Cement maker ARM's employees buy 15 per cent stake in company

Pradeep Paunrana, ARM chief executive officer. FILE PHOTO | NMG
Pradeep Paunrana, ARM chief executive officer. FILE PHOTO | NMG  

Cement maker #ticker:ARM 's workers have acquired a 15 per cent stake in the company, making it one of the public listed firms with the largest employee ownership in Kenya.

The company’s latest financial statement shows that the employees acquired the stake worth Sh2.8 billion last year when the cement maker also added the UK’s CDC Group to its list of shareholders.

ARM, which makes the Rhino Cement brand, has an estimated workforce of 3,000 — giving each employee an average of nearly Sh1 million shares based on the company’s share price of Sh21.7 and making them some of the richest workers in Kenya.

The actual value per worker should be much higher since not all staff participate in such schemes.

ARM has disclosed details of the Employee Share Ownership Plan (Esop) in its latest annual report, but does not indicate the price at which the shares were bought.

The vesting period — the time an employee must wait before taking up shares in the scheme — is also not disclosed.

ARM had not responded to queries on the matter by the time of going to press.

The Esop scheme’s ownership of ARM has more than tripled from 4.13 per cent in December 2015, an increase that came last year after the cement maker issued additional 111 million shares to the staff.

ARM employees now own nearly the same stake as Amanat Investments — the investment vehicle of the company’s chief executive Pradeep Paunrana and his family.

CDC Group, with 42 per cent equity in the cement firm, is the single-largest shareholder.

Firms running Esops have traditionally offered staff shares at a discounted price to encourage their participation in the schemes, meaning the ARM employees may have paid less than Sh20 for every share they bought.

Others have also granted a select group of employees with outstanding performance free shares, setting them up for major capital gains down the road.

Listed companies with outstanding Esop plans include oil marketer KenolKobil #ticker:KENO, HF Group #ticker:HFCK, Equity Group #ticker:EQTY and Barclays Bank of Kenya #ticker:BBK.

ARM’s Esop was established in 2005 and by December 2015 had acquired 20.4 million shares equivalent to a 4.13 per cent of the company.

The cement maker awarded the scheme additional 21 million shares in July last year and followed it up with allotment of 90 million shares as part of an agreement with CDC Group, which ended up with a 42 per cent equity in firm it bought at Sh14.1 billion.

Stock-based compensation schemes gained traction from the early 2000s as a means of aligning the interests of employees with those of shareholders.

Owning stock in companies they work for exposes employees, including executives, to the upsides and downsides of the decisions they make and ultimately what they earn from their ownership.

Equity Bank #ticker:EQTY retains the largest Esop, with a market value of Sh4.5 billion, despite the employees having traded stock worth more than Sh700 million last year alone.

Market data shows that the staff of NSE-listed firms cashed in share options worth more than Sh4 billion in the past decade, pocketing significant windfalls besides salaries and other benefits.

Employees can sell the shares after satisfying the rules set by their respective schemes such as the specified years of service and performance benchmarks.

Companies, especially those in financial services, are betting on their wider compensation schemes to attract and retain top talent.

Family Bank, for instance, offered its former chief executive, Peter Munyiri, a one per cent stake in the lender at a discount in 2011 when it hired him from #ticeker:KCB where he was a deputy CEO.

Some of the Esops have proved controversial, especially over the vesting period and conditions. A few companies have suspended their Esop plans, in effect holding back rights that had accrued to their staff over years.

Others have been sued for denying their employees vesting rights illegally. Kenya Airways staff, for instance, cannot cash in 1.9 million shares after the airline’s scheme was suspended.

The value of the shares has meanwhile taken a beating in line with the company’s losses and stock price rout.

The airline has in recent years been beset by labour disputes that eroded the trust between shareholders and workers, including pilots.

KCB also froze its Esop plan indefinitely, saying it needs to amend its operations and vesting conditions before reinstating it.