About Sophisticated Participants Plans
SPPs can be structured as right or share appreciation right (SARs) plans. They use instruments that are indeterminate rights which simply means that before exercise of a parcel of Rights, the number of Shares, if any, that will be received by the right holder cannot be determined. Perhaps the most commonly used forms of indeterminant rights are SARs and Rights that may be settled in Shares or cash as determined by the board.
Indeterminate rights are not securities for Corporations Act purposes – they are classified as derivatives. However, there is no difference between compliance requirements for securities and derivative under the Corporations Act provisions that came into effect on 1 October 2022 for employee share schemes.
The defining features of these instruments is that they are fully vested at grant, have no vesting conditions (i.e. no risk of forfeiture) and may be sold or exercised at any time. Accordingly, they are not suitable for use as incentives or for retention. They are best used as part of salary sacrifice or in lieu of cash amounts that would otherwise be considered “earned” at the time of grant e.g. bonus settlement.