Australia: Employee incentive schemes to be made easier under new ASIC policy

Last Updated: 22 November 2013
Article by David Landy

Key Points:

Class Order relief will be extended to schemes offering non-share products, such as performance rights, options over stapled securities, and certain depositary interests.

Employee incentive schemes will be easier to implement under new ASIC policy starting next year.

At present, a limited range of schemes are automatically exempted from the disclosure, licensing and advertising requirements of the Corporations Act (by ASIC Class Order). Other schemes can get relief, but only if they individually apply to ASIC – a process which involves additional costs and time.

ASIC now proposes to widen the classes of scheme which are exempted by Class Order, and to modify the relief granted by the Class Order.

One of the biggest changes is that Class Order relief will be extended to schemes offering non-share products, such as performance rights, options over stapled securities, and certain depositary interests. Other significant changes include:

  • a three-month (rather than 12 month) minimum quotation period for the products offered under the scheme;
  • extending Class Order relief to cover schemes offered to contractors and casual employees;
  • a new requirement restricting the ability of employees to dispose of products after they are granted; and
  • new "clear, concise and effective" requirements for scheme offer documents.

The new relief is currently expected to start in the first half of 2014.


Under existing ASIC relief (ASIC Class Order [CO 03/184]), ASIC gives conditional relief from the following provisions of the Corporations Act to certain bodies who provide an employee share scheme:

  • the requirement to provide a disclosure document for offers under the scheme;
  • the requirement to hold an AFS licence for the provision of general advice when circulating and explaining the terms and conditions of the scheme;
  • the prohibition on advertising or publicity before an offer or intended offer; and
  • the prohibition on the issue or sale of financial products arising out of unsolicited contact with employees.

An outline of ASIC's proposed amendments is set out below.

What financial products can be offered by listed bodies?

ASIC's current relief applies to offers for the issue or sale of fully paid shares in the issuer, options for the issue or transfer of these shares, units in these shares and fully paid stapled securities (comprising two or more financial products one of which is a share).

ASIC proposes to broaden the financial products covered by the relief to include:

  • performance rights – including those which may be cash settled or provide dividend / distribution equivalents rights;
  • options over and units in stapled securities quoted on ASX; and
  • quoted depositary interests and receipts – CHESS Depositary Interests quoted on ASX, CREST Depositary Interests and American depositary receipts quoted on approved foreign markets.

Period of Quotation required for listed bodies

ASIC proposes to change the period of quotation required to be eligible for its relief from a 12month period without suspension for more than two trading days, to a three month period without suspension for more than five trading days in the shorter of the period in which the financial products have been quoted or the 12months before the offer is made.

New 12 month holding requirement

ASIC proposes to impose a further condition of relief that each offer of eligible products under an employee incentive scheme must not result in the participant receiving 25% or more of their entitlements under each offer as cash or shares (which are not subject to restrictions from disposal) until the expiry of a minimum 12 month period commencing on the granting of the eligible products.

Disclosure to participants and ASIC

ASIC proposes to include additional requirements to the relief that:

  • the offer document be worded and presented in a clear, concise and effective manner, and with a brief summary of the key risks; and
  • the offer document and all other accompanying documents given to participants in connection with an offer under an employee incentive scheme must be made available to ASIC on request.

However ASIC would replace the current requirement for the body relying on the relief to provide offer documents to ASIC with a requirement that the body notify ASIC using a specified form within seven days of making its first offer under an employee incentive scheme made in reliance on the relief.

Relief available to unlisted bodies

ASIC proposes to facilitate employee incentive scheme relief for unlisted bodies where the body:

  • only has one class of shares, being fully paid voting ordinary shares (ordinary shares);
  • offers A$1,000 worth of ordinary shares for no more than nominal monetary consideration (which can be made annually);
  • offers options over and/or performance rights relating to ordinary shares for no more than nominal monetary consideration;
  • makes such offers in an offer document, presented in a clear, concise and effective manner and containing appropriate risk disclosure; and
  • at the time the options are exercisable, or the performance rights vest:

- the body has been listed on ASX or an approved foreign market for at least 3 months without suspension of more than five trading days in the shorter of the period in which the financial products have been quoted or the 12 months before the offer is made;

- all the ordinary shares in the body are disposed of and an independent expert report is provided to participants on the value of the ordinary shares; or

- an offer information statement or prospectus is given to the participant.

Plans involving trusts

In regards to trust structures, ASIC proposes to:

  • extend its relief to cover offers of eligible financial products (excluding options and performance rights) that are held on trust and are allocated to specific participants, and also to include eligible financial products held in a pool for participants generally on an unallocated basis; and
  • impose a new condition, for products held on trust on an unallocated basis, that no more than 5% of the issuer's eligible products to which voting rights attach may be held on trust for participants.

Contribution plans and loan plans

In regards to contribution plans, ASIC proposes to:

  • expand the relief to include salary sacrifice arrangements of future earnings as well as deductions from taxed salary amounts; and
  • allow plans to require a notice period of no more than one month before a participant "opts out" of the plan (currently discontinuation at any time by a participant is required).

In regards to plans involving loans, ASIC proposes to impose conditions that loans must be limited or no recourse, are not repayable for the duration of the loan, and are interest free.

Who can receive offers?

ASIC's current relief applies to offers made to full-time or part-time employees and directors of the issuer or of an associated body corporate.

ASIC proposes to broaden the range of persons covered by the relief to include, in addition to employees:

  • contractors who have performed worked under a contract for the issuer (or an associated body corporate of a listed issuer or wholly owned subsidiary of an unlisted issuer) for the 12 months prior to the date of the offer and during that time the number of hours worked represent 80% or more of a full‑time equivalent;
  • casual employees who have been in employment with the issuer (or an associated body corporate of a listed issuer or wholly owned subsidiary of an unlisted issuer) for the 12 months prior to the date of the offer and during that time the number of hours worked represent 40% or more of a full‑time equivalent;
  • prospective employees as part of an offer of full-time or part-time employment provided that the offer under the scheme can only be accepted if the employment offer is also accepted.

ASIC also proposes to make the application of the relief to non-executive directors subject to additional conditions including that the acquisition of financial products is not subject to a condition linked to the performance of the issuer, the director must contribute their own funds for the acquisition and the scheme must not involve a loan or other financial assistance.

Other proposals

ASIC also proposes other changes including:

  • extending the on-sale relief currently provided to cover offers under employee incentive schemes of all eligible financial products to all participants and provide disclosure relief and additional on-sale relief for offers of eligible financial products to the trustee of an employee incentive scheme (and which are subsequently transferred to a participant); and
  • clarifying the calculation of the 5% share capital limit in regards to the expanded eligible financial products.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

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