ESO in Australia
Substantial changes to the taxation laws governing employee share schemes have been announced in the 2008-09 Budget. These changes are not reflected in the information provided on this site or in the 'Getting Started' kits. You should therefore seek information and advice from a suitably qualified tax professional.
Employee Share Ownership in Australia: aligning interests
The Department of Education, Employment and Workplace Relations commissioned a major research project to investigate the barriers to ESO take-up, and determine the types and incidence of plans used by Australian businesses.
The research aimed to consolidate existing knowledge about ESO and to investigate the issues facing businesses implementing ESO in Australia.
The findings provide government, business and advisors to business with a better understanding of attitudes and perceptions of ESO and the issues related to successful implementation of ESO.
The following findings are based on three stages of research*:
- a literature review of existing concepts and issues
- qualitative research using in-depth interviews and case studies of advisors, human resource managers; and
- business owners quantitative survey research of 1000 businesses of varying size from major industry groups.
The research was a direct response to recommendations of the Nelson inquiry into ESO in Australia. It provides comprehensive and current information on the number, nature and extent of ESO plans in Australia.
Exeutive summary: Employee share ownership: aligning interests (PDF 271KB)
A TNS Social Research presentation (PDF 94KB) on the research comissioned by the department is now available.
Key findings of the literature review stage of this research are as follows:
- in Australia, there is conflicting and limited data regarding the implementation of Employee Share Ownership Plans (ESOPs).
- there is no comprehensive (accurate) survey of the incidences of the various types of ESOPs by business type in Australia.
- the limitations of previous research include a lack of differentiation between:
- ‘type’ of ESOP and the key factors that are limiting take-up
- the focus of the ESOP at the company level, and whether the
plans are: narrow-based plans (offered to the top management
group only) or broad-based plans (offered to most or all of the
employees, generally considered to be greater than 50 per
cent)
- the size of the entity, and whether barriers to implementation of
ESOPs differ by entity type and size.
- there is a large amount of international research in the area of ESOPs, the majority of which is from the US and, more recently, from the European Union (EU). The key differentiator between the US and EU research is that the implementation of ESOPs is relatively widespread in the US in comparison to the EU (and Australia). The widespread acceptance of ESOPs in the US has broadly been explained as a direct result of tax-incentives introduced in the 1970s and 1980s in the US. Many of these incentives continue to have effect today and encourage further acceptance of ESOPs by both employers and employees in the US.
- again, the research directly related to the implementation of ESOPs at an international level is limited. This observation clearly raises support for further detailed research in the area of barriers to uptake and over coming limitations in the acceptance and implementation of ESOPs in Australia.
* Research provided by TNS Social Research, ACT.
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Trends and statistics
The Australian Bureau of Statistics (ABS) collects data about shares as a benefit of employment; data was collected on this in 1999 and 2004.
2004 Data
As at 2004, 400,600 full time employees had employee shares as a benefit of employment. This equated to 7.0 per cent of all full time employees, an increase of 0.1 per cent from 1999.
An estimated 3.4 per cent, or 80,700 of all part time employees also had employee shares, which is an increase of 1.2 per cent from 1999 and a total increase of 2.9 per cent from 1989.
In comparison to other types of employment benefits, the percentage of all employees with shares (5.9 per cent) ranked above other benefits such as study leave (4.2 per cent), holiday expenses (3.8 percent), union dues/professional association fees (3.0 per cent), medical (2.1 per cent) and child care/education expenses (0.6 per cent).
Benefits that ranked higher than employee shares include goods and services (18.0 per cent), transport (13.3 per cent) and telephone (9.1 per cent). This indicates that the incidence of employee share ownership is on the increase.
