by Employee Share Ownership on January 21, 2012

Media Release 12 December 2006

The AEOA “ESOP of the Year Award” 2007

The Australian Employee Ownership Association (“AEOA”), Australia’s only non-profit association supporting and promoting the development of Employee Share Ownership Plans (“ESOPs”) throughout Australia, has great pleasure in announcing the “ESOP of the Year Awards” for the year 2007.

The awards in two categories recognise the achievements of companies who have successfully introduced what is termed “broad-based employee share ownership plans” in Australia. The winners are:

  • Computershare Limited – Best Employee Share Ownership Plan in a company with more than 200 employees.
  • OBS Pty Limited – Best Employee Share Ownership Plan in a company with less than 200 employees.

The awards were determined by an independent judging panel comprising:

  • Mr Paul Gollan, Academic, Department of Industrial Relations, London School of Economics;
  • Mr Bill Patullo, consultant, former Human Relations Manager, BHP Billiton; and
  • Ms Philippa Kane, former Secretary of the AEOA and small business owner.

The judging criteria was based on plans which:
(a)    were broadly based, that is, open to the majority (if not all) employees of the organisation;
(b)   had involved effective communication procedures (for example, handbooks, presentations, online communication); and
(c)    encouraged participation of employees as owners, and maximised take-up rates for the plan.

Computershare is one of Australia’s leading providers of share registry administration services.  Its objective in implementing the plans was to reward employees’ loyalty and commitment with a share in the company’s financial performance.  Computershare took advantage of the Government’s $1,000 per annum tax exempt and tax deferred provisions, to allocate shares to employees, based on a one for one matching by the company.  That is, for every salary sacrifice dollar of the employee, Computershare would match it dollar for dollar, up to a ceiling of $3,000.  This achieved an optimal take-up rate (that is, a 73% participation rate) for the plan.

OBS Pty Limited is a highly successful computer software company that implemented an employee share option plan as a prime means of retaining and motivating its employees. The aim of the plan is to link employees’ vision with that of the company and to introduce an “enterprise culture” into the company, in which the employees are encouraged to generate growth in the enterprise and share in that growth. The share options were issued for no cost to the employees, as part of a long-term incentive program under the government’s tax deferred tax provisions. The plan achieved a 98% take-up rate by employees.

The AEOA announced the Awards at its Annual General Meeting in Sydney on 7 December 2006. The Awards recognise the best examples of ESOPs at a time when Australian companies are experiencing rapid growth in employee share ownership.

The AEOA congratulates the boards and staff of Computershare and OBS as worthy winners of the 2007 ESOP of the Year Awards.

Gary D. Fitton
President, AEOA

For the presentations to the ESOP Award winners – including photos of the event – see the “2007 News” page.

Employee owned Biolytix awarded for Smart Business Practices

Biolytix Technologies invents, manufactures and sells the most environmentally advanced sewage treatment systems. The company has been commercialized for only 3 years and has already won 8 prestigious awards, including a Global Environmental Award at the World Expo in Japan. It has been awarded for both technology and business practices, including the Queensland Premier’s Smart Business Award for The Rising Star – for leading the way in business. It is one of Australia’s best examples of employee share ownership operating  in a private company.

Biolytix believes one of the reasons it has been so successful is because of the Biolytix Employee Share Scheme. The scheme was implemented in 2004 as a means of rewarding employees who contribute to the company’s success. In the company’s early days, many employees worked long hours for small wages. They were all given an allocation of units in proportion to their “salary sacrifice” (ie their years of sacrifice x salary “subsidy”). In total this equaled 20% of the current share portfolio. Now, at the end of each Financial Year, the trustees of TBESS allocate a number of units to all staff who have served the proceeding 12-month period, according to the above-budgeted profit.

19 Biolytix employees are part of the scheme (out of a total of 46 – as the company is still young and expanding rapidly many employees are just beginning to meet the eligibility criteria). Along with the unit allocation, each two years all staff members vote on a staff member they would like to represent them as a Trustee on the Trust. This ensures that the process of unit allocation has input from an elected staff representative.

One of the important aspects of the Biolytix® Employee Share Scheme is the fact that all employees are automatically eligible for the benefits once they have been with the company for 12 months – both the Managing Director and the factory floor staff. This is such a novelty for factory workers/production labourers that the “older hands” at the Biolytix® manufacturing facility proudly let new workers at the factory in their probationary period know that they (the “old hands”) are company owners! Pride in action!

Biolytix has a disproportionately large number of women – including their CEO, Jill Jordan – for what is sometimes viewed as the “sewerage” industry. A big part of this is because they can have significant ownership through their “Employee Share Scheme”.

