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In March 2022, the government announced reforms to make it easier for businesses to utilise employee share schemes (‘ESS’) and reduce the red tape so that employees at all levels can directly share in the business growth they help to generate. These changes include:

  • amending the disclosure rules, allowing unlisted companies to offer an unlimited number of shares, of an unlimited value, as long as the employee is not charged more than $30,000 a year for them (up from a $5,000 a year cap). Employees will also be able to accrue up to $150,000 over a five year period; and

  • for employee share schemes where there is no payment to participate, independent contractors will receive the same treatment and receive the same regulatory relief as employees and directors who are participants in the scheme.

Do you want to attract and retain the best employees? How can you do this? There are a number of ways, depending on your goals and resources. This article looks at what is a Phantom Share Scheme and how does it work.

Many businesses are rich with innovative ideas but cash poor. We have good news for you! There are significant changes to tax law, effective 1 July 2015 which make it more attractive for new businesses to issue options or shares to employees, under an Employee Share Scheme.

This article is focused on businesses who want to incentivise employees with cash payments rather than shares. Please see my article on why you would implement a Phantom Share Scheme here.

What is a Phantom Share Scheme?

Phantom Share Schemes, also known as share appreciation rights plans or share tracker plans, are contractual rights for an employee to be paid a certain amount based on company metrics, for example, an increase in a company’s share price or value.

They are attractive to companies who have sufficient cash to make the required cash payments.

How does a Phantom Share Scheme work?

Under a Phantom Share Scheme, an employee receives a cash payment or payments, not an issue of shares or options.

When will the employee be paid?

The employee can be paid on a regular basis for example on an annual basis, or when the company sold.

The employee can receive an annual cash payment, like a dividend, that reflects the dividend that the employee would have been paid if they were a shareholder.

The employee can receive a cash payment when the company is sold, that reflects the amount that they would have received for their shares, if the employee was a shareholder.

How do I set up a Phantom Share Scheme?

Phantom Share Schemes can be set up as a standalone contract or as addendum to an employee’s existing employment agreement.

Conclusion

LegalVision can assist you to establish an employee share scheme or a phantom share scheme. LegalVision has a team of great lawyers experienced in both employee share schemes and phantom share schemes. Please call our office on 1300 544 755 and our Client Care team will happily provide you with an obligation-free consultation and a fixed-fee quote.

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