This may sound too good to be true but employee share schemes can be an effective strategy for attracting and rewarding talented staff. As well as enhancing performance, they can help succession planning. Your employees may be keen to take over your business – but where do they find the capital to buy you out? Employee share schemes can be part of the solution.
And, because they are already inside the business, employees have more information than other potential investors, meaning they are better-placed to decide whether or not to invest.
Historically New Zealand was not as kind to employee share schemes as other countries. But recent changes in the way the financial markets are regulated aim to make it easier to encourage share ownership by employees. Employee share schemes were one of the key growth-focused initiatives brought into effect on 1 April 2014. There is a reduced disclosure requirements for offers made to certain eligible people, making it more attractive for employers to offer shares to their employees.
The new financial markets legislation has impressively wide scope, including licensing, conduct and financial reporting. It also details the information a business must disclose to potential investors. The FMA (Financial Markets Authority) has wide powers to police the boundaries of the regime and those boundaries are now being identified.
It has significant powers to grant exemptions and is proposing to use this power to enable employers to issue shares to employees without providing full disclosure:
- It will be easier to issue shares to employee trusts and relatives;
- Inconsistencies between the old and new regimes will be ironed out;
- Clarity is provided around how many shares can be issued.
Fitting the old regime into the new is not always easy and the regulator is to be congratulated for seeking a pragmatic solution. However, it is important that the new regime maintains a principle-based approach to regulation. Parliament should be encouraged to ensure any necessary changes are made to the legislation to ensure the efficient functioning of our capital markets.
Originally posted on interest.co.nz on 25 September 2015