Research to address concerns about whether some companies are repurchasing their own shares to artificially inflate executive pay has been launched by the government.
A share buyback occurs when a company buys back its own shares from the market. There are a number of valid reasons for doing this. However, there are concerns a minority of firms are using buybacks to inflate executive pay and crowd out investment.
The research, which has been introduced as part of the government’s corporate governance reforms and wider industrial strategy, will investigate how companies use share buybacks and whether action is needed to prevent misuse.
‘The UK is rightly recognised as having a world-leading business environment and responsible business practices – a key part of our Industrial Strategy,’ commented Business Secretary Greg Clark.
‘But there are concerns that some companies may be trying to artificially inflate executive pay by buying back their own shares. This review will examine how share buyback schemes are used and whether any action is required to prevent them from being abused.’
The government is also making other corporate governance reforms, including: introducing the Investment Association’s register of FTSE-listed companies where more than one-fifth of shareholders have opposed resolutions on executive pay packages; and, introducing legislation that requires companies to annually report and explain the pay ratio between chief executives and their UK employees.
