by Employee Share Ownership on January 21, 2012

Media Release 12 December 2007

The AEOA “ESOP of the Year Award” 2008

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 2008.

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:

The awards were determined by an independent judging panel comprising:

  • Mr Anthony Jensen, Academic, Faculty of Business and Economics, University of Sydney,
  • Mr Bill Patullo, consultant, former Human Relations Manager, BHP Ltd; 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.

Perilya is a leading Australian base metals mining and exploration company. Perilya’s people reflect a company culture of mixing young professionals with generations of local knowledge and experience. Perilya’s employees now own almost two percent of the company through the Employee Share Acquisition Plan (ESAP) and the ESAP ranks among Perilya’s Top 10 Shareholders. 100% of employees accepted Perilya shares at the 2006 ESAP launch and 60% of employees are now actively investing in an average of 5% (salary sacrifice) – surpassing the company’s expectations. The Plan gifts shares to the value of 10% of an employee’s salary as an introduction and then matches dollar for dollar any further contribution made by the employee. Perilya’s ESAP Posters provide some interesting pictures.

Eyecare Partners is an Australian owned, optometrist-led, publicly listed company, which preserves the ideals and goals of full-scope professional optometry, while providing access to corporate and capital resources required to flourish as a long term business. Eyecare Partners has provided employees with the advantage of being able to acquire shares and options in their company. 100% of Eyecare Partners employees now own shares or options in the Company, as part of Eyecare Partners Employee Share Ownership Plan, with 35% of employees also electing to take advantage of the salary sacrifice arrangements to add to their holdings.

The AEOA announced the Awards at its Annual General Meeting in Sydney on 6 December 2007. 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 Perilya and Eyecare Partners as worthy winners of the 2008 ESOP of the Year Awards.

Gary D. Fitton
President, AEOA

November, 2007

Keeping to Plan: Attracting and Retaining Gen Y Employees.

Employee share-ownership plans are one mechanism for satisfying Generation Y employees who are both increasingly in-demand and demanding. The theory is that, by offering young talent a shareholding in a company, it will be more motivated and productive, and less likely to be lured away by competitors.

About 20 per cent of Australian workers are Generation Y (born in or after 1978), and the proportion is expected to double over the next five years. The attractiveness of ESOPs for motivating and retaining young talent can only increase.

See the report “Keeping to Plan” on this key issue by Manda Trautwein and Bryony Vandepeear from VMC Global (with thanks to the Australian Human Resources Institute, where this report was first published).

October, 2007

AEOA Delegation Meets with ALP

On Thursday 4 October 2007, an AEOA delegation met with Chris Bowen MP, Shadow Assistant Treasurer and Shadow Minister for Revenue and Competition Policy, in Sydney.

Chris Bowen is the ALP spokesperson on employee share ownership and has made speeches in Parliament in support of the need to grow employee share ownership in Australia.

The delegation presented the paper “Sharing in Growth” (see “October News” article below for the link to this) which contains our “wish-list” for Government action on employee share ownership. During the meeting, the AEOA emphasised four key points for the ALP’s consideration. These were:

  1. There were opportunities for the ALP in protecting workers jobs and entitlements through employee buyouts. A major hurdle here was the “5% rule” in Division 13A. This rule restricts the amount of capital that can be held by employees through a “qualifying ESOP” in smaller businesses.
  2. There is a clear link between ESOPs and increased productivity, and that the key to this was employee participation in workplace decision-making.
  1. The major obstacle to ESOP growth in the SME sector was “cost and complexity”. A key contributor to this is the inefficient administration of ESOP law by the ATO – and that the ATO is not keen to apply the law as it is.
  1. There are major opportunities to expand broad employee ownership throughout the economy, with some concerted effort to reduce barriers to growth and to reform ESOP tax law and corporations law. The requirements in this area were detailed in our paper presented to Mr Bowen.

Mr Bowen is well informed on ESOP reform issues and supportive of the benefits of ESOPs.

The Shadow Minister indicated that ESOP law reform is an important issue and that the ALP would be very keen to make something happen in this area as early as possible after the election, should they win Government. He believes the ALP will need to make up for the many years that the Coalition Government had been asleep on this issue.

Mr Bowen promised to respond to the AEOA about getting reform underway shortly after the election. He made the specific point that “both parties would be after increased productivity in the economy in the immediate future and that employee share ownership would have to be seen as providing a very useful tool in this field of policy development”.

The AEOA concurred with Mr Bowen that there is a need for swift action to reduce the bottlenecks to ESOP development.

To Be or Not to Be….  Employee Ownership is the Answer

If you asked, “Why should government be interested in employee ownership?”, I would probably reply with another question: “Isn’t it the business of government to be concerned with prosperity for all?”

There are many questions to be answered when considering how broader prosperity can be achieved. With the Australian Government’s recent shining financial results, business owners – and most taxpayers – are calling for tax cuts, while working people want more jobs and financial security. With governments always wanting to keep their costs under control, what solutions are to hand that can help achieve the objective of “prosperity for all” – the proverbial “win-win”?

