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Commercial and Corporate update: Employee Equity Schemes – A ‘Carrot’ in Tight Labour Market

Sep 16, 2022

In a tight labour market with increasing labour costs, an employee equity scheme (“EES”) can help differentiate other employers from ‘employers of choice’ and help companies attract and retain the best possible talent.

There have been significant developments in the EES space for unlisted companies. Previously, employees were only allowed to obtain shares that they did not have to pay for up to a value of $5,000, which has increased to $30,000 per year per employee.

What is an employee share scheme?

Generally, an employee share scheme is exactly as the name suggests. The scheme provides employees the opportunity to purchase or have shares issued to them in the company they work for. Depending on the strategy used, an EES can have a number of tax benefits to employees and companies alike. However, companies must be aware of the type of shares they issue to employees, as they may be giving employees voting rights and effectively a level of control in the company.

So how should I structure my employee equity scheme?

There a number of options available to companies in order to facilitate the offer, allocate and issue shares or other remuneration benefits to employees.

Share Purchase Plans are used by listed companies to allow employees to purchase shares through a plan via a salary sacrifice arrangement and via dividend reinvestments, which provide the company with a somewhat consistent revenue raising scheme.

Employee Option Schemes (“EOS”) allow a company to issue shares to employees with conditions or options attaching to that right. These options give the company a significant amount of control as to when an employee may convert their options into shares, at what price and should the option not be exercised, an easier right to terminate the option granted as opposed to cancelling, buying back or transferring a share in a company.

Phantom Share Schemes (“PSS”) act differently to typical EES and EOS schemes, by acting as an agreement between an employee and the company to increase the employee’s remuneration package to participate in the profits generated by the company (without being a shareholder) and/or to participate in the proceeds realised on a trade sale of the company’s business. While not tax friendly for employees, it an easy plan to implement and carries no real administrative burden to companies that use them.

In some circumstances, a share trust can be used by the company to retain a level of control over the timing of the allocation of shares to employees. A share trust is set up by the company, with the company issuing shares to the trust and employees joining the share trust and converting their interest into shares once a trigger event occurs.

I’m still confused, so what should I do?

Any company considering implementing any employee equity scheme to attract and retain talent should first seek taxation advice from advisors experienced in implementing these schemes before proceeding with any EES, as this advice will often dictate and or provide the parameters for the EES to be adopted.

We have experience in drafting EES plans for clients and would be pleased to assist with the preparation of any EES your taxation advisors recommend you adopt.

More information

For more information, please contact:

Jeremy Goldman, Principal Lawyer
(03) 8600 8886 or jgoldman@kcllaw.com.au

Winston Ng, Lawyer
(03) 8600 8824 or wng@kcllaw.com.au

Lachlan Perkins, Lawyer
(03) 8600 8809 or lperkins@kcllaw.com.au


This Commercial and Corporate update was authored by Jeremy Goldman, Principal Lawyer, and Lachlan Perkins, Lawyer.

Note: This update is a guide only and is not intended to constitute legal advice.