For more information about Biolytix please see their website: www.biolytix.com .

See also the AEOA web-page “Private Company ESOPs” for more information on Biolytix, including a link to the “My Business” magazine article on their water treatment and recycling technology.

November 2006

Corporate and Financial Services Regulation Review – Proposals Paper

The above “Proposals Paper” in response to the Review undertaken earlier this year was released on 17th November.

The report proposes some very important reforms – and potentially some very big wins – for employee share schemes in unlisted companies.The reforms suggest a major victory for those who have been pushing for an easier route to employee share ownership in the unlisted companies area. The proposals certainly pick up on what the AEOA submitted to the Review.  However, much more work still needs to be done on legislative and regulatory reform to bring us into line with other countries on provisions for extending employee share ownership.

The relevant section (5.4) on these matters is extracted below. The full report can be accessed at: http://www.treasury.gov.au/contentitem.asp?NavId=037&ContentID=1189


Benefits may accrue from employee share schemes (ESS) through aligning the interests of employees and employers. The drivers behind the establishment of ESSs are:

• providing employees with an additional form of remuneration, or in the case of executives, remuneration that is also tax effective; and
• cultural change within a workplace, leading to higher productivity.

There are many types of ESSs in operation in Australia and different ways of implementing and administering them. For example, offers of shares may be made through a trust structure. ESSs are more common in listed companies than unlisted companies.

The use of employee share schemes raises a number of regulatory issues.
Disclosure, licensing and advertising
The following issues may arise in this context:
• Disclosure: Broadly speaking, unless a relevant exception applies, companies are required to issue a prospectus for their ESS unless it involves no more than 20 employees in any 12 month period and raises no more than $2 million;
• Licensing: Where the ESS offer document contains advice about the scheme, the licensing provisions in the Corporations Act 2001 may require the issuer to hold an Australian Financial Services Licence (AFSL) for giving that financial product advice. Where the ESS involves the issue of securities through a trust, the custodian may be required to hold an AFSL for dealing in those securities or for providing a custodial or depository service;
• Advertising: Advertising in relation to the ESS may breach the provisions in the Corporations Act 2001 regarding advertising of securities or financial products requiring a prospectus or PDS; and
• Hawking: The offer of securities or financial products under an ESS may breach the hawking provisions in the Corporations Act 2001.

ASIC Class Order 03/184 provides some relief from these requirements for listed companies, subject to certain conditions. It also provides relief for the avoidance of doubt from the provisions requiring the registration of managed investment schemes and the need to hold an AFSL for dealing in an interest in a managed investment scheme for contribution plans offered by listed companies.

The Government considers that OISs as defined in Chapter 6D of the Corporations Act 2001 provide an appropriate level of disclosure for employees of unlisted companies and their financial advisers regarding the information required to make a decision as to whether to participate in an ESS. To facilitate the use of OISs for unlisted company ESSs, it is proposed that the Corporations Act 2001 be amended to increase the $5 million amount in s709(4) to $10 million and to provide that amounts raised under ESSs are excluded from that calculation.

It is also proposed to extend the relief in ASIC Class Order 03/184 to unlisted companies, with the exception of disclosure relief. This will be effected by exempting the operation of ESSs from the licensing, advertising and hawking provisions generally. These exemptions would be subject to the same requirements in ASIC Class Order 03/184 in addition to the requirement that the advertising and hawking exemptions only be available for unlisted companies when they have made the offer under an OIS or other disclosure document. The requirement in the class order that the amount raised under an ESS should not be more than five per cent of the capital of the company addresses concerns arising out of the disclosure relief provided to listed companies. As it is not proposed that this disclosure relief extend to unlisted companies, this restriction would not be imposed on the proposed amendments for unlisted company ESSs.

Contribution plans for unlisted companies would also be exempted from the managed investment and licensing provisions.

For more information on share plans in unlisted companies, see our web-page “Private Company ESOPs”

2007 AEOA ESOP of the Year Award Nominations

In the photo below, Gary Fitton, AEOA President, and John Day of the AEOA Management Committee present Os Smyth and Liz Dekmetzian of the Foster’s Group with the 2006 AEOA “ESOP of the Year Award” in the category for a business with more than 200 employees.

Just a reminder, that the AEOA welcomes nominations for the 2007 awards in the two Award Categories as follows:

  • Best Employee Share Ownership Plan (public or private company over 200 employees)
  • Best Employee Share Ownership Plan (private company fewer than 200 employees)

Nominations close on 25th November, 2006. The guidelines for the Award and the process for submitting a nomination for them can be seen under “ESOP Awards” on our homepage.

