Major companies including Woolworths, Fairfax Media, Macquarie Group and Wesfarmers have suspended or are reviewing their employee share plans after the Rudd Government introduced changes to the schemes in the federal budget.
Company directors and executives are furious with the changes, which will force individuals earning over $60,000 to pay tax on share and options packages up-front.
Under current laws, those who take part in schemes can designate to pay tax when the shares are sold, which often can be years from the date the shares are awarded.
Most who take part in the schemes choose to wait, fearing the value of shares may decline after they have already paid tax up-front.
Ironically, the decision of major companies to suspend or review their share schemes could dash the Government’s hopes of the $200 million it expected to gain from the changes over four years.
While many major companies are already reviewing their schemes, smaller firms are also reeling.
Michael Dundas, a partner at law firm Moore Stephens, says several of his clients are “very worried” about the changes to the scheme. He says share recipients may have tax bills they cannot afford.
“The vast majority of participants aren’t necessarily wealthy people, and all of a sudden they’ve got a $20,000 tax bill they’re not going to be able to fund,” he says.
“So the majority of employers will know that, and the majority of people they’re giving shares to will have to pull out. You’ve got a commitment that you’re going to pay shares based on profit, perhaps doing it for the last four years, and now they say they’re not giving them anything because it’ll penalise workers.”
Dundas says this will affect a company’s competitiveness, as share schemes are vital to maintaining a sense of company ownership, and the Government will have to re-think its strategy.
“Owner-based incentive schemes are important for businesses and (are) competitive, and they are an incentive scheme to have people participate in company growth rather than get paid cash,” he says.
“You’ll see a lot of these schemes completely scrapped, and it all just doesn’t make sense. I think the Government is going to have to reverse their position.”
Computershare managing director Geoff Price told The Australian that of the share plans it handles for several of the top 100 ASX listed groups, 95% have suspended share schemes since the budget announcement – accounting for about 300,000 workers.
“All the share plans we operate are likely to be suspended until there’s some clarity,” he said.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
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