John Price explains why ASIC’s new policy on employee incentive schemes will help to ease the cost for employers.

    Research generally supports the principle that where employees have an interest in the companies they work for, this can lead to greater engagement and improved business performance.

    Traditionally, employee incentive schemes have done this by providing workers with a direct shareholding in their employers’ organisation. Today, employee incentive schemes may also offer a range of financial products aimed at giving employees a financial benefit based on their employer’s performance but without giving them an ownership interest.

    Regardless of how these schemes are structured and the financial products offered, they can align the interests of employers and employees for their long-term mutual benefit.

    Cutting red tape
    After extensive public consultation, we recently released our revised Regulatory Guide 49 Employee Incentive Schemes and issued new Class Orders ([CO 14/1000] Employee incentive schemes: Listed bodies and [CO 14/1001] Employee incentive schemes: Unlisted bodies).

    This information makes it easier for employers to offer these schemes by cutting the costs of offering financial products to employees who are retail investors.
    The Australian Securities and Investments Commission (ASIC) did this review because of changes in the market, which meant many current schemes no longer meet various technical legal requirements.

    ASIC facilitation
    We have been mindful to safeguard retail investors and so have retained some basic rules about the schemes we facilitate. These include:

    • The scheme’s objective should be to support interdependence between the employer and their employees for their long-term benefit.
    • Employees must get adequate information so they can assess the financial products being offered and easily understand the offer’s terms and conditions.
    • The scheme should not be specifically designed to raise funds.

    Our new class order relief reduces an employer’s disclosure and compliance burden by providing relief (waivers) from parts of the Corporations Act 2001 (the Act). For instance, instead of a prospectus, an employee now gets a much shorter offer document.

    In summary, our class orders relieve employers from a range of the Act’s obligations – that is, relief from product disclosure, financial services licensing, hawking and advertising that would otherwise apply.

    We consider that these obligations can be burdensome if an employer is making the offer to build employee relationships. In fact, having to comply with these obligations may deter employers from offering schemes with the potential to benefit employers and employees. We also consider an employment relationship may reduce the risks that the disclosure and licensing provisions were intended to address.


    New class orders
    Our new relief:

    • Expands the classes of financial products offered (e.g. incentive rights that are derivatives).
    • Expands the categories of people participating (e.g. contractors and casual employees).
    • Provides greater flexibility in the way schemes can be structured to better reflect market practices (e.g. changing requirements for trusts, contribution and loan arrangements).
    • Reduces the procedural and administrative burdens (e.g. providing copies of employee incentive scheme documents to ASIC).

    Due to a higher level of regulation, market information and greater price transparency, ASIC has been prepared to provide class order relief with less restriction to employers who are listed than to those who are unlisted.

    Of course, the attraction of employee incentive schemes depends on many things – not just the way the Act applies to schemes.

    We also note that the government has recently issued a media release and a fact sheet entitled, Encouraging employee share ownership and entrepreneurship.

    These reforms change the tax treatment of employee share schemes to bolster entrepreneurship in Australia and to support innovative start-up companies.

    Meanwhile, ASIC will continue to monitor employee incentive schemes with interest.

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