To assist those nominating, you can use the following one page “Nominations Form” (which you can see here) and the one page “Supporting Details” form (which you can see here)

Yours sincerely
Australian Employee Ownership Association


Conference on Employee Entitlements and Employee Buyouts

The Workplace Research Centre (WRC at the University of Sydney), in conjunction with Members Equity Bank and Ithaca Consulting, are presenting on 23rd November, 2006 a Conference: New Directions in Employment and Financial Security: rethinking employee entitlements, employee buyouts and the role of super funds.

The WRC is keen for AEOA members to attend. They are pleased to offer AEOA members attendance to the Conference via the limited number of spaces they will have available at their discounted registration fee. To receive the discounted rate, you will need to use the registration form (which is not available to the general public) which is attached to the Conference flyer which you can see here, indicating that you are member of the AEOA.

Speakers/contributors on the day include Garry Weaven (Industry Super Funds), Richard Marles (ACTU), Anna Booth (Members Equity Bank) and Peter Anderson (ACCI). Two AEOA Committee members are also speaking. The full Conference program can be seen here .

In recent years corporate restructurings and collapses have become increasingly high profile events. A key feature of these events has been the losses workers suffer – not only of their jobs – but also of their entitlements. Traditional approaches to promoting financial and employment security have proved to be inadequate.

Alternative responses being considered include better provision of information on potential or impending collapses and support for employee buy-outs. The Conference is designed to explore the critical issues surrounding corporate collapse and to identify new ways forward.

The Conference will address especially the role that superannuation funds could play in investing in new equity streams associated with employee buyouts.

The research report that will inform the Conference – written by Australian researcher Anthony Jensen of Ithaca Research, who will also be presenting – can be accessed at the link below:


October 2006

Expert provides further evidence on Australia’s ESO development lag.

On Tuesday, 3rd October, 2006, Professor Andrew Pendleton (Professor of Human Resource Management, University of York UK, and Distinguished Visiting Fellow, University of Sydney) lead a seminar for AEOA members and guests on the “Current Position of Employee Share Plans in the UK” at Macquarie Bank headquarters.

Prof. Pendleton was a member of the UK government group that designed the Share Incentive Plan (SIP) and Enterprise Management Incentives (EMI) which were introduced in 2000 by the Blair Government. He has published widely on employee share ownership plans (see his extensive research at:

http://www.york.ac.uk/management/staff/StaffProfiles/APendleton.htm ).

The comprehensive and informative presentation – with all the data on the current UK scene – can be seen here.

Of note with regard to Australia lagging in the development of employee share ownership internationally, is that 19.6% of private sector workplaces with 5 or more employees have a broad-based share plan present in the UK and 32% of all employees in the sector are in workplaces where a share plan is present. There has been longstanding bi-partisan and political commitment to ESO in that country

Some of the key policy issues Australia could be considering from the UK include:

  • Capital gains tax applies on gains from selling shares rather than income tax on employee shares provided as a benefit from employment
  • Capital gains tax has fairly sizeable annual allowances (@ A$20,000)
  • Taper relief in the CGT regime is used to provide further benefits

The employee share schemes available in the UK are as follows (with their date of commencement):

  • Save As You Earn (SAYE) (1984).  A.k.a. ‘Sharesave’
  • Company Share Option Plans (CSOP) (1980, revised in 1996)
  • Share Incentive Plan (SIP) (2000)
  • Enterprise Management Incentives (EMI)(2000)
  • Approved Profit Sharing (1978-2002)

ALP Indicates that there is a “Case for Change” in ESO Policy

In the 20 September, 2006 edition of the Labor eHerald, the ALP national magazine online, the Shadow Treasurer, Wayne Swan, in the article “Key Incentives for Sustaining Growth”, made a very positive statement about the need for growth in – and reform of – employee share ownership. This section is extracted and provided below for the benefit of “AEOA News” readers.

Key incentives for sustaining growth

By Wayne Swan, Federal Shadow Treasurer

Australia has had a good run of prosperity but to stay strong in a changing world, we need a boost in education, skills and innovation along with a substantially better tax system.

Employee share ownership
To my mind, the confrontational model of labour and capital has no place in the modern economy. We need people to see that they are sharing in the capital-creating side of the economy and not just competing in global labour markets. We need as many workers as possible to become stakeholders and share a slice of the pie.

Just as we strived for homeownership in the last century, workers should strive for share ownership in the new century. This is true even more so due to the ageing of the population and shifts in wealth.

If share ownership is good enough for CEOs it should be good enough for regular employees too. Many companies have already discovered share ownership plans can help align the interests of management and employees.

As at 2004, about half a million employees had employee shares as a benefit of employment. Around two thirds are managers, but it is the growth in employee share ownership among non-managerial employees that is growing fastest. In the last eight years the number on non-managerial employees has quadrupled. And there are big benefits for business and employees alike.