Part of the solution lies in encouraging more people to become owners. Why? Because nobody ever got rich working for a wage. Investing is where the real money is made these days. Imagine even more Australians participating in the ownership of businesses, the most powerful money-making mechanisms of our day?

Achieving this solution involves more employees joining the ownership ranks by buying shares in the company they work for, thus giving them the opportunity to exercise ownership at close range. As motivated shareholders, employees can have a powerful, positive impact on business performance.

The roadblock is that a company may not want to make the effort. After all, in a world where time = money, there’s all the preparation and administration, and it will probably change attitudes of the people that become shareholders, and managing change – even positive change – takes time. With today’s short-term profit imperatives, companies want more than ‘down-the-road’ performance promises. They need something tangible to record on their income statements this year.

All of these are valid issues. But are they good enough reasons not to join the employee ownership revolution? Probably not. Its just that there needs to be that little extra ‘push’ to do so.

Unfortunately, Australians face a muddle of tax incentives and corporations laws which add mightily to ‘cost and complexity’ and thus hinder the take up of employee ownership in a big way – outside of the large, listed companies who can afford it !

Fortunately, both North America and Europe have employee ownership as a key part of their industrial strategies for small and medium enterprises, with their own smorgasbord of legislative inducements.

It is our good fortune therefore to have the competitive advantage of drawing on these others’ experiences with employee ownership to be able to design our own national prosperity strategy.

With the Federal elections looming, it seems clear whatever government is elected, it is going to need to add employee ownership to the national competitive arsenal. Neither party can shy away from the role that employee ownership can take in building productivity in a globalised economy. And from discussions we have had with them so far, it seems that Australian’s may yet be experiencing employee ownership’s full competitive benefits before the decade is out.

These discussions are now reflected in the AEOA’s election manifesto “Sharing in Growth” which we will be presenting to the major parties in the coming weeks.

September, 2007

Private Company ESOPs are Working

Queensland based company Biolytix blends environmental innovation with employee ownership and is winning international recognition for its modular waste water treatment systems, says “My Business” magazine in its “Business Success” feature  in the September, 2007 issue www.mybusiness.com.au) .

This is an excellent example of a private company employee equity program.  (For more information on Pty. Ltd. companies issuing employee shares, see the AEOA web-page “Private Company ESOPs” ).

See the article “Money Down the Drain”

August, 2007

Breakthrough with the Australian Financial Press on Employee Ownership.

After years of neglecting the issue, the financial and business press in Australia is at last cottoning onto the fact that there is some mileage to be made in reporting on employee ownership.

In the latest instance, Fiona Smith writing in the Australian Financial Review (Tuesday, 21st August, 2007, “Topsy-turvy companies: where workers rule”, pages 58 and 59) reports –  in an excellent “Work Space” feature – that Australian bosses have been slow to embrace the benefits of profit sharing with employees, particularly through employee share ownership. In looking at the progress of a number of employee owned companies, Fiona points out many of the positives that employee share ownership can bring:

“It is being used as a way to improve performance by aligning workers’ interests with those of the business. Giving employees a slice of the action can raise engagement levels (morale) and productivity. When the workers feel like owners, they care more, put in more discretionary effort, co-operate more, become more innovative and are less likely to leave, even if there is more money available elsewhere.

It is also a lure for new hires in a tight employment market and an effective way of retaining them.”

Fiona reports that “the private sector has steered clear of employee ownership because of unfavourable tax treatment for unlisted companies and also because of ignorance about how to set up a viable scheme”. Each of these statements is irrefutably true, though the press having ignored this issue for years hasn’t helped on either count. What is more likely is that Australian managers are simply unaware of the option and the benefits that it can bring. This raises questions about the statement “It seems Australian bosses are much more reluctant to hand over the reins than their counterprarts in the UK, the United States and Spain”.

The feature also indicates that “the ‘magic’ only occurs when employee ownership is teamed with participation in decsionamking, as well as regular education/communication about the company’s financial results.”

“Companies that combine these things grow 6 to 11 per cent faster than would have been expected, according to the book ‘Equity: Why Employee Ownership Is Good For Business’ (Harvard Business School Press).

‘One private company that has managed to combine these things is waste-water treatment firm Biolytix, based in Maleny…Queensland…employing 55 people.

“The employees of Biolytix – both in Maleny and the factory in Brisbane – own 20 per cent of the company.

“The new chief executive, John Martinkovic…says the practice began when the company was in start-up mode and the founder, Dean Cameron, had to find a way to make up for pay levels that were below market levels. Employees were granted units in the company on a merit basis by the trustees at the end of each financial year…

“The benefit to employees averaged out to about $5000 each last year…Employees also elect one of the four board members to represent their concerns.

“Martinkovic says it is quite different to be CEO in a company where the staff are also owners. ‘It does create a certain degree of democracy, but it is managed within an agreed framework,’ he says.

