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Scrutiny of Share Buy-Backs

On 28th January, the Government announced that it is commissioning research to consider whether companies are using share repurchases to as a tool to increase executive pay.

This is a topic which has attracted critical attention in the reviews of long term incentive plans (Ltips) where share buy-backs may increase performance metrics linked to the vesting of awards under employee share schemes for executives even though they are not in the long term interests of the company or its shareholders. The announcement – more details of which are found in the related press release – see Share Buy Back Research – will seek to under the use of share buy-backs and whether action is needed to prevent them being misused.

The outcome of this research will be waited for with some interest. In the meantime, the announcement reinforces the importance of careful structuring and design of employee share schemes, particularly for senior executives, in order to ensure that they achieve the objective of proper alignment of interests between participants and shareholders.

Pett, Franklin & Co. LLP are experts in employee share schemesexecutive incentives and share valuation. To find out more about how we can help you or your client, please contact Stephen Woodhouse on stephen.woodhouse@pettfranklin.com or call 0121 348 7878.