ASIC consults on its employee incentive scheme policy

Articles Written by Karina Marcar (Partner), Alice Hudson

ASIC is proposing to update its policy on employee incentive schemes.

As part of that process, ASIC released Consultation Paper 218: Employee Incentive Schemes (Consultation Paper), seeking feedback from stakeholders by 31 January 2014 on its proposed new relief and regulatory guidance. ASIC currently anticipates releasing a revised Regulatory Guide 49: Employee Incentive Schemes and class order in May 2014.

In this update, we discuss some of the key aspects of ASIC's proposals and our submissions to ASIC on them.

For the most part, we consider that ASIC's proposals are an appropriate response to market developments, particularly in recognising issues with trust structures, the offer of performance rights and the potential characterisation of incentives as derivatives.

However, we believe that a number of ASIC's proposals still impose too high a regulatory burden, such as a proposed new condition of relief that requires the issuer to disclose the 'key risks' associated with the offer. Some of its other proposals do not adequately take into account taxation consequences or are otherwise commercially unattractive.

Background to Consultation Paper

ASIC has stated that it has revisited its employee incentive scheme policy in light of legislative change and market developments.

In essence, ASIC has previously provided class order relief under the existing CO 03/184 from various Corporations Act provisions (including the prospectus, financial services licensing, advertising and hawking provisions) for employee incentive schemes that meet specified criteria. The intention of the policy was to reduce the regulatory burdens which would otherwise prevent employers offering employees equity-based incentive arrangements, and was in addition to certain Corporations Act exceptions available for incentives to senior managers.

Schemes falling outside the policy or Corporations Act exemptions required applications to ASIC for case-by-case relief. The frequency of these relief applications and the policy that has developed in evaluating relief applications has informed the Consultation Paper.

Policy proposals include:

  • expanding relief to prospective employees and certain contractors and casual employees
  • expanding relief to non-executive directors (with specific restrictions, such as no performance conditions and no loans)
  • expanding relief to offers of performance rights, specified depositary interests and options over stapled securities or depositary interests
  • expanding relief to certain offers made through unallocated trusts (i.e. where shares are held in an unallocated pool on behalf of employees)
  • inclusion of a key risks disclosure in offer documents
  • an additional condition requiring a 12 month holding period before vesting of at least 25% of eligible products; and
  • expanding relief for unlisted bodies, including exemptions for offers of ordinary shares valued up to $1000 per year or for offers of performance rights.

ASIC has released the draft updated Regulatory Guide 49 together with its Consultation Paper. ASIC has not released draft class orders at this time.

If you have any queries regarding this update, please contact one of the members of our Head Office and Governance team named below.

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