Data from the ABS Survey of Employee Benefits and Earnings from 1986-1999 provides the following levels of employee share ownership by main job and occupation:
| |
1986 |
1987 |
1988 |
1989 |
1990 |
1991 |
1992 |
1994 |
1999 |
2004 |
| Total employees in main job (%) |
1.4 |
2.2 |
3.3 |
2.4 |
2.6 |
2.8 |
2.8 |
3.9 |
5.6 |
5.9 |
| Managers and administrators (%) |
5.8 |
8.7 |
9.3 |
8.3 |
8.5 |
9.0 |
8.1 |
9.8 |
12.6 |
11.9 |
| Non Managers and Administrators (%) |
1.0 |
1.7 |
2.7 |
2.0 |
2.2 |
2.3 |
2.4 |
3.4 |
5.2 |
N/A |
As at 2004, an estimated 5.9 per cent of all employees and 11.9 per cent of managers had employee shares. There are strong occupational and industry differences apparent in the data and some age, working arrangement and gender differences.
Industry trends
As at 2004, 400,600 employees had employee shares as a benefit of employment. The total pool of wage and salary earners that could have had access to employee shares is estimated to be around 6 million. The industries with the highest percentage of employees with employee shares are finance and insurance (32.3 per cent), mining (16.4 per cent) and communication services (16.0 per cent).
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Listed and unlisted companies
A very high proportion of listed companies have employee share ownership plans (estimated to be around 90 per cent of listed companies and 56 per cent of subsidiaries of overseas listed companies having at least one employee share ownership plan, noting some of these are executive only plans. (Mercer, 2002)). A number of reasons are given for this high level, including developing an ownership culture, attraction and retention, and long term incentives.
A much lower number of unlisted companies have employee share plans (data on this is not reliable, but estimates range from negligible, through 3 per cent to about 20 per cent). According to the House of Representatives Inquiry into Employee Share Ownership, the main reasons for employers not putting plans in place are cumbersome administration, cost implications, difficulties with approval and corporate structure not considered to be appropriate (Shared Endeavours: an Inquiry into Employee Share Ownership in Australia).
Demographic trends
In 2003, 51 per cent of Australians owned shares (this figure includes both direct and indirect share ownership, and covers both employee as well as non-employee share types). At this time, 39 per cent of Australians owned shares directly, with a further 12 per cent owning them indirectly through superannuation.
In terms of demographics, more men held direct shares than women in the period March 1997 to November 2003. The incidence of share ownership increased with age with the 55 years plus age group being the only group to report a continuous increase in share ownership since 1997. Similarly, the incidence of direct share ownership increased as the level of education, household income or the value of household assets (excluding the family home) increased
(Australian Stock Exchange, 2003 Australian Share Ownership Study).
From November 1999 to November 2003, share ownership among Australians who live in metropolitan areas has remained stable at about 40 per cent. Share ownership in regional locations, on the other hand, is less common. Direct share ownership among regional Australians had declined steadily in previous years (from 39 per cent in November 1999 to 33 per cent in November 2002), however this downward trend showed a reversal in 2003, increasing to 37 per cent
(Australian Stock Exchange, 2003 Australian Share Ownership Study).
In 2003 direct share ownership as a percentage of the population was highest in New South Wales and ACT at 43 per cent, closely followed by Western Australia, Victoria and South Australia. However, in total share ownership NSW/ACT has the highest proportion of shareholders at 54 per cent, with South Australia at 52 per cent and Queensland and Western Australia at 50 per cent
(Australian Stock Exchange, 2003 Australian Share Ownership Study).
ESO value
The value of employee share ownership is unknown, but was estimated by the Nelson Committee to be worth between $9 billion and $12 billion in 2000, with an annual increase in value running into the billions of dollars.
Of the total, it was estimated between $6 billion and $8 billion was held in equities in listed companies and between $3 billion and $4 billion in unlisted companies. About $1.5 billion of the total was estimated to be holdings in executive only plans. A significant proportion of the total comes from a small number of very large firms (Shared Endeavours: an Inquiry into Employee Share Ownership in Australia).
Australian and international trends
Australian incidence of employee share ownership is low compared to a number of other countries, such as USA, UK, France and Japan. However, employee share ownership in Australia is similar to that in Germany. It also appears that employee share ownership is more concentrated among managerial occupations than in some other countries.
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