An employee share scheme (ESS) gives small businesses the ability to attract, retain and motivate staff with an opportunity to invest in the company. The Government is reducing the costs and administrative burdens for businesses to provide incentives to their employees as part of their remuneration and align the company and employees’ interests. For start-ups in particular, an ESS provides a way to attract employees at a time when they are often cash poor.
Limitations on businesses offering ESSs
When a business offers an ESS to its employees it must meet a range of obligations under the Corporations Act 2001 (Corporations Act). This includes requirements on disclosure, licencing, advertising, hawking and the on-sale of financial products.
The current regulatory framework provides some exemptions that enable offers of securities and products under an ESS but these exemptions are complex and fragmented, as well as being overly-restrictive.
Feedback indicates disclosure and other obligations under the law can also discourage small businesses from implementing an ESS. For example, some obligations may result in the public release of commercially sensitive information or may be costly or time consuming to comply with.
Actions to reduce the time and cost burden for businesses making an ESS offer
Simplifying and expanding the regulatory framework
The Government will make the ESS rules easier to follow by creating a dedicated ESS statutory conditional exemption. The exemption will apply to the disclosure, licensing, advertising, hawking and on sale obligations under the Corporations Act 2001.
The exemption will be expanded from what is currently available. The exact details of the exemption will be informed by consultation and will include consideration of:
- Increasing the size of eligible offers
It is proposed to expand the opportunity to make ESS offers by an unlisted company (most likely to be a small business) by increasing the limit on eligible financial products that can be offered to employees in a 12 month period from $5,000 per employee to $10,000 per employee.
- Expanding the products that can be offered
It is proposed to expand the ESS exemption to include products such as contribution plans. This is where the employee makes a monetary contribution that is then used to acquire eligible products offered under the ESS.
- Expanding the exemption from public disclosure
It is proposed to expand the current exemption from public disclosure of financial information. This will mean that small businesses that do not otherwise have obligations to disclose their financial information can offer an ESS without publicly disclosing their financial information.
Benefits to businesses
Supporting businesses to incentivise their employees
ESSs align the company and the employees’ interests and enable employees to share in their employer’s growth and success. For start-up businesses in particular, ESSs provide a way to attract employees at a time when they may be cash poor.
Reducing time and cost burdens on businesses
The Government will address the complexity and fragmentation in the current ESS regulatory framework to make the rules easier to follow. This will mean that businesses spend less time and money when making an ESS offer to their employees.
Providing protection for commercially sensitive information
The disclosure and other obligations under the law can discourage small businesses from offering an ESS because it may result in the public release of commercially sensitive information. For start-ups in particular, keeping sensitive information confidential is important at a stage when they are still establishing market share.
Creating efficiencies in business costs
Efficiencies can be achieved by providing businesses with the ability to offer ESSs with a higher dollar limit per employee. This is because administration costs are shared across a larger value ESS offering, reducing costs on a per share basis. This is particularly important for small businesses whose shareholder base can typically be made up of a number of low value parcels.