“While staff don’t always get what they want, they do have an opportunity to participate…’We get direct feedback, which is healthy. It is a quality circle for the whole of the company’…

The benefits are also evident in the low staff turnover.”

Let’s hope that the financial press can now maintain its vigilance on this key emerging issue – not only for business, but for the community at large.

You can read the full article at: http://newsletter.mycareer.com.au/general/sept07/job-update/section/fionasmith.aspx .

For more information on this topic, see our “Employee Involvement” page.

AEOA “ESOP of the Year” Awards

In the photos below, Gary Fitton, AEOA President, and John Day of the AEOA Management Committee are presenting the 2007 AEOA “ESOP of the Year” Awards.

The winners of the 2007 ESOP Awards were:

  •   OBS Pty Ltd – Best ESOP with less than 200 employees.

Computershare’s award was presented at their head office at Yarra Falls, Melbourne. It was accepted by Stuart Crosby (President and CEO), Mark Davis (Group Regional Director – Australia) and Warren Miles (Managing Director, Australia).

OBS’s award was presented at their head office in Little Collins Street, Melbourne. It was accepted by Brian Cook, Director and Brett Campbell, Director.

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

The AEOA welcomes nominations for the 2008 “ESOP of the Year” Awards in the two categories below:

  • 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 10th November, 2007. 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)

Australian Employee Ownership Association

Computershare Ltd receives its “ESOP of the Year” Award. From left to right is Warren Miles (Computershare), John Day (AEOA), Stuart Crosby (Computershare), Gary Fitton (AEOA) and Mark Davis (Computershare).

OBS Pty Ltd receives its “ESOP of the Year” Award. From left to right is John Day (AEOA), Brett Campbell (OBS), Brian Cook (OBS) and Gary Fitton (AEOA).

July, 2007

Business best when employees take ownership

The competitiveness of Australian business is being jeopardised by the government’s failure to support employee ownership, according to a prominent governance academic from the University of NSW.

Speaking at the Australian Human Resources Institute’s (AHRI) national conference on June 5th, Dr Shann Turnbull, from Organisation and Management at the Australian School of Business, said the government was closing down its employee ownership support unit this year.

The unit was set to assist the government in its objective of increasing ownership by employees from 5.9% of workers in 2004 to 11% in 2008.

Dr Turnbull said the increasing rate of business acquisitions in Australia by private equity firms meant a reduction in employee ownership.

“According to overseas studies, the most competitive firms in the world are those that are employee owned, with network governance.

“Network governance also protects directors from being profoundly misled, which is crucial given some of the recent major corporate failures in Australia, in which employees lost both their jobs and entitlements,” Dr Turnbull said.

According to Dr Turnbull, network governance protects directors and the company by providing competing channels of information, giving business directors a creditable basis on which to perform their fiduciary duties to monitor and direct a firm

“It is in the best interests of shareholders, creditors, and other stakeholders to improve the integrity of communications in firms that employee ownership can introduce with network governance.”

Some unions see Employee Share Ownership Plans (ESOPs) as undermining their role – because ESOPs provide motivation for employees by aligning their interests with owners. Some union bosses and politicians also view them as a way for a few senior executives to be over remunerated and obtain tax benefits.

“These views represent a superficial and inadequate understanding of the potential of employee ownership achieved overseas,” said Dr Turnbull.

Network governance also introduces distributed intelligence, enabling not just the directors but all employees to be aware of what is happening in the company.

“The introduction internationally of competitive employee ownership structures in firms upgrades the role of HR managers.  They become ‘governance architects,’ moving from roles related to employment terms and conditions, to determining the effectiveness of their directors and the competitive advantages of the business.”

Dr Shann Turnbull is a founding executive member of the Australian Employee Ownership Association.

June, 2007

Why the laughing? Because these workers own the company.

On 5th June, Andrew Carswell, Small Business Reporter for “The Daily Telegraph” published an excellent article in that newspaper on the employee share ownership plan in the Sydney based SME, Gardner Smith. The article can be seen through the link above (to a pdf document – with thanks to Andrew Carswell and The Daily Telegraph).

Capturing Competitive Advantages through Employee Ownership

Jill Jordan (CEO, Biolytix Technologies) made a presentation to the workshop on the above topic at the Australian Human Resources Institute’s (AHRI) National Convention in Sydney on 5th June. The workshop focussed on how to achieve outstanding and sustained operating efficiencies through employee ownership programs and how the advantages of employee ownership are achieved through teamwork and merging corporate governance with management. It provides a good example of employee equity operating in a private company setting.

You can see the Biolytix Employee Share Plan presentation here .

For more information on employee equity and employee involvement and participation in smaller businesses, see the AEOA web-pages “Private Company ESOPs” and “Employee Involvement”.

“My Business” Magazine Encourages Business Succession through Employee Ownership.

