Long wait for employee share scheme changes

Denham Sadler
Senior Reporter

The government’s planned changes to employee share schemes have stalled, with no action taken in more than a year.

It comes as submissions made to Treasury on the proposed changes to the scheme have finally been made public. Many submissions said that the changes don’t go nearly far enough, and more significant reform was needed to encourage innovation and attract tech firms to Australia.

Treasurer Josh Frydenberg first announced the planned reforms to employee share schemes in November 2018, saying they would “help employers attract, retain and motivate employees and grow their businesses”.

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Melbourne – a beautiful city with beautiful startups

The changes included raising the cap from $5000 per employee to $10,000 and further exempt startups and small businesses from reporting requirements and disclosures.

The government has acknowledged that the current scheme is “complex and fragmented and ultimately discourages some businesses from offering employee share schemes”.

While most submissions on Treasury’s consultations on the changes welcomed the move, many also said much more significant reform was needed to make the scheme was competitive as measured against other countries’ offerings.

In its submission, the Australian Investment Council said that further reforms are needed to employee share schemes.

“We believe that further reforms are necessary to make them even more widespread and increase their effectiveness in incentivising employees to share in the common goals of business growth and success,” the Australian Investment Council said.

The planned legislative changes offer a “compelling opportunity to make meaningful reforms to not only provide startups, scale-ups and other high-growth companies with valuable remuneration and recruiting tools in the form of ESSs, but also to help boost Australia’s startup and innovation ecosystem over the long term”, the Council said.

The group argued for the cap on shares that can be offered to an employee to again be doubled to $20,000, and for the removal of the rule that employees can’t sell their shares for three years after acquiring them.

Another requirement that a company must have been incorporated less than 10 years ago should also be scrapped as many founders re-use the same corporate entity when starting a new company, the Council said.

This would “better accommodate for the evolution of many startups as businesses that had limited success in earlier ventures but have nonetheless grown and succeeded later on”, it said.

Several other submissions also called for the cap to be increased further to $20,000, including from startup giant Culture Amp and law firm Baker McKenzie.

Further reforms to employee share schemes were needed to better encourage innovation in Australia, the Law Council of Australia said in its own submission.

“This regime does not now appropriately take into account other policy objectives, namely the need to encourage innovation in Australia and to support all businesses in attracting and retaining the people that they need to develop leading products and services,” the Law Council said.

Industry group StartupAus has also been lobbying for more significant changes to the scheme for several years, including an exclusion for employees receiving equity from the investor ceiling, and an expansion of the startup concession to all tech companies.

Do you know more? Contact James Riley via Email.

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