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.
The findings from this investigation are yet to be published so this policy is currently ‘in progress’. Follow this policy for updates.
- Government to research whether companies buy back their own shares to inflate executive pay
- UK Corporate Governance Code – July 2018 – Financial Reporting Council
- Corporate governance reform (consultation outcome) – Gov.uk
- Why would a company buy back its own shares? – Investopedia