ASIC consults on employee incentive scheme relief

Australian Securities and Investments Commission (ASIC) has released consultation paper 218 on Employee Incentive Schemes, detailing proposed changes to the relief offered for employee share schemes from the disclosure and licensing requirements of the Corporations Act 2001.

The consultation paper canvasses the potential replacement of Class Order CO 03/184 Employee Share Schemes (Class Order 03/184), and the updating of the guidance provided in Regulatory Guide 49 Employee Share Schemes.

While the current Class Order 03/184 is restricted to offers made by listed bodies and their associated bodies, and unlisted bodies (in limited circumstances), the new Class Order will propose an expansion of the relief offered to also cover wholly-owned subsidiaries of unlisted bodies. The new Class Order also:

  • expands and modifies the existing relief to include offers made to those entitled to receive offers, including certain contractors and casual employees
  • expands the types of ‘eligible products’ which can be offered by listed bodies and their associated bodies corporate, including performance rights
  • expands and modifies the relief extended to structures being used by listed bodies, including offers of shares, foreign shares, depository interests and stapled securities
  • expands the relief for products offered by unlisted bodies, including options of performance rights relation to fully paid ordinary shares
  • modifies the condition for relief, including:
    • the quotation period
    • revised share capital limit formula, and
    • clarified ASIC notification requirements, and
    • adds the following new general conditions:
      • that at least 25 per cent of a scheme participant’s entitlement must be subject to a 12-month restriction
      • offer documents must be clear, concise and effective, and
      • ASIC can exclude a body from Class Order relief.

Governance Institute of Australia is pleased to see that ASIC is reviewing the regulatory regime for employee incentive schemes given the competitive advantage that these types of schemes can offer by being able to align the employee’s interests with those of the company. We note that since the introduction of the Corporations Amendment (Improving Accountability on Termination Payments) Act 2009 (the termination benefits legislation), listed entities have moved away from using employee incentive schemes in light of the amended Corporations Act 2001 requirement for companies to seek shareholder approval where a termination benefit, broadly defined, is to be conferred on a company director or key management personnel (KMP) that exceeded one year's base salary. 

A review of the ASIC relief framework, and the potential expansion of the existing relief, therefore, offers an opportunity for entities to reconsider incorporating employee incentive schemes back into their remuneration structures.

ASIC is seeking feedback on the consultation paper by 31 January 2014 and further information about the proposals for updating the Class Order and guidance provided in Regulatory Guide 49 can be found on the ASIC website.

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