The full article is published in the GRG Remuneration Insights.
In 2022, a comprehensive review led to amendments in the Corporations Act, specifically Division 1A of Part 7.12. These changes aimed to tackle persistent challenges in the regulation of ESS. While the initial goal was to replace the old framework by October 2022, further considerations unveiled new complexities that needed addressing. As a result, ASIC extended the availability of Class Orders until February 2023, introducing a consultation process that culminated in a Legislative Instrument (2022/1021) and accompanying Explanatory Statement.
Starting March 1, 2023, all Employee Share Schemes must adhere to the new framework outlined in Legislative Instrument 2022/1022. These changes bring about a series of improvements, as well as some challenges that we must navigate. Here are some key takeaways from the review:
- Relief Methods and Compliance: The new framework introduces updated methods for obtaining relief, which will impact both listed and unlisted companies. This shift replaces reliance on Class Orders and Section 708 with Division 1A of Part 7.12 of the Act. This change is expected to bring more clarity and efficiency in complying with ESS regulations.
- Solving Long-Standing Issues: The review successfully addressed several uncertainties that existed in the old framework. For instance, it clarified the rules around on-sale of shares within 12 months, enabling smoother equity plan operations. Additionally, it provided clarity on relief for ESS interests provided to foreign participants in foreign jurisdictions, eliminating ambiguity.
- Remaining Challenges: Despite the positive changes, certain challenges remain. Options other than zero exercise priced options are now categorised as “contribution plans,” leading to increased disclosure and compliance requirements. This could push many companies to switch to Share Appreciation Rights (SARs) for their equity plans. However, the Tax Act might require further alignment to fully integrate SARs for certain cases.
- Impact on Equity Plans: The new framework alters the limits and regulations for equity plans, offering more flexibility and competitive edge to both listed and unlisted companies. It’s anticipated that many companies will find it beneficial to transition from option plans to SARs.
For a detailed understanding of the changes and their implications, make sure to dive into the full article here.
These amendments bring about several changes in the ESS landscape, modernising regulations and empowering companies to embrace more comprehensive and employee-friendly equity plans. As we embark on this new chapter, it’s essential for businesses to align their practices with the updated framework to ensure compliance and seize the opportunities it presents. If you’re looking to navigate these changes seamlessly and optimise your executive incentive plans, please reach out and we will assist.
Denis Godfrey, CEO and Founder
James Bourchier, Director
Find out more information on BoardRoom’s Employee Share Scheme services.