  • One study of employee share ownership in the US found that companies which embraced employee share ownership coupled with participative management boosted their productivity growth rates by half.
  • Another study found employment and sales growth rates were nearly 4% higher once companies adopted employee share ownership schemes.

In Australia, there are hurdles to employee share ownership that need to be addressed. Offering share ownership schemes to employees is primarily a matter for business, but government can play a role. Governments can address many of the barriers which stand in the way of broader and deeper levels of employee share ownership – like tax and various legal issues.

I believe there is a compelling case for change and I will be taking the opportunity over the next twelve months to examine specific measures that could drive change.”

From: Labor eHerald, dated  20 September 2006 http://eherald.alp.org.au/articles/0906/natp20-01.php

September 2006

Hedging of Executive Options

In an article in the August 2006 edition of the Company Directors (Vol 22 No 07), published by the Australian Institute of Company Directors (AICD) and authored by Ms Domini Stuart, the issues concerning the “hedging” by directors and executives of their share options are canvassed.

Basically, by “capping” (i.e. limit) the growth potential of an option, an executive can “collar” (i.e. eliminate) the potential downside of the option, to produce a lower, but more certain, return from the security.

There are issues of concern, where the options hedged are subject to vesting conditions and the arrangements are not disclosed to the market.

In this interesting and informative article, Gary Fitton, President of the AEOA, is quoted and the AICD announces policy views on executive option hedging.

The complete article can be seen here.

Hedging – a Snapshot

The remuneration of top executives typically includes a performance-based component of options or performance rights which can be vested once certain performance criteria are met. These aspects of executive pay are considered ‘at risk’ and are designed to reward executives in line with corporate performance and shareholder return.

A number of investment banks are selling sophisticated derivative products to enable executives to minimise the risk of price fluctuations of these ‘at risk’ securities and to ensure executives profit from the performance-based components of their remuneration packages regardless of whether or not they have met the performance criteria.

AICD View on Executive Option Hedging

  • It is prudent for companies to have a written and published policy for the hedging of executive options.
  • The hedging of options should be prohibited during the pre-vesting period, particularly where the company has informed the market that a portion of remuneration is ‘at risk’.
  • Companies need to consider their individual circumstances in relation to securities that have already been vested.
  • Some of the more conservative views indicate companies should disclose hedging arrangements in respect of executive options.
  • Companies should consider a mechanism by which executives are required to report hedging of executive options.
  • Any current or emerging breaches of policy should be treated seriously, and where appropriate, disclosed to the market.

For more information on this topic, see our “ESOP Guidelines” web-page for information on “Executive Equity Plan Guidelines”. These Guidelines were released in February, 2007 and have been endorsed by the Australian Institute of Company Directors and the Australian Shareholders Association, as well as the AEOA.

Rapid growth companies are more likely to have broad ownership plans

In an article in the WorldatWork Journal (fourth quarter, 2005), Paul Schafer and Virginia Fischetti of Hewitt Associates report that among public companies with five year histories of double digit growth, 80% provided share ownership programs to employees below the executive level, while only 57% of single digit growth companies did. Of course, as the authors point out, the direction of causation here is speculative. Ironically, the authors note that changes in the accounting rules may mean many of these companies will abandon their broad-based plans to reduce the accounting charge.

Will shareholders be pleased companies eliminate an economically successful program just to appear more successful?

WorldatWork can be seen at: http://www.worldatwork.org
(Thanks to the NCEO for this news item)

August 2006

Employee Ownership in the US Twenty Five Years On: What could we look forward to?

If the breadth of employee ownership developments in the US over the past 25 years – as described below – is any indication, then the future looks very promising for employee ownership in Australia (where we could only describe ourselves as being in “the beginning phase”).

Several trends however make similar developments look likely here. These include: more people reaching an age where they will sell their business, the growing need to get employees involved in decisions and the tightening markets for skilled labour. These all suggest that employee ownership will play an even larger role in Australia in future.

Back in 1981 in the US (at the time of the formation of the National Center for Employee Ownership – NCEO), ESOPs were almost entirely about finance and benefits, not about corporate culture.

Research then undertaken on employee ownership – which was done by the NCEO as one of its first tasks – showed that, by themselves, ESOPs had no real impact on performance. Only when companies combined ownership with open book management and employee involvement in work-level decisions did it really make a difference. At the time, many were convinced that companies would not want to make these often difficult cultural changes. Over time however, the stories about the companies that had these cultures convinced those that didn’t that this was the right way to go.

