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Broad-based share plans have been a common incentive for employees among ASX listed companies. They have been considered an effective tool for aligning employees with the company’s strategic objectives and shareholders.

However, with so many changes to workforce management and the ways we work – are these plans still valued by the modern employee?

The short answer is yes, but not necessarily for the reasons that once drove the implementation of these plans.

Why are broad-based share plans valued by the modern employee?

Financial empowerment

Buying, selling and holding shares can be a daunting process for those who have never invested in the share markets or who may not have the financial literacy to fully understand the risks and rewards involved. Broad-based share incentive plans often feature user-friendly mechanisms, eliminate administrative barriers and ensure that employees can effortlessly engage and derive benefit from share purchases in small quantum that build up over time. If appropriately designed and implemented, they provide employees with a seamless pathway to becoming shareholders without the complexities of engaging a broker or setting up trading accounts.

Participating employees gain a tangible stake in the company’s success, leading to increased financial wellbeing, a sense of shared alignment with the success of their employer and a deeper understanding of the pivotal factors driving value creation.

Long-term wealth creation

These plans serve as an effective tool for long-term wealth accumulation. Participation provides a strategic means for employees to accumulate wealth and is particularly advantageous during periods of lower share prices. This accumulation serves as a saving mechanism to achieve long-term personal financial goals.

As shareholders, employees have the opportunity to receive dividends, enhancing their financial rewards further contributing to generating passive income for employees.

Strategic alignment

Broad-based share plans are strategically designed to align employees across the organisation with the company’s overarching performance and long-term vision, fostering a shared sense of purpose and benefiting employees from the growth of the company. They drive collective efforts toward sustained success.

Considering the S in ESG

Organisations are increasingly focused on ESG metrics and what it means for how their organisation develops and grows over time, with popular focus being on the environmental impacts that an organisation is having. Often forgotten in the conversation around ESG is the social impact. Broad-based share plans can be an excellent vehicle for driving social impact – by providing employees an ability to donate shares on a re-occurring basis to community or social enterprises.

Which plan design is right for my company?

Deciding upon the most appropriate instrument for your employee group can be the key to a successful plan. As a snapshot, we have listed below some of the most common broad-based share arrangements among ASX listed companies, and some of the key considerations:

$1,000 tax exempt plan

This Australian tax concessional plan allows employees to acquire up to $1,000 in ordinary shares annually without forfeiture risk, subject to meeting employee share scheme rules for tax exemption. This is one of the most common broad-based plans in Australia. This is because of the tax concession which provides participants who have an adjustable income of less than $180,000 with a tax-free grant of shares. However, this plan is often not tax effective when rolled out to employees in jurisdictions outside of Australia, and the $1,000 cap can feel like a token amount when offered standalone.

Salary sacrifice plan

This plan allows employees to trade income for shares or rights on a pre-tax basis, potentially eligible for deferred tax treatment under specific employee share scheme rules. It offers greater design flexibility but is less common and is an Australian-centric design.

Matching contribution plan

Employees are required to purchase company shares (either pre-tax or post-tax) at current market value initially, with a predetermined matching principal for companies to provide shares once service-based conditions are met (i.e. for every two shares purchased, the company provides one free share after 12 months). Although common and often tax effective globally, it involves more administrative effort and employee understanding is crucial for participation. There is also a retentive element of this plan given employees must remain with the company for a predetermined service period to receive the free matching share.

Discounted share purchase plan

Employees can purchase company shares at a pre-determined discount to market value. This plan is not a common plan for ASX listed companies, however, it is common among foreign listed organisations especially US based organisations. Employees may find the discount less enticing compared to gift plans, and participation is usually lower as a result.

Do the Australian disclosure and licensing obligations impact on the type of broad-based plan that my company offers?

They can do.

Broadly, there are both disclosure and licensing obligations that companies will need to comply with when offering shares to participants within Australia, unless a statutory exemption applies. Typically, the statutory exemptions can be worked through for ASX listed entities. Whilst the conditions of the relief for no monetary consideration offers are relatively straight-forward, the same does not necessarily hold true when a participant has to pay or sacrifice salary or other monies. At its most extreme, the conditions for monetary consideration offers include: the company, directors, and certain other persons being liable for misleading and deceptive statements and omissions.

How can PwC help with implementing a broad-based share plan?

Having the right team to design and implement a broad-based share plan is key because there are many stakeholders that are required to input along the journey.

Based upon our experience in this area, a well-designed and simple share plan can provide enduring benefits to employees, with the key to success being the story that goes along with the plan.

PwC has years of experience helping ASX listed companies implement broad-based share for an Australian-centric workforce and also for a global population. If you would like to discuss the implementation of a broad-based share plan further, please contact us.

If you have any queries about the above or require any assistance, please do not hesitate to contact one of our PwC Reward Advisory specialists.