Employee share schemes
Sharing the wealth
As an employee of a company, you may be invited to participate
in an employee share scheme. There are a number of things to
consider before signing up.
Here we explain how these schemes work and the pros and
How employee share schemes
Employee share schemes (also known as employee share purchase
plans or employee equity schemes) give employees shares in the
company they work for, or the opportunity to buy shares in the
Share purchase plans offer eligible employees the chance to
purchase shares, sometimes through a loan from their employer. The
shares are often paid for through salary sacrifice over a set
period (for example, 6 months), or by using the dividends received on the shares. Some
share purchase plans also allow employees to pay for the shares in
full, up front.
Employees on higher incomes are often eligible to receive shares
as a performance bonus, or as a form of remuneration, instead of
receiving a higher salary.
The share schemes of larger companies usually offer employees
'ordinary shares' that provide an equity
investment in the company. However, smaller companies
may only offer 'pseudo' equity schemes that pay dividends but do
not give employees the rights associated with traditional share
ownership, such as the right to vote at annual general
Employee share schemes are a way of attracting, retaining and
motivating staff as they align employees' interests with
shareholders' interests. Employees can benefit financially if the
company performs well.
The shares might be offered without a brokerage fee or at a discount to the
market price. There may also be tax benefits but this will depend
on the employee's financial situation and the unique features of
the share scheme.
There are often limitations on when employees can buy, sell and
access shares through their company's share scheme.
There may only be an annual window during which shares can be
bought or sold. Employees may also have to get permission from the
company before buying or selling the shares.
If the employee is paying back the cost of the shares over a
period of time, they do not have the right to sell them until they
have been paid for.
Even if the shares have been paid for, some companies may insist
that employees give back their shares when they leave, or sell them
at the current market price, even if that price is less than what
Some share packages come with restrictions, where employees only
receive part or all of the shares if certain performance targets
are met, and they remain with the company for a certain number of
Case study: Michael buys shares in his company
Michael works for a large listed Australian company. Each year
the company offers their permanent employees the opportunity to buy
up to $1,000 worth of shares through a salary sacrifice
arrangement. The shares are bought at the market rate but purchased
with pre-tax income.
A condition of buying the shares this way is that employees
cannot sell them for a period of 3 years from the date they buy the
shares. If they leave the company within the 3-year period, they
can sell the shares, but they may have to pay extra tax.
Michael thinks the company shares offer a good investment, and
being able to buy them using his pre-tax income means he can buy
more shares than he could if he bought them with his after-tax pay.
He decides to go ahead and accept the offer for the full $1,000 in
Things to consider
Before you decide to participate in an employee share scheme you
should do some research about the company to determine how well it
is doing and whether the shares are likely to increase in value.
See choosing shares to buy for
If you decide to purchase the shares, it's important that
they're part of a diversified investment plan to avoid losing a
large part of your investment portfolio if your employer goes out
of business. For more information, see investing basics.
It's also important to consider your own personal circumstances.
For example, you may have other priorities for your money like
paying off your mortgage or contributing extra to super.
Each employee share scheme is different, so you should carefully
read the offer documents, which set out the terms and conditions of
the offer. Look for information about when you can buy and sell the
shares, whether you are entitled to dividend payments, and what
happens to the shares if you leave the company.
Speak to an accountant or a financial
adviser if you need professional advice. See also the
Australian Taxation Office (ATO) information on employee share schemes.
Employee share schemes can be a great way of
gaining access to discount shares, however you should think about
how they fit into your investment strategy before you decide to get
Last updated: 18 Apr 2018