Supporting staff with shareholdings

Posted in Guest Blogs

In today’s IRMatters post, Patricia Doyle, Private Client Advisor with Morgans Financial covers four important points that companies and employees should consider when entering into employee share schemes.

Many ASX-listed companies award shares or offer discounted shares to their staff as a show of appreciation, a sign of recognition for hard work, and as a staff retention practice. With the benefits for both management and employees who own shares, a number of core processes and rules accompany share schemes. It is important for all staff to be aware of the major points.

1. Limiting personal risk

Escrow arrangements and vesting arrangements will mean the shares are not readily available to be sold by the owner. It may be some months or years until the stock is released from escrow and available to be sold on the market. Making purchases or entering into liabilities, based on the value yet to be received under an escrowed stock arrangement would be considered high risk considering the uncertainty around the outcome.

The most conservative approach an employee shareholder should take is to only consider the cash to be available for other uses once the shares are actually sold and the proceeds in their bank account.

2. Block-out periods and sale windows

Sale windows exist, typically for executive level employees, whose shares may be subject to block-out periods, where the stock cannot be sold or purchased. As an example, a Director’s action to sell their shares in the week before the company is due to announce its annual results may be seen as a conflict of interest, given the information the staff member may privy to.

It is important that a staff member takes responsibility in this regard and checks with their Company Secretary or similar to confirm the stock is eligible to be sold on a particular date. The Company Secretary should also provide ongoing updates by way of email to confirm when sale windows are open and closed. 

3. Share trading accounts

Staff without a share trading account is a common occurrence in many businesses. Quite often employees may have never owned shares previously, nor really understand much about them and the processes involved to sell their shares can be more complicated than anticipated. One solution is for the company to have a specific broker contact who can assist staff with opening a trading account, explaining the process and keeping track of the important timing issues that can surround employee shares.

Employees can contact the Company Secretary to find out if they have a broker contact that they deal with on a regular basis that can assist with a new account.

4. Tax considerations

Tax issues can arise through the sale of employee shares depending on the cost base given to the allocated stock. It would be advisable to ensure that staff recognise their may be tax payable in the event they sell their shares and speak to an accountant if they are unsure of their potential liability. In certain cases, tax may be payable upfront on the exercise of options or when they cease employment with the company.

It is very important Employees discuss the potential tax implications with their accountant prior to selling their shares.

All  staff should be provided with an information pack when they initially receive a parcel of shares in the company with details of the benefits of the Employee Share Scheme as well as highlighting the important points detailed above.

Seeking guidance? 

Need some help with providing guidance to your employees on how to approach thinking about the company’s employee share plans? Contact Patricia Doyle, Senior Investment Advisor, via phone: +61 2 9373 4416 or email: Important Information The information contained in this article is general information only. It does not take into consideration any specific needs, situations or objectives. Before making any financial decisions you should make sure you are comfortable that the strategy suits your needs and objectives, and your risk profile. If necessary, you should seek professional advice.