives and wealthy shareholders.

This report examines buybacks and executive pay at the 11 companies that had signed preliminary memoranda of terms with the Department of Commerce for CHIPS subsidies as of June 30, 2024. The subsidies for these 11 firms are worth nearly $30 billion combined. We review the actions the Biden administration has taken to rein in buyback practices so far and then recommend additional steps to put real teeth into this effort. The report underscores the need for explicit restrictions on all stock buyback spending in the final CHIPS subsidy contracts.

A summary follows, but more detail — including charts documenting our findings on all 11 companies — is available in the full PDF.

Key Findings

The semiconductor industry and stock buybacks

• During the period 2019 to 2023, these 11 chipmakers spent more than $41 billion combined on stock buybacks. That would’ve been enough to provide 300,000 employees a $27,541 bonus every year for five years.
• Intel spent the most on stock buybacks, a whopping $30.2 billion over the study period. With that sum, the U.S. chipmaker could’ve given each of its 124,800 employees a $48,000 bonus every year from 2019 to 2023. Intel is in line to receive as much as $8.5 billion in CHIPS subsidies – the most of any firm.
• In 2023, Intel had 11,000 technicians in the United States. While most of these production workers made more than $63,000 per year last year, about 11 percent (1,194) earned less than $50,000, according to the firm’s own reporting. While Intel has its headquarters and fabrication facilities mostly in the United States, aggressive offshoring has resulted in the siting of 33 facilities in other countries. The foreign Intel facilities handling the most labor-intensive portion of the production process, assembly and testing, are located in China, Malaysia, Vietnam, and Costa Rica – all countries known for relatively low wages.
• Four of the firms with preliminary agreements have board-approved share repurchase plans that would allow an additional $14.3 billion in buyback spending. Intel has the largest amount authorized, with $7.2 billion remaining in their plan.
• We found no evidence that any of the companies with preliminary agreements have publicly committed to suspend their existing share repurchase plans – or to refrain from authorizing new plans – during the grant period. In fact, when members of Congress asked BAE Systems executives if the firm would commit to pausing stock buybacks or to not engage in future ones while receiving a taxpayer-funded CHIPS grant, they declined to answer.

The semiconductor industry and excessive CEO pay

• Executive compensation data are available for 8 of the 11 companies with preliminary CHIPS agreements. At these firms, CEO compensation averaged $13.6 million, median pay averaged $73,046, and the average gap between CEO and median worker pay stood at 200 to 1 in 2023.
• Micron Technology CEO Sanjay Mehrotra took in the largest compensation, with a total package valued at $25.3 million, while half of Micron employees made less than $54,570 last year.
• The value of the CHIPS grantee CEOs’ personal holdings of company stock total more than $2.7 billion, or $306 million on average. These holdings reflect the tremendous potential for executives to cash in on artificially created bumps in share prices resulting from stock buybacks (or buyback announcements).
• Chey Tae-won, Chairman and CEO of SK Inc., the parent company of CHIPS recipient Absolics, was sitting on the largest personal stock holding, with shares valued at more than $1.5 billion as of June 1, 2024. This massive stockpile may dwindle, however, in light of a recent court order requiring the Korean mogul to pay $1 billion as part of a divorce settlement.
• Microchip Technology reported the lowest median worker wage among the companies with preliminary agreements. Half of the company’s employees made less than $51,229 last year, while CEO Ganesh Moorthy made nearly $12.3 million. In response to sinking revenue, the company has put workers on unpaid furlough twice this year, first in March and again at the end of June. The board cut Moorthy’s base salary by 20 percent for 2024. But salary makes up only a tiny share of the CEO’s total compensation package. Last year, Moorthy pocketed $643,126 in salary, two cash bonuses totaling $2.9 million, and stock awards valued at $8.7 million. The firm also spent $946 million on stock buybacks in 2023, considerably more than the firm’s $600 million outlay for capital expenditures.

Recommendations

The CHIPS for America program is a key pillar of President Biden’s economic agenda, along with the historic and complementary programs the administration is implementing through the Inflation Reduction Act and the Bipartisan Infrastructure Investment and Jobs Act to strengthen public infrastructure and accelerate the transition to a clean energy economy.

As the administration has stated, the goals of this economic plan are to “invest in America, stimulate private sector investment, create good-paying jobs, make more in the United States, and revitalize communities left behind.”

The likelihood of achieving these goals will be far greater if corporations receiving public investment dollars shift away from the all-too-common focus on short-term payouts for top executives and wealthy shareholders and instead focus on building strong workforces and creating long-term value.

The administration has taken many important steps to use the power of the public purse to push corporations in this positive direction. For instance, President Biden lifted the wage floor for certain federal contract workers to $15 per hour. And he has ordered construction firms involved in large public infrastructure projects to negotiate collective agreements with their workers.

With regard to the CHIPS program, the administration took the important step of requiring corporations receiving more than $150 million in subsidies to submit plans to provide affordable, high-quality child care services for their manufacturing and construction workers. If effectively implemented, this will help reduce barriers to semiconductor jobs for people who are underrepresented in the sector, including women. Century Foundation experts have been monitoring companies in line to receive CHIPS grants and are seeing some hopeful signs that firms are engaging with communities to develop good plans for their employees without contributing to rising costs for other households.

Strong stock buyback restrictions on corporations receiving federal subsidies and contracts would reinforce the administration’s economic agenda, since every dollar spent on buybacks is a dollar not spent on employee child care subsidies, worker wages and training, or innovation for long-term competitiveness.

The administration’s decision to provide preferential treatment to CHIPS grantees that agree to forgo buybacks was a positive step. However, as Senator Warren, Representative Jayapal, and other members of Congress pointed out in a recent letter to Commerce Secretary Raimondo, the agency’s guidance for grant applicants continues to “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.”

To maximize the benefits of this program, the Department of Commerce should take advantage of its statutory authority to fully ban CHIPS grant recipients from engaging in stock buybacks as a condition of their awards. Agreements should also include strong accountability measures if grant recipients engage in stock buybacks in violation of the ban.

As semiconductor corporations have been competing for this funding in recent months, they appear to have been holding back on buyback activity – likely hoping to avoid drawing greater scrutiny of this wasteful practice. But if contracts do not include strong teeth to reinforce the administration’s position, the buyback floodgates could open once again.