Here's why Samsung is spending $59 billion to buy back its stock

Samsung recently came to an agreement with its labor union and announced that it would distribute around $26.6 billion in bonuses to employees.

These bonus payments make up 10.5% of its chip division's annual profit and will be made in the form of stock. Samsung is now tapping into the equity markets to buy back its own stock to the tune of $59 billion.

Samsung Electronics today announced a share buyback program worth $58.61 billion. Employees will receive treasury shares as bonus payments with the average bonus per employee expected to be around $340,000.

The company will need to acquire shares from the market to hand them out to its employees. They'll be able to sell a third of the shares they receive immediately, another third after one year, and a further year for the rest.

The buyback program is significantly larger than this year's bonus payout because Samsung also has another stock-based compensation program. The Performance Stock Unit program was launched in October last year to align employee rewards with the long-term performance of Samsung's stock.

Share buybacks are often used by public companies to boost shareholder returns. With Samsung dipping into the market to buy $59 billion of its stock, prices are likely to jump. Investors liked the announcement today, with Samsung Electronics' shares jumping more than 6% with the news hit the wire.