Statistics reveal the typical small business owner is aged 57, and four in 10 are planning to retire within five years. And over the next decade, it’s projected that business assets worth $1.6 trillion will be subject to ownership transfer, which places business succession well and truly on the agenda.

Selling the business to employees under Employee Share Ownership Plans (ESOPs) is fast gaining traction the world over, says Alan Greig of The Mercury Centre. Relatively new to Australia, ESOPs enable owners to maximise sale value while keeping the business intact, and is an ideal tool for an employee buyout (EBO) where ownership of a company is transferred to the majority of eligible employees.

Achieving this requires the staff to be able to purchase all – or at least a controlling stake – in the business from the previous owner/shareholders. Under this arrangement, says Greig, a company can be eligible for income tax deductions on the interest payments and repayments of the principal.

ESOPs can facilitate buyouts from future corporate earnings rather than current employee savings. With so many upsides, many may regard ESOPs as the modern, emerging solution to what would otherwise be a looming problem. He writes about the potential for ESOPs in the June issue of My Business www.mybusiness.com.au)

See the article Selling Your Business to Your Employees 

For more information, see the AEOA web-page “Private Company ESOPs”

May, 2007

Howard Government Closes Employee Share Ownership Development Unit in the Department of Employment and Workplace Relations.

The establishment of the Employee Share Ownership Development Unit was announced in the 2003-04 Federal Budget and was funded for four years until 2006-07. The Unit has not been refunded in the 2007 Budget, so this will be the last year of funding for the Unit.

The establishment of the Unit, within the Department of Employment and Workplace Relations (DEWR), was one of the recommendations in the Nelson Report “Shared Endeavours” (2000), following the Parliamentary Inquiry into Employee Share Ownership in Australia.

The Unit has made some positive contributions to research and information about ESOs in Australia but, really, its task had only just begun. To dismantle it now appears to be counterproductive in terms of the objectives foreshadowed in 2000 in the 45 recommendations of the Nelson Report (only a handful of which have now been implemented) and the need to retain the important corporate memory and intellectual capital built up in the Department on ESO.

The message that this decision provides is: The Howard Government is not really interested in ESO – an extraordinary, shortsighted perspective. We are now asking the ALP: Would an ALP Government continue funding this or a similar unit?

At a recent AEOA meeting the Management Committee resolved to offer its services to DEWR to continue some of the tasks the ESOD unit has undertaken, particularly maintaining its very valuable web-site (www.workplace.gov.au/eso).

The article in the Australian Financial Review (Monday, 21st May, 2007) on the closure of the ESOD Unit can be seen here.

Federal Budget, 2007 – Canberra Still Cold on ESOPs

There was no joy for ESOPs in the Federal Budget, 2007. It is clear that Canberra maintains the belief that employee share ownership should not be permitted to operate in private companies as fully and as freely as it now does in publicly listed companies – despite the tinkering that is occurring in the current regulatory reform process through the Treasury “Employee Share Schemes Consultation Group” and the Corporate and Financial Services Regulation Review.

This is a strange and inequitable situation. Publicly listed companies probably employ not more than 15% of the workforce. On the other hand, private sector medium-sized and small businesses employ about 57%. Unlisted public and private companies make a powerful contribution to employment growth. However, it is exponentially harder for them to implement Employee Share Ownership Plans (ESOPs) than for listed companies. As a consequence, over the years, most of the growth in employee share plans – and the employees participating in them – has taken place in the listed company sector. This is the reverse of the situation in the USA where 85% of all ESOPs are in non-listed companies.

The reasons for the Australian bias towards listed companies are contained in the inflexible requirements of tax legislation on ESOPs and in the onerous prospectus regime imposed by corporations law. The tax concessions available through Division 13A of the ITAA remain little used by private company ESOPs.

In the past twenty years, Governments – both the ALP and the Coalition – have claimed they are philosophically committed to employee financial participation. Neither side has so far been willing to allow employee ownership to flow to where the mass of workers are employed. It means that no matter how readily politicians nod in agreement when employee ownership comes up, it has little priority in their thoughts.

The fact is, share plans are much less common in private than in listed companies precisely because of legislative road blocks deliberately set up and maintained by successive Federal Governments.

Employee share ownership in Australia is, consequently, a one-sided affair. It favours listed companies and discriminates against all the rest – and their employees. This ‘tilt’ in the law is favoured by Governments which, while proclaiming the importance of privately owned business, have a history of treating them in a muddled and sometimes hostile way: a record fostered by political advisors who have no personal stake in the issues engaged and who regard with some suspicion genuine employee ownership in private enterprise.

The future for ESOPs in smaller companies probably lies beyond the constrictions of Division 13A of the ITAA. Most new ESOPs in the small business area will probably be “non-qualifying” in terms of Division 13A. We still have a long way to go before we can declare private and unlisted companies ‘liberated territory’ for ESOPs.

