Family Bank’s new managing director Peter Munyiri is set to buy a one per cent stake in the lender at a discounted price in a move analysts say underlines the growing use of shares to reward top executives in Kenya.
Mr Munyiri said he would pay Sh22 for each of the estimated 2.4 million shares which are currently trading at about Sh30, meaning that the total purchase will be more than Sh50 million.
This was part of the deal Mr Munyiri negotiated with Family Bank when he was hired from Kenya Commercial Bank, where he was the deputy CEO. He is expected to grow his shareholding further as the bank prepares to list on the Nairobi Stock Exchange by year-end.
At current market price, the discount will see his portfolio jump 36 per cent, representing a profit of at least Sh20 million.
“I had negotiated for the share purchase before joining the bank and it represents my long-term commitment to its positive performance,” Mr Munyiri told Business Daily.
The bank disclosed the deal in a notice to shareholders ahead of an extraordinary meeting next month where the stakeholders will be asked to approve it and the bank’s plan to list at the bourse by introduction.
Human resource experts said use of share options to compensate executives was rising in Kenya, especially in the banking sector where the need for talent has sparked a scramble for star performers.
“Companies want executives to take a long-term commitment to a company’s health from which they stand to gain,” said Mr Kimani Njoroge, a human resource partner at Deloitte Eastern Africa, adding that share options also help shareholders to share risks with executives. Barclays Bank Plc allotted directors of its Kenyan subsidiary shares worth Sh6 million in 2009 and 2010. Banks employed 1,275 new managers last year, with the race for top talent deepening this year.
KCB, the country’s largest lender by asset base, has promoted 15 senior executives internally and is seeking to recruit four more from other financial institutions.
Share options are seen as important in retaining top talent and promoting high performance. Analysts said that since taking risks is a critical part of executive roles, shareholding promotes reasonable risk appetite as executives will gain or lose from the outcomes of their decisions.
Share price movements
For listed firms, net earnings and share price movements are some of the key benchmarks for measuring executive performance.
Mr David Muturi, the executive director of the Kenya Institute of Management (KIM), said that pure cash-based compensation promotes a selfish approach among executives and share options are good at bridging employee and shareholder interests.