As a result, employee ownership has become anything but “rare”. In 1981, there were a few million employee owners, mostly in ESOPs. Today, there are about 11 million ESOP participants, but there are also about 8 million non-management employees who get share options or other forms of ownership rights directly, nearly 15 million who buy shares in employee share purchase plans (including members of worker cooperatives), and 4 million who have more than 50% of their assets in 401(k) plans invested in employer shares. Because, many of these plans overlap, the total number of people who own shares in their employer is not simply the sum of each of these, but rather about 25 to 30 million employees, or about 39% of all employees who work for employers with shares. Companies are also putting a lot more into plans than previously, with most ESOP companies now contributing more than 5% of pay.

ESOPs also own much more of the companies that sponsor them. Early on, ESOPs were often used to buy small amounts of shares in public companies and minority stakes in “closely held” private and unlisted companies. While ESOPs did buy a majority in some companies, today that trend has accelerated substantially, with about a third of ESOPs owning a majority. That percentage is increasing and could reach more than 50% of all plans in coming years.

This trend is reflected in the recently released “Employee Ownership 100” in the US. This list shows that Publix Super Markets, with more than 136,000 employees topped the list of the largest majority employee owned companies in the US. To qualify for this list, companies must have at least majority employee ownership (more than 50% of the employees owning more than 50% of the shares). In 2006, the smallest company of the “Top 100” had 930 employees, compared to 900 in 2005 and 700 in 2004. Total employment for the top 100 companies was 550,182 compared to 505,675 last year and 421,688 in 2004. This is a lot of genuine “employee owners” involved in running their businesses.

The range of companies represented is also very broad. There were 16 manufacturers, 15 companies doing some kind of engineering, 13 supermarket chains and 10 construction companies. There were also other types of companies represented from restaurant chains like Round Table Pizza and Hot-Dog-on-a-Stick, to an executive protection service (Vance International) to high tech companies such a Science Applications International (SAIC) and W.L Gore and Associates.

The list reflects the continued penetration of majority (mostly 100%) ESOPs into large companies, as well as the expansion of many existing ESOPs, often through acquisitions.

The full “Employee Ownership 100” list can be seen at: http://www.nceo.org/library/eo100.html

(Data sourced from: “Employee Ownership Report”, July/August, 2006, published by the National Centre for Employee Ownership in the US – www.nceo.org ).

July 2006

“Ethical Investor” Magazine showcases latest Employee Buyout

Ethical Investor – a key ‘opinion-maker’ business magazine – has profiled one of the recent examples of an employee buyout using a leveraged ESOP as the financing mechanism to buyout a retiring owner. The showcased company is Box Built Pty Ltd in Acacia Ridge, a suburb of Brisbane (www.boxbuilt.au.com ). Box Built manufactures wooden crates and boxes (see photos below).

You can see the full published article here (from “Ethical Investor”, Issue 57, July, 2006, with permission).

Above: Box Built employee owners/staff participating in an ESOP meeting

ESO absent from IR reform debate

Much of the current IR reform debate has been concentrated on individual contracts and the relationship between individual employees and their employer – all under the guise of ‘flexibility’.  However, such ‘flexibility’ is unlikely to lead to higher levels of productivity as many of the reform advocates claim it will lead to.  This is because it is healthy dynamics in the workplace – and in their workforce – that drives productivity increases.

What managers should be looking for from the IR reforms is another kind of flexibility – the ability to create effective teams. Striking a multitude of individual contracts may lead to some initial cost savings, but there is not likely to be long-term productivity improvements. Workers are people who collectively respond to their environment, not the crudities of contract law. Methods are needed that rely on the ability of employees to act collectively towards improving processes – bright and motivated individuals are not enough, there must be collective capacity to implement. This is nothing new – it is called ‘teamwork’.

Productivity increases are also related to how much employees believe their employer is operating on the principles of trust. You aren’t going to tell your boss that there might be a better way to do something if don’t feel trusted, much less take action on your own, even as part of a team. In fact, nothing drives out innovation at work as much as fear.

Dr Klaas Woldring, Secretary of the AEOA, in his new report “Employee Share Ownership should be part of the HRM Repertoire” published in Human Resources Management Bulletin, issue 39, 27th February 2006, states that employee share ownership could offer the organisational climate which facilitates the implementation of modern HR ambitions and ideals. The benefits of Employee Share Ownership (ESO) are well known and cover: higher levels of employee commitment, increasing staff loyalty, higher levels of productivity, employee participation and higher individual earnings. There appears to be a large degree of congruence between these benefits and the claimed objectives and ideals of HR. Yet, the two haven’t come together, at least not in Australia. To achieve these objectives, the Australian IR system – despite the current reforms – will still be needing a major overhaul. Neither the approach being taken by the Federal government nor the counter approach offered by the ALP comes to terms with the need to effectively reorganise workplace employment relations. Instead, acceptable degrees of deregulation of employment relations should be linked to increasing degrees of employee involvement in enterprise ownership and governance.

