Oil marketer KenolKobil #ticker:KENO paid its former chief executive, Jacob Segman, Sh707.1 million to settle a long-running dispute over his stock-based compensation, making it corporate Kenya’s largest single payout to an executive.
The Nairobi Securities Exchange-listed #ticker:NSE firm disclosed Mr Segman’s final compensation in its latest annual report that has been published in line with the new reporting regulations requiring detailed account of money paid to individual directors.
“A legal dispute arose on validity of the Esop [employee share ownership plan] options, with legal proceedings commencing in courts of law in Kenya and in the State of Delaware, USA. In December 2017, the company settled the matter out of court, making payment to Mr Segman possible,” the report says.
The sum is nine times the Sh77.1 million the oil marketer had earlier provided for in its books for Mr Segman’s compensation, but which was not disclosed as such.
KenolKobil’s other reports had previously suggested that the former executive walked away with sums ranging between Sh300 million and Sh480 million.
Mr Segman, a former group managing director who resigned in 2013, had been granted Esop option tranches between 2005 and 2010.
“The same vested at various dates between 2008 and 2013,” KenolKobil says in the report.
The cash settlement took a big bite out of KenolKobil’s earnings in the year ended December 2017 when the company’s net profit stood at Sh2.46 billion, a two per cent rise from Sh2.41 billion the year before.
KenolKobil did not disclose what Mr Segman earned in salaries but his settlement is enough to pay his successor, David Ohana, for another 13 years based on his (Mr Ohana’s) annual salary of Sh52.9 million or Sh4.4 million a month in the year ended December 2017.
Mr Ohana was also paid a bonus of Sh84.7 million and other payments for undisclosed items amounting Sh13.4 million, raising his total remuneration to Sh151.1 million.
Settling Mr Segman’s claims reveals the heavy price the oil marketer has paid in the controversial Esop.
At Sh707.1 million, the settlement is equivalent to redeeming about 40.2 million shares or 2.7 per cent of the company’s 1.4 billion issued shares based on the current market price of Sh17.6.
Weeks before paying Mr Segman, KenolKobil had gone to court seeking a determination as to whether it was legal for the former chief executive to exercise his share options.
Mr Segman left KenolKobil in July 2013, three months after announcing a record net loss of Sh6.2 billion for the year ended December 2012. He had served in the position for 23 years.
The oil marketer had structured currency hedges which turned against it to the tune of Sh4.6 billion, contributing to the massive loss.
The Esop’s trustees had said in their court application that the former CEO’s contract allowed him to exercise his shares up to three years after leaving the company.
The trustees said the opportunity had closed by the time Mr Segman communicated his intention to take up the shares on April 26, 2017, nearly four years after his departure from the oil marketer.
KenolKobil is the latest to settle a high-stakes claim arising from its Esop. Other employees have also taken the oil marketer to court, seeking access to their shares which the company had frozen, citing breach of vesting rules.
Equity Bank has also been sued by former employees who accused it of slashing the number of shares that had been allocated to them and cashing them out at below market rates.
The courts have ruled in favour of scores of such claimants, often finding that the schemes’ rules were varied without knowledge of the litigants or companies unfairly attempted to stop the shares from vesting.
Stock-based compensation are seen as a means of aligning the interests of employees with those of shareholders.
By owning stock in their company, workers, including executives, are exposed to the upside and downside of their performance and decisions. Issuing shares also helps companies to use less cash in remunerating their top executives.