For more information, see the AEOA web-page “Private Company ESOPs”

New Article in “Dynamic Business” Magazine Supports ESO for SMEs

Employee share ownership plans are not entirely reserved for large, publicly listed companies. They can be a useful tool for any business wanting to attract, retain and motivate staff, as Rebecca Spicer of “Dynamic Business” Magazine (April, 2007 edition – www.dynamicbusiness.com ) discovers. See her article SHARING THE WEALTH  

April, 2007

New research reports provide positive contribution to ESO development

The University of Melbourne’s Law School has recently released four new publications from its major, ARC funded research project, “Employee share ownership plans: Current Practice and Regulatory Reform”, the research for which is being undertaken at the the Centre for Corporate Law and Securities Regulation.

The four reports fulfill their ambition of commencing to address the major shortfall in local research on the important topic of employee share ownership (ESO).  They are:

‘An Overview of Existing Data on Employee Share Ownership in Australia’ by I Landau, R Mitchell, A O’Connell and I Ramsay, March 2007.
‘Employee Share Ownership: A Review of the Literature’ by I Landau, R Mitchell, A O’Connell and I Ramsay, March 2007.
‘Employee Share Ownership Plans in Australia: The Corporate Law Framework’ by I Landau and I Ramsay, March 2007.
Employee Share Ownership Plans in Australia: The Taxation Law Framework’  by A O’Connell, March 2007.

The first report is brief, as would be expected from the scarcity of data available on ESO in Australia and those participating in ESOPs. Nevertheless, it is an important contribution for this very point – without more reliable data, it will be hard to make sound public policy decisions on the development of ESO in future.

The second is not only valuable for the historical context it provides to the growth of ESO in Australia, but also for its complete description of the diversity – and all the ‘ins and outs’ –  of the philosophies which underpin the adoption of ESO and the various objectives and emphases which ESO can bring to the workplace and the economy overall. It makes the telling point that it is the institutional background – particularly the existing corporate law, labour law and tax frameworks – that significantly determines the course that ESO takes.

The third report is excellent for its complete coverage of the legal impediments hindering the growth of ESO in Australia. It makes the very important conclusion which is extracted below (pages 23 and 24):
” The extent to which the current regulatory regime shapes and constrains current employee share ownership practice in Australia remains unclear. Tentative observations suggest that its impact is significant: for example, employee share ownership remains relatively rare in the SME sector; employee share ownership is noted for its ‘shallowness’ (while there are many employees owning shares, they own relatively few) in larger companies; and casual employees are much less likely to be employee shareholders. More work is needed, however, to understand whether current practice is a reflection of the objectives and priorities of industry actors or whether it is the result of the significant constraints imposed by the corporate law regulatory regime”.

Finally, the fourth report was a little disappointing in that it concentrated only on the fairly tokenistic approach that Federal Government’s have taken to tax policy in the ESO area over the years, without any comparative reflection on the pro-active development of tax policy that other developed economies have initiated in support of ESO. Australia considerably lags in this area and it is a pity that what other jurisdictions are doing is not taken up as a point of reference. The report does however provide some proof on the shortfall, as quoted below (page 28).

“While a diverse range of rationales have been put forward for employee share ownership, it is difficult to determine precisely which of these underpin contemporary regulatory initiatives towards the practice. Government needs to identify exactly what the underlying policy rationale is for providing the tax concessions that are currently available.

A further concern is that various aspects of the tax treatment imposed on ESOPs appear to be inefficient. Some of those concerns relate to the bias in favour of listed companies and against small and start-up companies, the different tax treatment that applies to employee share owners compared to other investors and the different tax treatment afforded to different types of employee remuneration”.

The AEOA recommends that you study these very useful reports. They can all be accessed on the “ESOP Research Project”  web-site.

Further discussion on the issues can be viewed on the AEOA Discussion Forum, under the topic “Research into Employee Ownership” (see link at top of this page to the discussion forum).

Yum! Restaurants International Share Plan

The following is an extract from a Case Study presentation by Sue Stanton, of Yum! Restaurants International as part of a promotional breakfast workshop presented under the title Employee Share Plans: Getting Started by the Employee Share Ownership Development Unit of the Department of Employment and Workplace Relations, Sydney , 22nd August, 2006.

Yum! Brands Inc. is a global restaurants company operating in over 100 countries. There are 33,000 restaurant units generating almost US$1.2 billion in operating profit.

The restaurant chain is listed on the New York Stock Exchange. Yum! Australia consists of approx. 1,000 units, with system sales greater than A$1 billion. There are 3000 permanent employees in Australia.

All Yum! Brands Inc ownership plans have a direct link to the company’s core values, eg.   accountability:  we do what we say, we are accountable, we act like owners. In mid 1999, two stock option plans were introduced, a “phantom” share plan and an employee share purchase plan. Salary sacrifice share purchase with the company provided a 15% discount.