The full report by Klaas Woldring can be seen here:

Further comments on this issue can be seen in the AEOA News columns for July, 2005 ( “Old Wine in New Bottles: IR Reform and ESO”) and March, 2004 (“Simply the Best Workplaces in Australia”) and in the “ESO and IR Reform” discussion, as well as the “International Focus” topic “ESO Marching Ahead in the UK” on the AEOA Discussion Forum (see link at top of this page).

June 2006

Lack of Government Support for Employee Ownership Continues.

None of the members of the AEOA who applied for Australian Government funding under the Small Business “Support for Business Succession” program received funding. This indicates that the Government still sees that the option of retiring business owners transitioning their business to their employees is a ‘last resort’ activity rather than a first resort option as seen in other developed economies. This is disappointing and indicates that much has still to be done to increase awareness in government and business circles that ESOP structured employee buyouts are not only right for owners to achieve good value for their business but also to ensure business continuity in a way that protects the employees jobs and the interests of those communities in which they reside. Employee ownership is about better businesses for everybody concerned.

If an owner is looking to retire, a sympathetic disposal to employees is a route being used very successfully on hundreds of occasions in Europe and North America. Many of these involve National and Regional promotional programs aimed at encouraging and assisting employees to purchase businesses over time through structures which provide for an owner to gradually reduce their involvement with the successor business.

From the public policy perspective in Australia, it is important therefore for Governments in this country to recognise that:

• The ageing demographics data is impacting on business owners as it is everywhere else
• Significant numbers of businesses will be vulnerable to transfer failure
• Employee buyouts are an increasingly attractive and popular business transfer option
• The take up of employee buyouts by vendors is constrained by a number of specific barriers that amount to market failure – notably lack of awareness, advice and guidance
• Governments can play a constructive role in helping to remove or reduce these barriers which, in time, will help reduce business transfer failure rates

Any public policy initiative will need to be driven by two key objectives:

1. To make the sale of any business to its employees as easy and as profitable to the business owners as a trade sale, and
2. To ensure that resources available in Government enterprise programs and to private professional advisory services – both of which are currently heavily weighted towards start ups and early business growth – are re-balanced so that there is equal emphasis placed on assisting business continuity across generations.

The case for public support for assisting business successions through employee buyouts (EBOs) has been extensively researched and is discussed further on this web-site’s discussion forum at “AEOA News” under the topic heading “Business Successions of Ageing Baby Boomers”.

See also the AEOA web-page “Private Company ESOPs” .

May 2006

Government extends current Division 13A tax concessions to stapled securities

There has been one small win for employee share plans announced in the 2006/07 Budget. The Australian Government has decided to extend current Division 13A tax concessions to stapled securities. This will extend employee share ownership to about 100,000 employees of those legal entities listed on the ASX which issue equity securities which are combined with (“stapled” to) securities listed by another legal entity.

The text of the relevant section of the Budget Measures 2006 -2007 reads as follows:

“The Government will extend the employee share scheme and related capital gains tax provisions to stapled securities that include an ordinary share and are listed on the Australian Stock Exchange, with effect from 1 July, 2006” (Budget Measures 2006-07 Budget Paper no. 2, p.18)

Corporate and Financial Services Regulation Review.

On 7 April 2006, the Parliamentary Secretary to the Treasurer released a Consultation Paper entitled Corporate and Financial Services Regulation Review with the intended outcome of implementing the Government’s aim for “A Simpler Regulatory System”.

The Consultation Paper contains a variety of corporate and financial services regulatory issues. The paper covers the areas of financial services regulation, company reporting obligations, auditor independence, corporate governance, fundraising, takeovers, collective investments and dealing with regulators.

Through consultation on the issues raised in the paper, the Government intends to develop definite proposals to achieve the following objectives:

  • Continued protection of consumers.
  • Minimising compliance costs for business.
  • Removing regulatory overlap.
  • Facilitating access to capital.
  • Enhancing the accountability of regulators.

The closing date for submissions is 19 May 2006.

The full Consultation Paper can be seen here

Employee share ownership issues are covered on Page 34 as quoted below. It should be noted that the second paragraph provides the opportunity for corporate law impediments to ESO other than those relating to disclosure to also be raised:

5.4 Employee Share Ownership Plans
In accordance with the Chapter 6D fundraising provisions of the Corporations Act, the issue of shares to employees for consideration requires a prospectus, unless it involves fewer than 20 employees in any 12-month period. ASIC has granted class order relief from this requirement to listed entities (Policy Statement 49). The main concern therefore relates to unlisted companies, for whom the expense and effort required to compile a prospectus is considered by business to be excessive.

