Employee share schemes have been overhauled as a part of Treasurer Josh Frydenberg’s Budget 2022/23 announcements, with the government introducing a number of changes to increase access to share schemes.
Companies use employee share schemes to incentivise current and potential employees by offering an opportunity to purchase shares or options in the company, usually at a discount.
The government has now removed the previous value cap placed on employees looking to purchase shares in an unlisted company, replacing it with a new monetary cap.
Employees can now purchase up to $30,000 worth of shares per year, a dramatic increase from the previous $5,000 cap. This means that employees can buy as many shares as they would like, at any value, so long as they do not pay more than $30,000 each year.
Additionally, employees accrue their yearly cap for a maximum of five years or $150,000 when holding unexercised options.
Where the company is sold or listed through an IPO shortly after the employee shares are issued, the monetary cap does not apply.
The 2022 changes also reduce administrative burden by lessening the disclosure obligations on unlisted companies. Companies are only required to provide a simple disclosure statement to employees where they purchase shares or options for a cost. Where the shares or options are provided at no cost, there is no disclosure requirement.
Changes to the accessibility of share schemes also mean that employees from all levels – not just those from the C-suite – can now participate.
The government is hoping the changes will help grow the number of employee share schemes in the market, allowing Australian companies to better compete in the international war for talent.
The government is also hoping to fuel productivity growth by more readily facilitating employees holding a direct interest in their employers. Such productivity growth will be an essential marker of success for the country’s current economic caretakers, who have promised to beat back near-certain rate rises with increased productivity levels.
More than ever, employee share schemes provide a great opportunity for companies, particularly for start-ups in competitive technology-focused market segments. Proper structuring and long term legal and strategic planning can see savvy competitors thrive at the expense of their slow-moving counterparts.
The nature of these changes to share schemes will also become an important consideration for companies approaching an exit event.
Holding Redlich has had the privilege of working with many clients across a variety of spaces lockdown their talent and prepare for an uncertain future.
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The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.