Safaricom is set to make significant savings on the annual purchase of its own shares for its stock-based compensation scheme following the sharp fall in the trading price of the units at the stock exchange.
The telco, through a trust, buys the shares in the open market for distribution to qualifying staff members —ordinarily senior managers— who achieve or exceed a set of performance ratings.
The units are held by the trust for a vesting period of three years, after which they are released to the beneficiaries.
For the year ending March 2022, the telco said that the trust bought 12.4 million shares at a total cost of Sh489.4 million, equating to an average buying price of Sh39 per share.
The company’s share is currently trading at a four-year low of Sh21.55 per unit, meaning that a purchase by the trust for the grant scheme will require a much lower outlay compared to last year.
The trust replenishes the shares it holds every year due to the constant vesting of units bought earlier and distributed to employees.
By the end of March last year, it was holding onto a balance of 11.5 million shares, which were valued at Sh416.2 million, down from 15.43 million units as of March 2021.
Eligible employees exercised their option for 15.28 million shares that vested last year that were historically valued at Sh519.4 million, while in 2021 they took up 16.42 million shares valued at Sh480.7 million.
The Nairobi Securities Exchange-listed firm has focused on giving high-scoring managers shares at no cost after closing a separate scheme where a more diverse group of employees was previously offered an opportunity to buy shares at a fixed price of Sh5.4 each.
Company chief executives and chief financial officers have traditionally taken most of the stock-based compensation.
However, unlike other employee share ownership plans (Esops), Safaricom has not diluted investors since the stocks are bought in the open market.
The free shares and Safaricom’s long-term stock price rally have made the company’s stock-based compensation one of the most lucrative among listed firms.
Other than the potential for capital gains from the free stock, the beneficiaries of the grant scheme also get to enjoy dividends accruing from the good financial performance of the firm.