Eligible employees purchase Yum! Shares on the NY stock exchange with a 15% discount provided by the company. Purchase is via salary sacrifice. Shares are immediately credited to an employee’s account and are held in trust for the employee. All share purchase and sale transactions are managed by Link Market Services – Yum’s Plan Administrator.

Further employee contributions and conditions include:
Minimum contribution of A$100 per four week period
Maximum contribution of A$12500 per annum
Minimum participation of 24 weeks
Employee eligibility – category, six months service.

At A$100 per four weeks, the employee will accumulate A$1,300 of his/her own and the total account balance with the 15% discount will be A$1,529 (a gain of A$229). At $12,500 per annum, a total account balance – after the discount – of A$14,705 (an additional A$2,205) will be achieved.

Eligibility is extended to permanent employees, ie: both Restaurant Management and Team Members working in the restaurants.

Employees with primary responsibility for profit (and sales) are eligible for more than one ownership programme; otherwise employees can only participate in one programme.

Finally there are restrictions on the disposal of the shares.  This is consistent with it being a long-term ownership plan and not for short-term speculation.

Yum! Brands Inc. provides periodic advice to all employees on the Yum share purchase price. Bi-annual statements are issued to plan participants. Termination of employment triggers exit from the plan. The employee then has 90 days to exercise –  sale or transfer of stock into the employee’s name. The exit administration process is handled by Link Market Services. Employees must then sell stock or transfer stock into their own name within 90 days. Exit is obligatory regardless of share price at the time.

The full presentation provides much more on the way employee share ownership within Yum!Brands Inc is managed within Australia, including the communications plan. The full presentation can be seen here…

March, 2007

The Astonishing Indooroopilly Case: A Big Win for Employee Share Ownership.

As reported on the front page of the Australian Financial Review on 6th March, 2007, under the heading “ATO drops aggressive legal tactics”, the Federal Court – in a judgment against the ATO over the application of fringe benefits tax (FBT) to employee benefits trusts – has accused the Tax Office of disregarding court decisions and persisting with its own view of the law.

In unanimous findings of three judges in the Federal Court in the recent Indooroopilly Childrens Services (Qld) Pty Ltd case, the Full Federal Court has confirmed the previous decision of Collier, as a single judge in the Federal Court, that FBT would not apply to the provision of shares to the trustees of certain employee share plans.

The three judges were critical of the Tax Commissioner’s “astonishing” submissions that he does not have to obey the law as declared by the courts, until he gets a decision that he likes.

The facts surrounding the case are that Indooroopilly sought a private binding tax ruling that the provision of shares to a dedicated employee share trust would not render them liable to FBT. Ignoring a number of previous decisions of single judges in the Federal Court on this matter, the Tax Commissioner ruled that Indooroopilly would be subject to FBT on the provision of shares to the plan trustees. Indeed, the findings in the Full Federal Court judgment are now quite contrary to the Commissioner’s views as expounded in Tax Ruling TR 1999/5.

For employees and their employers, the Indooroopilly decision now finally clears the way for the implementation of employee share plans. This is especially good for unlisted companies which – as part of a succession plan incorporating an employee buyout – will need to utilize employee share trusts to protect and warehouse employees’ share entitlements and to provide a market for those employee share holdings (as was recommended in the report of the Parliamentary Inquiry into employee share ownership in Australia, “Shared Endeavours”).

This decision of the Federal Court would also seem to be firmly in line with the Federal Government’s stated policies of encouraging the growth of both Australian Workplace Agreements (which were incorporated into the Indooroopilly employee equity plan) and employee share ownership. In the case of the latter, it will help by increasing the level of employee equity participation towards the Government’s target of 11% of the workforce by 2009.

In summing up the case, the AEOA President, Gary Fitton made the following statement:  “I believe many would also find the behaviour of the Commissioner, in respect of the administration of the taxation laws applying to these matters, truly astonishing. With due respect to all concerned, how the Commissioner could expect to go against the courts’ rule of law and attempt to subject a legitimate and commendable employee share plan arrangement to double, and possibly triple taxation, is beyond comprehension”.

You can see the full article on this case by Gary Fitton which appeared in Thomson ATP Weekly Tax Bulletin, 2nd March, 2007, Issue 9 here…

Third edition of the “Employee Share Ownership Guidelines”

The AEOA is pleased to announce that the third edition of the “Employee Share Plan Guidelines” was released in February, 2007. The Guidelines are endorsed by the Australian Institute of Company Directors, the Australian Employee Ownership Association and the Australian Shareholders’ Association which collectively represent: company directors, employees and individual shareholders.

The AEOA was instrumental in establishing an Industry Working Party in 1992 which formulated these, and the earlier versions of the Guidelines. The latest “Guidelines” document can be accessed by clicking here …. 

