Equity excites staff with cash option in new share ownership plan
Equity Group CEO James Mwangi during the announcement of the bank's 2023 financial results at the investor briefing at Equity Centre in Nairobi on March 27, 2024. PHOTO | WILFRED NYANGARESI | NMG
Equity Group staff, who are awarded shares in the company's new employee share ownership plan (Esop), will have an option to swap them for a cash equivalent three years after obtaining the stock.
This would allow them to have immediate liquidity through cash out without going through the securities exchange.
Esop is an employee benefit plan that gives workers ownership interest in the company in the form of shares of stock. The scheme is used to encourage employees to give their all as the company’s success translates into financial rewards.
Equity said in a circular to shareholders that it targets to issue the first shares under the Esop plan in May 2025, based on financial and employee performance evaluation for the financial year ended December 31, 2024.
Beneficiaries of the Esop scheme will therefore be able to cash in their shares from May 2028, based on the set three-year window that an employee must wait before owning their stock options.
“Qualifying employees that hold units in the Trust following vesting in accordance with the rules shall be entitled to either encash their units and receive cash; or have such number of shares as shall equal the number of units held transferred to them, subject to and in accordance with the rules,” said the bank in the circular.
“The Equity Group Esop will fund the cash settlement value to be paid to qualifying employees who hold units who choose to redeem their units for cash through a sale of the equivalent number of shares on the primary securities market on which the shares of the company are traded.”
In June 2023, the bank’s shareholders voted in favour of the Esop, approving the creation of 198.61 million shares for allotment to the scheme over the next 10 years.
Shareholders approved the lender’s Esop’s Trust Deed and Rules, during an annual general meeting held Wednesday (yesterday), which will pave the way for the bank to allocate the shares.
The shares will be sold to qualifying employees at a discounted price of 50 cents each—equal to the par value of the shares— setting them up for a major capital gain when they sell them at the prevailing market price. Going by Wednesday’s closing price of Sh43 per share, the difference between the award price and the market price represents a premium of 8,500 percent.
The total value of the shares under the scheme at the current market price is Sh8.54 billion, while the value of the shares at the award price is Sh99.3 million.
The bank added in the circular that the difference between the award price and the market price will be accounted for as an employee remuneration cost—or a liability—on its books.
“Equity Group will recognise expenses related to the options granted under the Esop equal to the difference between the market value of an equivalent number of new shares to be allotted and issued to the Esop and the subscription price per new share and recognise an equivalent liability,” said the lender.
The Esop issuance will also have two categories of short and long-term incentives, where the latter will target top management who have greater strategic responsibility and whose vesting will be largely pegged on group performance and results.
This points to a longer tie-in period for top managers before they can access their incentives.
For top managers like the chief executive officer James Mwangi, executive director Mary Wamae, and Equity Bank Kenya managing director Gerald Warui, 40 percent of their Esop remuneration will be based on long-term incentives.
For middle-level management, the percentage drops to 18 percent, and 10 percent for the rest of the permanent staff.
The cumulative allotment for an employee each year under both short and long-term incentives has, however, been capped at 100 percent of their annual base salary.