In addition, a number of issues arise in the context of financial services regulation, which has unintended consequences with respect to Employee Share Ownership Plans (ESOPs). An example is that the operation of an ESOP may require obtaining a financial services licence.

On the other hand, shares in unlisted companies contain a higher level of risk due to the lower level of disclosure required for such entities. While employees may have a better insight into the financial circumstances of their employers, some level of disclosure may still be deemed appropriate to ensure that employees are informed of the nature of the investment they are being offered.

“Comments are sought on whether the disclosure requirements should be eased for unlisted companies issuing shares to employees”.

The AEOA will be providing a submission in support of the need to ease disclosure requirements and to remove other impediments in accordance with its regulatory reform policies which can be seen under “AEOA Policy”.  You can also view more on this topic in the “Regulatory Reform” forum of the AEOA Discussion Forum (see link at top of page).

April 2006

Australia: A Share Owning Nation?

The Sydney Morning Herald in its edition on 23rd March, 2006 reported in its Editorial that day that Australia as a shareholding nation is leading the world, with 60 % of adults owning shares either directly or through investment trusts. This puts us ahead of Americans and Canadians.

However, the editorial makes one telling statement about Australia’s lack of progress in the area of employee share ownership, to quote:

“The one thing we are not so keen on is owning shares in the company we work for: only 5.5 per cent of employees hold shares in their employer, compared with the 35 per cent typical in Europe and the United States.”

It is good to see that our press is at last understanding that employee share ownership is an important consideration in our social progress, while also needing to play a larger role in our economic development.

For the full editorial see here

March 2006

Wide Ranging Support for ESOP based Succession Planning Seminar in Brisbane

The issue of Employee Share Ownership has been on the Federal Government agenda for quite some time. The release of the “Employee Share Plan Kit: Getting Started” in 2005 was the first step in an extensive program promoting the use of Employee Share Plans in all sectors of industry.

A number of private and public sector organisations have collaborated in organising an in depth Succession Planning seminar to be held in Brisbane on Wednesday the 29th March. The key focus of the seminar is to provide business owners with the complete range of options that are open to them when looking to exit their business including a significant focus on how Employee Share Ownership Plans can be used to achieve an effective succession plan.

The importance of share ownership has been recognised for many years in the USA and Europe in particular, where as many as 35% of employees hold shares in their employers. In Australia this figure is a low 5.5%. There has never been a culture of employee share ownership in this country which has led to significant problems when owners look to transition out of their business; not enough buyers with the cash to buy and too many businesses looking for buyers. It’s a buyers market if you leave employees out of the ownership equation.

The importance of Employee Share Ownership as a viable option for succession planning has led to this seminar being supported by the ANZ Banking Group – Business Banking Unit. The seminar will feature expert speakers on subjects as varied as:

  • Business Valuation
  • The use of ESOP’s
  • The importance of Planning – not an event, a process
  • Government Support for Succession Planning
  • Financial and Tax Implications
  • The Cultural Aspects of Succession Planning
  • Family Transition – The questions that need to be answered

Speakers at the seminar will include representatives from the Federal Government Department of Employment and Workplace Relations, Queensland Government Department of State Development and a wide range of Succession Specialists.

This seminar is seen as the first in a series that will focus on this increasingly important issue in our aging society. As Baby Boomers reach retirement age, who is going to take over their business? An Industry Sale or the liquidation of assets are options but Employee Ownership is an excellent way of realising the full business value. This is one of the issues that will be explored at the seminar.

More details on the seminar can be obtained here

This seminar has been initiated by AEOA member Mybridge Corporate Success Strategies www.mybridge.com.au

See also the AEOA web-page “Private Company ESOPs” .

February 2006

Leveraged ESOPs Taking Off

When it is time for an owner to sell all or part of a business, either because of retirement or moving on, there are several choices. These include family succession, a trade sale, liquidation of assets, listing on the stock exchange, selling to management or selling to the employees (which will include management as employees).

There may not be a willing family member to take on the business. A trade sale can be time consuming, costly and will open the business up to intense scrutiny. Selling to a third party may result in the facility being closed.

Even if the business is kept open, key staff maybe replaced when ownership is transferred. Liquidation of the assets will almost certainly not take into account goodwill (reputation or customer loyalty) and is likely to yield the lowest return.

The last option – selling to the staff – is not one which most owners think about, but it can be an efficient route for business transfer, for maximising the value of the business, for preserving goods and services within the locality and for safeguarding jobs.

