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Prevent the use of share buybacks

We will commission an examination of the use of share buybacks, with a view to ensuring these cannot be used artificially to hit performance targets and inflate executive pay.

Our Verdict

A ‘share buyback’ is when a company buys back its own shares from the stock market. UK companies spent £15bn buying back their own shares in the 12 months to 31 January 2018.

Fears have risen as to whether companies are buying back shares from the market to reduce the number of shares available, thereby increasing their individual value and increasing a company’s earnings per share. Many executive pay packages are based on the amount of earnings per share, so the use of share buybacks therefore can be used to inflate executives’ earnings.

In January 2018 the government confirmed its plans to research whether companies buy back their own shares to inflate executive pay. This was part of the broader package of corporate governance reform.

To investigate the use of share buybacks, the government has enlisted PwC and Alex Edmans, a professor at the London Business School to research the issue.

The findings from this investigation are yet to be published so this policy is currently ‘in progress’. Follow this policy for updates.

Extra reading…

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