ASIC has Released a Consultation Paper for Proposed
Changes to its Policy on Employee Incentive Schemes
The Australian Securities and Investments Commission (ASIC) has
released a consultation paper, seeking feedback on proposed reforms
to its class order relief and guidance for employee incentive
schemes. An updated version of its Regulatory Guide on employee
incentive schemes has been circulated with the consultation
In a welcome development for employers, ASIC proposes various
changes designed to facilitate the use of employee incentive
schemes, in line with market practice. These changes include:
broadening the types of financial products that may be offered
under employee incentive schemes, including stapled securities and
enabling contractors and casual employees to participate in
incentive schemes (provided they meet certain conditions), as well
as prospective employees
providing more flexibility for employers to structure their
incentive schemes, including the use of trust structures,
contribution plans and loan arrangements
reducing administrative burden by not requiring lodgment of
documents with ASIC
expanding the circumstances in which unlisted bodies can offer
employee incentive schemes.
In addition, ASIC proposes to:
reduce the minimum quotation condition applicable to the offer
of listed shares from 12 months to three months
clarify that associated bodies corporate of an issuer (rather
than the narrower class of 'related bodies corporate') can
offer securities under an employee incentive scheme.
More detail about some of the proposed changes is set out
What Financial Products May Be Offered under an
Employee Incentive Scheme?
As well as fully paid shares and options over fully paid shares,
ASIC proposes to permit the offer of the following products under
employee incentive schemes:
CHESS Depositary Interests (Australian CDIs) quoted on the
Australian Securities Exchange (ASX) as well as CREST Depositary
Interests (UK CDIs) and American Depositary Receipts (ADRs) quoted
on approved foreign markets
fully paid stapled securities quoted on ASX
options over, or units in, the above financial products
certain performance rights relating to these financial
products, including rights to underlying eligible financial
products or equivalent cash amounts.
This is a welcome proposal given the general popularity of
products such as performance rights which currently require
individual relief to be sought from ASIC, which is a timely and
Who Can Participate in Employee Incentive
As well as full time and part time employees (including
executive directors), ASIC proposes permitting other categories of
staff to participate in incentive schemes, on certain conditions,
including the following.
The contractor must have worked for the employer for 12 months
before the offer is made, on the pro-rata equivalent of 80 percent
or more of a full time position.
The employer must intend to continue employing the contractor
for a further 12 months.
The employee must have worked for the employer for 12 months
before the offer is made. During that time, worked the pro-rata
equivalent of 40% or more of a full time position.
Non-executive directors may participate in incentive schemes
offered only to non-executive directors, but not in general
employee incentive schemes.
An incentive scheme for non-executive directors is limited to
the offer of shares, depository interests or stapled securities
(and may not extend to performance rights or options).
Non-executive directors must contribute their own funds to
acquire the products, which can occur through a contribution plan,
but must not involve a loan or other financial assistance.
Structuring Employee Incentive
In line with market practice, ASIC proposes to permit employee
incentive schemes to use a trust structure, in which the trustee
may hold specific products on trust for specific employees, or it
may hold products in a pool, on trust for the scheme participants
Feedback on the consultation paper is due by 31 January 2014. If
you are considering making submissions on the consultation paper,
please let us know and we will be happy to assist.
As an alternative to the proposed changes summarised above, ASIC
has noted that two other alternatives are available: to maintain
its existing approach, subject to some minor updates; or to make
changes without imposing investor protection conditions on
employers. ASIC does not recommend these alternatives, but is
interested in receiving any feedback on them, as well as its
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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