While most of the Sasol directors who received shares in terms of the company’s annual long-term incentive award elected to sell only enough shares to cover the income tax levied on this part of their compensation, a few sold all their shares immediately, according to the figures contained in a formal announcement on October 12.
The net result of the sales is that the directors sold nearly 64% of the shares they received in a bulk sale facilitated by the company.
Just more than 65 000 shares were issued to 14 directors and senior managers who are obliged under JSE regulations to disclose their trading activity in the company’s shares.
In total, they elected to sell 41 803 shares and keep 23 443.
It is not uncommon for executives to sell part of the shares they receive as part of their compensation to settle the sudden large tax liability that arrives together with the shares.
Relevant tax legislation categorises shares and any other benefits paid to employees as income, which is subject to income tax according to the applicable tax rates.
As such, when shares are allocated to employees, tax is payable immediately, as is the case when anybody receives their salary at the end of the month.
Tax liability arises immediately
Thus, a tax liability arises on the value of the shares on the date the person effectively receives their shares and, in the case of a listed company, is calculated at the price of the shares on the open market.
Sasol states in the Sens announcement that the shares were allotted on October 6 and that Sasol conducted a bulk sale of the number of shares as elected by the directors and prescribed officers.
“The shares were allotted on the day of vesting and immediately sold by means of a bulk sale with effect from the vesting date.
“Proceeds are allocated to the shares sold by directors, as with all employees, based on the outcome of the bulk sale, which concluded on October 8, 2020,” according to the announcement.
The shares under discussion were awarded in 2015 and 2017 at no cost to the directors and senior management.
The shares that were allotted on October 6 include the vesting of the second tranche of the 50% awarded in 2015 and the first tranche of shares allotted in 2017.
A spokesman for the company confirmed that the shares were allotted on the day of vesting and immediately sold by means of a bulk sale.
“Proceeds are allocated to the shares sold by directors, as with all employees, based on the outcome of the bulk sale, which concluded on October 8, 2020,” he says.
The shares were sold over a period of three days, from October 6 to 8, at an average price of R123.
Participants in the share ownership scheme have the option of retaining all shares, selling sufficient shares to cover the tax liability and keeping the rest, or selling all their shares.
If a director (or anyone else) chooses to keep all the shares, they will have to pay the income tax due.
If share prices increase, they will also have to pay capital gains tax on this gain at some future date.
The income tax is payable within the current tax year, which makes the immediate sale of shares to cover the tax liability a prudent option.
In this case, an immediate sale to cover the tax worked out best. The tax liability is calculated based on a share price of around R123, whether the holder sold all or only part of their shares.
If a director waited a week to sell their shares and received only R84 per share, the tax liability would still be the amount calculated on the price of R123.
Most of the Sasol directors elected to sell exactly 48% of their shares to cover the tax liability – probably 45% tax and 3% transaction costs.
It is noteworthy that CEO Fleetwood Grobler and CFO Paul Victor each sold exactly 48% of their shares.
Grobler received 7 614 shares valued at around R936 000 at the vesting price of R123 and Victor received 6 868 shares which were worth just less than R885 000.
The directors who sold 48% will use the proceeds to pay the South African Revenue Service (Sars) and will effectively remain fully invested in Sasol.
Four of the directors and senior managers sold all their shares.
This article first appeared on Moneyweb and was republished with permission.
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