Broad-Based Employee Share Ownership in Australian Listed Companies: Survey Report

Abstract

This research report presents findings from a survey of employee share ownership practice in Australian listed companies. The research focused on broad-based employee share ownership plans (ESOPs): that is, plans that are open to a majority of employees within the company. The purpose of this study was fourfold: (1) to inform public policy debate on the issue of employee share ownership through providing, for the first time, a detailed account of employee share plan practice in Australian listed companies; (2) to examine how, if at all, the regulatory framework in taxation and corporate law is impacting upon the decision by companies to implement ESOPs and the design of their plans; (3) to obtain company views on the adequacy of the current regulatory framework; and (4) to test a range of hypotheses as to the determinants of ESOPs in the Australian context.

Key findings as to company practice include: (1) approximately 57 percent of companies responding to the survey had at least one broad-based employee share ownership plan; (2) significantly more companies reported having a broad-based plan than a narrow-based plan: that is, a plan that is only open to executives; (3) the three most popular reasons for implementing a plan were 'showing employees the company values them'; 'sharing financial success with employees'; and 'aligning employee interests with shareholder interests'; (4) over three quarters of companies that have a broad-based plan have adopted their plan since 2000; (5) the most common type of broad-based ESOP was a plan structured to take advantage of the tax exemption in Division 13A of the Income Tax Assessment Act.

Three structural characteristics were found to have a significant and positive association with the presence of an employee share ownership plan. These were the presence of a centralised human resource function; company growth over the preceding 12 months (measured by the number of employees); and the composition of the workforce (the proportion of full-time to part-time and casual employees). We also found that companies with broad-based ESOPs were significantly more likely to have structures for communicating directly with employees.