Safaricom Stock Repurchase Allows Telco’s to Save Money on Share Compensation

Following the substantial decline in the trading price of the units at the stock exchange, Safaricom is expected to significantly reduce the amount it spends each year on buying its own shares for its stock-based compensation plan.

For the purpose of distributing the shares to eligible employees—typically senior managers—who meet or surpass a set of performance evaluations, the telecom purchases the shares through a trust on the open market.

The trust holds the units for a three-year vesting period before releasing them to the beneficiaries.

The telco reported that for the year ended March 2022, the trust purchased 12.4 million shares for a total of Sh489.4 million, or an average purchase price of Sh39 per share.

The price of the company’s stock, which the trust would pay for a purchase for the grant plan, is currently trading at a four-year low of Sh21.55 per unit.

Due to the continual vesting of earlier purchased and distributed to employees units, the trust replaces the shares it holds each year.

It had a balance of 11.5 million shares valued at Sh416.2 million at the end of March of last year, down from 15.43 million shares as of March 2021.

In 2021, eligible employees will purchase 16.42 million shares for Sh480.7 million after exercising their option for 15.28 million shares that vested last year and were previously valued at Sh519.4 million.

After ending a second program that gave a wider range of employees the chance to purchase shares at a fixed price of Sh5.4 each, the Nairobi Securities Exchange-listed company has concentrated on providing high-scoring managers with shares at no cost.

The majority of stock-based pay has historically been taken by company CEOs and CFOs.

Since the equities were purchased on the open market, Safaricom hasn’t dilutive investors like some other employee share ownership plans (Esops).

The company’s stock-based remuneration is one of the most lucrative among publicly traded companies as a result of the free shares and Safaricom’s long-term stock price increase.

The grant scheme’s beneficiaries will also be eligible to receive dividends from the company’s strong financial performance in addition to the potential for capital gains from the free stock.