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Friday 31 October 2014

14-287MR ASIC update of employee incentive scheme policy and release of class orders

ASIC has released an updated regulatory guide and new class orders on employee incentive schemes.

Key points:

  • ASIC is reducing business costs by broadening our relief to better facilitate employee incentive schemes and to reduce the red tape associated with notifying ASIC.
  • This will enhance the relationship between an employer and its employees, with the objective of improving business performance, engaging employees and strengthening employee commitment.

ASIC's updated Regulatory Guide 49 Employee incentive schemes (RG 49) follows Consultation Paper 218 Employee incentive schemes (CP 218), issued in November 2013 (refer: 13-310MR).

ASIC has also replaced Class Order [CO 03/184] Employee share schemes with two new class orders to facilitate the offer of a range of financial products under employee incentive schemes. One class order relates to listed bodies and the other to unlisted bodies.

ASIC Commissioner John Price said, ‘We will facilitate more employee incentive schemes in light of various legislative changes and market developments and practices, while balancing this with the information needs of employees. We have expanded the types of products that can be offered, the categories of people who can participate and the structures that can be used for employee incentive schemes.’

Employee incentive schemes are designed to encourage retention and long-term interdependence between employers and employees by improving business performance, engaging employees and strengthening employee commitment. They are structured to align the economic interests of both parties and many do this by offering an ownership interest in the company, or a financial return linked to the performance and success of the company.

While broadening the scope of ASIC's employee incentive scheme relief, ASIC has not changed its fundamental policy settings, that is, to require:

  • the terms of the employee incentive scheme to support the long-term mutual interdependence between employer and employee
  • that employees have adequate information to assess the value of what they are being offered and to understand the terms and conditions, and
  • the employee incentive scheme is not offered for fundraising purposes.

'In meeting our fundamental policy settings, ASIC has been able to provide more relief for unlisted companies than has been given in the past. However, given there are fewer regulatory reporting and compliance obligations applying to unlisted bodies, and no readily available market price for their financial products, our class order relief is somewhat more restricted than for listed bodies.

'In addition to unlisted bodies being able to apply to ASIC for case-by-case relief, we also note the Government's recent announcement on taxation arrangements for employee share schemes, and the foreshadowed work by the Australian Taxation Office (ATO) in conjunction with industry, to develop and approve standardised documentation that will streamline the process of establishing and maintaining an employee incentive scheme', Mr Price said.

ASIC will be consulted by the ATO on this work, given our oversight of the disclosure documents that involve the offer of financial products.

ASIC also released Report 417 Response to submissions on CP 218 Employee incentive schemes (REP 417).


REP 417

RG 49

CP 218

View non-confidential submissions to CP 218

[CO 14/1000] Employee incentive schemes: Listed bodies

[CO 14/1001] Employee incentive schemes: Unlisted bodies


ASIC released CP 218 which publicly consulted on outlined proposed updates to our employee incentive scheme policy, which included:

  • expanding the classes of financial products which may be offered (e.g. CHESS Depository Interests and incentive rights that are derivatives)
  • expanding the categories of persons who can participate (e.g. contractors and casual employees)
  • providing greater flexibility in the way employee incentive schemes can be structured to better reflect market practices (e.g. amending the requirements for trust, contribution and loan arrangements), and
  • reducing the administrative burden of complying with existing relief.

ASIC received 21 written submissions on CP 218 that were in general supportive of ASIC's proposal to expand the scope of class order relief. However, some respondents thought ASIC policy should be extended further than that proposed in CP 218. A number of our initial proposals have been changed in light of these submissions, where it was possible to do so while balancing any consumer protection concerns.

The Government has recently issued a media release and a fact sheet, Encouraging employee share ownership and entrepreneurship, which outlines proposed reform to the tax treatment of employee share schemes to bolster entrepreneurship in Australia and support innovative start-up companies.


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Last updated: 31/10/2014 12:00