Advantages
- No cost to company, except for set up and administration.
- Allows employees to purchase shares progressively through regular savings.
- Can be applied to as few or as many employee groups as desired.
- Non-dilutive as on-market purchases or new issues may be used and the full market price of a Share is paid at the time of acquisition.
- Can be used internationally.
- Can avoid minimum order value limits imposed by brokers.
- Usually free brokerage for employees.
Disadvantages
- Minimal advantage over employees buying shares on-market.
- Not tax effective for employees.
- Employees bear full market risks and can lose money if the share price falls.
- Requires compliance with “contribution plan” Corporations Act requirements (not onerous for listed companies).
- Buying company shares can lead to less flexibility for employees in regard to purchasing and selling due to insider trading laws and company share trading policies.
- Must accumulate at least $500 of shares (minimum marketable parcel) to be able to sell them on the ASX.
About Basic Plans
Basic Plans can involve either new issues or on-market purchases (usually via a trustee) of shares at their market value. In either case employees are not charged brokerage because a broker is not involved (new issues) or the company meets the brokerage costs. Also, minimum broker purchase obligations generally do not apply because either a broker is not used or the purchases are aggregated by a trustee. While they do offer the opportunity for improving engagement and alignment there is a risk that they may backfire if the share price falls leading to disgruntled employees. This risk aspect is partly addressed in the Global Employees Plan.