SME business owners face significant risks through a lack of proper succession planning, such as erosion of business value on exit, the loss of key talent to competitors or even the closure of the business.

Employee share ownership plans can provide a solution to challenges such as these. In particular, they can facilitate ownership succession whilst ensuring business continuity and preserving business value and jobs.

The leveraged ESOP is an ideal tool for an employee buyout or buy-in.  It is well suited to succession planning through providing retiring owners with a way of selling the business to their employees.

A leveraged ESOP looks something like that in the diagram at here 

The leveraged ESOP is a recent innovation in Australia, though it is used extensively overseas. It is a fully financed model enabling the buyout transaction to be accomplished out of future corporate earnings rather than current employee savings, with the employees making contributions to the ESOP trust to repay the loan from pre-tax earnings.  The leveraged ESOP allows the employer to borrow funds in order to provide contributions to the ESOP. The ESOP trustee uses the borrowed funds to purchase shares in the employer. The employer then receives the proceeds of the loan immediately and pays off the loan through tax-deductible contributions to the ESOP.   There are certain advantages for share plans where employee shares are owned through a trust.

There have been several examples of leveraged ESOPs along the lines above in Australia in the last six months. These ESOPs have been assisted by consultants you can contact through the “ESOP Consultants” page.  See also the AEOA web-page Private Company ESOPs”

January 2006

Big ARC Research Grant


ESOP supporter, the Hon Dr Brendan Nelson, the Minister for Education, Science and Training, announced on 9th November, 2005 that a team of researchers at the University of Melbourne’s Law School (who are well known to the AEOA) have been awarded $323,000 for a project entitled “Employee Share Ownership Plans: Current practice and regulatory reform”.  The grant is part of the Australian Research Council Grants for 2006

The research is being undertaken as a joint initiative of the Centre for Corporate Law and Securities Regulation and the Centre for Employment and Labour Relations Law. It continues the “Corporate Governance and Workplace Partnerships” Projects which the Law School has undertaken over the past couple of years with the aim of identifying corporate law and other legislative barriers and impediments to efficiently and effectively implementing employee share ownership (ESO) schemes in companies within Australia.

Given the sizable nature of this grant, the AEOA’s position on this research is that it should be directed towards a total review of the legislation governing ESO, with a single piece of “stand alone” legislation for ESO being the logical outcome. This would be better than continuing with (and tinkering with) the current ad-hoc and fragmented ESO laws which exist across both the corporations act and the taxation act, and the various other laws, including the new workplace relations laws.

The benefits the AEOA sees in promoting this position are:

  1. It provides a stronger and clearer basis for the development of ESO;
  2. It allows the AEOA to enunciate clear policy around a greenfields concept, ie a new Act;
  3. There are international precedents;
  4. The position allows plenty of ambit – even if the timing is too early for political support for a new Act, the AEOA position would go along way towards promoting needed changes under the current regulatory regime;
  5. It would be a catalyst for a leap forward in the AEOA’s internal policy development.

It is of interest that, in announcing the research grants, the Minister provided the following important indication on the need for change:
“ESOPs are important to the development of an economic culture of enterprise and innovation and the building of national wealth and savings in response to long-term demands of intergenerational equity. ESOPs require development through appropriate regulatory frameworks. The project will subject the existing regime of tax, corporate and labour law to technical and empirical scrutiny. It will produce the first comprehensive analysis of how current legal regulation structures constrain the use of ESOPs in Australian enterprises. It will examine the current incidence and forms of ESOPs in Australia, the diversity of objectives that such schemes serve, the extent to which current corporate, tax and labour law inhibit ESOPs, and the case for reform of the regulatory framework. This will enhance the capacity of policy makers to evaluate and identify appropriate regulatory techniques to ensure the growth of efficiency of ESOPs at the national and enterprise level.

The research will provide the following key products:

1. A detailed analysis of the current use of ESOPS through focusing on issues such as how use of ESOPs varies by industry, the different types of ESOPs, sources of finance, etc;
2. An analysis of how corporate law, taxation law and labour law impact upon the use of ESOPs;
3. Identification of the established and emerging social, economic and policy objectives of ESOPs (with this being achieved largely by extensive interviews with key participants such as corporate management, unions, government, etc);
4. An analysis of regulatory “fit”, ie: an examination of whether the regulation in this area of taxation, corporate law and labour law provides a rational, coherent and sufficiently flexible legal framework for the key social and economic objectives for ESOPs identified by the researchers; and
5. The case for regulatory reform.

Further information of the University of Melbourne Law School’s work so far in this area can be seen on the AEOA web-site’s Discussion Forum “Research on Employee Ownership” (see link at top of page).

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