Do share buybacks push up executive pay?
New research into whether some companies are repurchasing their own shares to artificially inflate executive pay has been announced by the goverment.
The research will help to understand how companies use share buybacks and whether any further action is needed to prevent them from being misused.
This review is part of the broader package of corporate governance reforms announced in August 2017 to address concerns that executive pay can sometimes be disconnected from company performance.
A share buyback is where a company buys back its own shares from the market, often to reduce the number of available shares in order to increase their value. While there are a number of valid reasons why a company would use these schemes, business secretary Clarke said there are concerns that “some companies may be trying to artificially inflate executive pay by buying back their own shares”.
The government has appointed consultants PricewaterhouseCoopers to undertake the research, and will be supported by Professor Alex Edmans, a leading academic at the London Business School.