The second edition of these Guidelines was published in May 2000. The publication of this third edition is necessary so as to incorporate and reflect obligations under the current law; accounting standards; and generally accepted good practice regarding the composition and disclosure of employee equity plans. Employee share ownership practices have evolved and will continue to develop in response to market conditions, relevant taxation concessions and international developments

The aim of employee share ownership plans is to encourage general employee participation in share ownership in their employer company and a collective effort towards improved company performance thereby increasing shareholder value. These guidelines provide guidance for boards and shareholders to use to develop employee ownership and incentive plans and provide guidance on the application of those principles. Boards are encouraged to develop ‘good practices’ when designing these plans and when seeking shareholder approval for them.

The Guidelines should also be used by shareholders to consider the quality and practice issues in employee share plans requiring approval at company AGMs. It has been unfortunate that in the past, criticism of employee share plans – while reasonable in many cases – has showed a lack of knowledge in how the benefits of properly structured ESOPs could be enjoyed by all shareholders.

The Guidelines are commended for informed use by all company shareholders. They are not intended to restrict a company’s flexibility in designing plans which reflect their particular circumstances in order to retain, reward and motivate their staff and drive improved company performance, provided the plans are fully valued, expensed and disclosed in a manner which permits shareholders to assess whether they are appropriate.

February 2007
Australian Institute of Company Directors
Australian Employees Ownership Association
Australian Shareholders’ Association

“Executive Equity Plan Guidelines” also published.

These Guidelines are endorsed by the Australian Institute of Company Directors, the Australian Employee Ownership Association and the Australian Shareholders’ Association which collectively represent: company directors, employees and individual shareholders.

The “Executive Equity Plan Guidelines” document can be accessed by clicking here …. 

Executive remuneration, including equity compensation, incentive and ownership plans, is an important aspect of corporate governance. All shareholders and directors have a major interest in encouraging improved corporate performance and ensuring the equitable sharing of reward between owners and management.

Companies use equity compensation, incentive and ownership plans to encourage superior performance by their senior executives and to assist in retaining them. These Guidelines set out principles that companies can use to develop plans and provide guidance on applying those principles.

Boards are encouraged to follow these Guidelines when designing such plans and when seeking shareholder approval for them.

These Guidelines should be read in conjunction with the ASX Corporate Governance
Council Principles of Good Corporate Governance and Best Practice Recommendations.

February 2007
Australian Institute of Company Directors
Australian Employees Ownership Association
Australian Shareholders’ Association.

For more information on employee share ownership principles, see our “AEOA Policy” page.

Where are our ESOP Heroes?

Employee ownership is really about engaging people in the direct ownership of its wealth-producing assets in order to increase the economic self-sufficiency of individuals and families. This central point has as yet found no public voice in Australia among business and political leaders or the intellectual elite.

The result is that we labour under a crippled notion of employee ownership and one that is used by key advisory agencies in the Federal government (Treasury and the ATO) to stymie ESOP reform. Their message is that employee ownership is simply a form of incentive payment and not a capital acquisition measure. It is a false message and one intended to preserve the legislative straight jacket in which employee share plans are compelled to operate. It is a message favoured by those who do not wish to see the social changes which widespread – and deep – employee ownership must inevitably bring.

As for those within Parliament ready to play the role of “ESOP Champion”, these have yet to declare their hands. (And given the manner in which our legislature operates, it would be great to have “ESOP Champions” in both the Government and on the Opposition front bench).

For all the obstacles that have been thrown onto the path of necessary ESOP reform over the years (including the impotence of our legislative institutions), there is a slowly gathering movement in favour of ESOP reform. To some extent, it is creeping onto ‘the Federal agenda’ – but from the Opposition side of the House. For ESOP advocates, there is one great advantage that can be taken from this – a Federal election has to be held before the end of the year and the Federal government is well behind in the polls.

With the survival of the Howard Government on the line – and given the toughness of the Prime Minister when his back has been to the wall – perhaps we can envisage a prospect of policy changes which might not have occurred if the Government were “relaxed and comfortable” about its future?

Up until now, the Howard Government, with its doctrinaire line on industrial relations has hardly shown itself to be the “workers’ friend” though, originally, it came to power with the support of many a worker’s vote. This is something Coalition members have forgotten. Perhaps it is not too late, even now, to remember.

So we can formulate the issue quite simply: when election time comes later this year, will we have found in Government ranks somebody to champion the ESOP cause – or will it be other side providing a new impetus to such a key policy idea?

(See the discussion forum topic “Getting Political Support for ESO” for more information).

February, 2007

What is needed to Reinvigorate ESO in Australia?

In January, 2007, the PM reshuffled his Cabinet Team. The Workplace Relations portfolio has been handed to the Hon Joe Hockey, MP, with an apparent emphasis on “selling” the IR reform package implemented in 2006.

What has become clear however is that the Government had gone to sleep on the employee share ownership reform issue over the past couple of years. It is hoped that the new Minister might add some renewed vigour to policy developments in this key area.

Since the heady days of 1995 when all sides of politics supported legislative change – culminating in the introduction of Division 13A (ITAA) to encourage Employee Share Ownership (ESO) – “the shine has gone off the ball”.

