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Shaun Cartoon discusses ESS policy changes at the Morgan Stanley Australia Summit

Executive Compensation & Employee Share Schemes, Taxation
Shaun MS Summit v2

Tax Partner, Shaun Cartoon, was invited to be a panellist at Morgan Stanley’s Australia Summit along with Sarah Tinsley, General Counsel and Company Secretary, Culture Amp, and Sally Mulligan, Head of Morgan Stanley at Work APAC.

The Summit attracts a who's who of the business community, with keynote speakers including Philip Lowe, Governor of the RBA. The topic of of the panel session Shaun participated in was Australia’s new employee share scheme (ESS) regulatory reforms, which commenced in October 2022.

The panellists considered that, on the whole, the reforms are a positive development that will encourage the adoption of ESS in Australia, particularly for unlisted companies. However, more needs to be done to raise awareness of the new regime.

For ESS that do not require payment to participate, or as Shaun put it ‘pay to play’ (for example, performance rights and nil-exercise price options), offers can now be made with no substantive disclosure requirements. However, for ESS that require payment to participate (for example, start-up options, premium priced options and $5,000 salary sacrifice plans) a streamlined set of disclosures need to be made, some of which can still be quite onerous. Shaun raised the point that one of the difficulties with the new rules is that there is a new personal liability regime for directors, which boards (and insurers) are finding uncomfortable to navigate.

Shaun noted that the regulatory reforms will likely cause a rethink on common plan designs. He gave the example of a common option plan with an exercise price, which might now instead be structured in the form of share appreciation rights, delivering the same economic outcome, but without requiring any payment from participants.

Shaun also noted that, in his experience, foreign companies with small Australian footprints have, where possible, been keen to rely on pre-existing disclosure exemptions (such as for senior manager and small scale offerings), rather than rely on the new rules.

For a deep dive into the regulatory changes, please refer to the paper prepared by Shaun Cartoon and Eileen Liu for The Tax Institute, which can be accessed here.

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