ASIC has recently expanded its regulatory relief to a wider range of employee incentive schemes.  On 31 October 2014, ASIC released two new class orders on employee incentive schemes – one for listed bodies [CO 14/1000] and the other for unlisted bodies [CO 14/1001].  These class orders expand the types of financial products that can be offered under employee incentive schemes, broaden the categories of persons that can participate in a scheme and allow greater flexibility to structure schemes.  The administrative processes to comply with the relief are also reduced. 

The new class orders cover features that are commonly used in many employee incentive schemes and clarify other matters that have caused confusion about the operation of existing relief.  For example, under the new class orders:

  • Performance or incentive rights may now be offered.
  • Contractors and casual employees may now participate.
  • It is clear that non-executive directors can participate.
  • Trusts can be used to hold financial products in a pool on behalf of their employees rather than specifically for a particular employee.
  • A notice of reliance must be lodged with ASIC rather than all of the scheme documents.

As a result the compliance burden for the majority of circumstances in which employee incentive schemes are offered should be reduced.  ASIC has stated that it will continue to provide case-by-case relief for other schemes that do not meet the conditions of the new class orders.

The existing class order [CO 03/184] will be discontinued.  ASIC has granted transitional relief so that companies relying on the existing class order or individual relief can continue to operate their existing schemes with equivalent relief. 

The following is a summary of the effect of the new class order [CO 14/1000] which applies to listed bodies.  The class order [CO 14/1001] which applies to unlisted bodies is more restrictive in scope because there are fewer regulatory reporting and compliance obligations applying to unlisted bodies and there is no readily available market price for their financial products.


Companies often seek to implement incentive schemes which offer securities and other financial products to their employees as part of their remuneration package.  These schemes are generally designed to encourage the retention of staff and long term interdependence by aligning the interests of employees with interests of employers. 

However, without ASIC relief there can be significant compliance costs involved because these offers generally trigger a range of obligations under the Corporations Act. 

By class order [CO 03/184] ASIC granted conditional relief to facilitate offers under employee incentive schemes without the need to meet various obligations under the Corporations Act, such as the requirement to give a disclosure document, the requirement to hold a Australian financial services licence, the advertising and hawking provisions, the requirement to register a managed investment scheme for a contribution plan, and the on-sale (or secondary trading) provisions.  ASIC has also provided case by case relief in a number of situations not covered by this class order. 

In late 2013 ASIC consulted with industry and reviewed its policy in light of changes to the Corporations Act as well as developments in market practice for structuring employee incentive schemes.  On 31 October 2014, ASIC released updated guidance (Regulatory Guide 49) and two new class orders [CO 14/1000] and [CO 14/1001].  While the fundamental policy basis for relief has not changed, ASIC has broadened the scope of relief granted to employee incentive schemes.

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Offers to non-executive directors

The new class orders and ASIC guidance clarifies that non-executive directors can participate in an employee incentive scheme.  There is no restriction on the kinds of financial products that may be offered under schemes.  In particular, the class order does not restrict companies offering to non-executive directors financial products that include performance conditions.

However, in making any such offers companies should be aware that corporate governance principles recommend that non-executive directors should not receive performance based remuneration or options with performance hurdles or performance rights (see ASX Corporate Governance Principles and Recommendations, 3rd edition, 2014, Recommendation 8.2). 

Performance or incentive rights

Under the new class order, an incentive right is a conditional right:

  1. to aquire underlying financial products;
  2. to be paid cash amount that is ultimately determined by reference to the value of the underlying financial product (e.g. the price, an increase in price, or dividends paid); or
  3. to receive a combination of (a) and (b).

There is no requirement for incentive rights to vest automatically, or for vesting to occur for no monetary consideration or for performance conditions to apply (e.g. a length of service requirement or performance of the participant or issuer).


Another relevant development is the announcement by the Federal Government on 14 October 2014 that it will reform the tax treatment of employee incentive schemes. 

Currently, options offered under employee incentive schemes are taxed when they are issued to employees rather than when they are converted into shares.  As a result, few companies offer options under schemes because employees are required to pay tax before they can take practical steps to realise any gain to pay the tax. 

The Federal Government has stated that it will revise the taxing point for options so that discounted options will be generally taxed when they are exercised rather than when the option is granted.  The Federal Government proposes to consult with industry to ensure that the draft legislation delivers the intended outcome.  Legislation is due to come into effect on 1 July 2015.