Encouraging ESO in Australian enterprises was seen in 1995 as important bipartisan national policy, because firstly, overseas studies provided unambiguous emperical evidence that employee equity participation either directly achieved or complemented improved organisational productivity and performance and secondly, competing industrialised countries all had or were introducing tax concessions to encourage ESO.

Is it different in 2007? No, in fact emperical evidence is now even more conclusive as to the link between employee equity participation and organisational performance. However, in Australia over the last eleven years the concessions have been eroded and the road to effective ESO implementation has become more complex and costly.

The following initiatives are broad policy issues that the Minister should be looking at to help Australia achieve world best practice in this increasingly important area of workplace relations.

1. Simplification.

The easier an ESO scheme is to design, document, implement and manage, the more companies will embrace the concept, with greater numbers of employees participating in employee share ownership than currently.

2. Standardisation and Flexibility.

Standardisation and flexibility may seem incompatible. Standardisation is important to achieve 1. above. Flexibility is desirable to ensure the special circumstances of each case and/or company can be accommodated. Generic ESO plans could be made available, with offer statements setting out the variable terms.

3. Reinstatement of taxation concession to 1995 levels at least.

Like bracket creep, ESO taxation concessions need to be constantly reviewed to account for changes in value over time. Otherwise the benefit is quickly eroded. All major OECD countries have generous concessional taxation initiatives which encourage ESO. The UK, and the US in particular provide a significantly higher $ value concession per employee in both real and relative terms, when compared to Australia.

4. Quality research and registration of ESO’s

Without quality research Australia is dependent on overseas studies to support ESO development. The Government needs the research to be Australian based because the taxation concessions granted represent a budgetary cost, at least initially, which must be offset by revenue or productivity gains to justify the cost. Without the research we are simply flying blind. Registration of employee share schemes will significantly improve research data.

5. Emphasis on General Employee ESO concessions.

Too much emphasis has been placed on ESO as an executive reward, particularly by the ALP. While executive rewards and incentives are a critical aspect of organisational performance and corporate governance, the benefits of general employee equity participation have been too often overlooked.

ESO means different things to different people. Every company will have a special issue relevant to their special circumstance – or a particular barrow to push. Let us hope the new Minister can get on with driving the larger scale reforms required.  

For more information on what the AEOA is advocating, see our “AEOA Policy” and “Future Directions” web-pages.

January, 2007

‘The Way We Do Things ‘round Here’

Outside of the likely increase in share values, the most noticeable outcome of the successful implementation of an ESOP in the US and Europe is that the organisations involved become very passionate about employee ownership “culture”. All such organisations tend to start work on the culture aspect well before the ESOP is implemented. The pre-occupation with workplace culture is a pointer for Australia where we lack a “philosophy of employee ownership” and the ability to turn that into a political agenda.

All Australian workplaces have a culture. Much of it is encapsulated in the organisation’s formal policies and procedures which are generally available for all employees to view. There is, however, another whole area of organisational culture that is equally powerful, but sometimes far more difficult to discover. It is often best explained by the simple expression ‘it’s just the way we do things around here’. Such habits, practices and traditions can be so entrenched in an organisation that they may be invisible to the outsider or new employee, but they have an enormous amount to do with what happens with work.

Cultures are created by the people in the organisation. It stands to reason that if an organisation is described as inflexible, or bureaucratic, then this is definitely not the place to expect a new idea to be an immediate success!

The implementation of an ESOP is far more likely to be a success if you have done some homework on the kind of culture that exists in your workplace.

If you are considering introducing an ESOP as one part of a larger package of reforms in your enterprise, then you might like to compare your organisation against the following criteria:

  1. Major organisational changes need to be based upon a vision for the future – which includes objectives, clearly specified strategies and performance indicators.
  2. ‘Reforms’, if they are to be successful, need to have strong, visible top management support.
  3. Decisions about changes are best made via a process of genuine consultation between management and employees.
  4. There is a clear emphasis on the quality of the enterprise’s products or services.
  5. It is important that the possibility of differences in the priorities of the key stakeholders – particularly employees – is acknowledged.
  6. Enterprises seem to be more successful when those who are the ‘decision makers’ are seen to be ‘leading by example’ throughout the process.
  7. Improved pay, rewards and other work conditions will result from such changes and will be linked to evidence on overall corporate performance.
  8. Job security, training and succession opportunities will be integral components of the improvements.

As we are learning, to be truly effective, ESOPs need to be tailored to suit the unique culture of the particular organisation in which they will be implemented. ESOPs are much more likely to succeed if they are part of a larger program of organisational reform concentrating on employee participation and decentralised decision-making.

In our quest for greater competitiveness, both employer and employee groups in Australia are seeking ways for improving work, decision-making and doing business. We are beginning to see the results of this – better jobs, safer workplaces, more effective communication, higher quality goods and services and increased productivity. It makes good sense to supplement this with a feeling of ownership. There is definite success to be had in sharing ownership.

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