ESS Design

The key to an effective ESS strategy is to get the key design issues right at the outset. These include:

  • What type/s of scheme best suits our incentive purpose?
  • Who should participate in the scheme/s and why?
  • How many ESS interests should be offered now and in future and in what proportions?
  • What performance, service and other conditions, if any should be considered and why?
  • What about income tax, securities law, ASX listing rule, governance, employment law, FBT, payroll tax, change of control, dilution limits, termination provisions and all the other ancillary issues?

Consideration and resolution of this complex matrix should ensure the optimal solution, all things considered.

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Compliance + Approval

Once the key ESS design issues have been agreed the compliance and approval steps usually follow, including:

  • Board approval;
  • Shareholder approval, if required;
  • Constitution compliance;
  • ASIC compliance;
  • Documentation, including:
    • Rules;
    • Participant Guides (including a taxation summary);
    • Trust Deed (if required);
    • Invitation Letters; and
    • Acceptance Forms.

Once the approval and compliance issues are resolved then the ESS program is ready to implement and communicate.

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Implementation

To be complying is one thing to be effective is another. If your company is going to offer equity to participating employees under an ESS you need to ensure that:

  • It is presented clearly and professionally with all of the obvious questions answered in the offer documents, otherwise recipients are likely to devalue the benefit;
  • Participants should be given the opportunity to ask questions in respect of the plan and the offer, preferably in an open form;
  • Once accepted, participants should receive a Holding Statement (or similar) recording their interests; and
  • All post offer requirements need to appropriately managed, as required including, Appendix 3B & 3Y lodgements, CFO8 lodgement, Payroll Tax reporting, ESS reporting, ESS register maintenance and so on.

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