Employee Share Schemes: A New Opportunity for NZ Businesses

Until recently, New Zealand legislation has forced the majority of Kiwi businesses to rule out employee share schemes on the grounds that they are too difficult and expensive to implement. What has changed and what benefits do businesses have to look forward to?

For years small to medium size businesses (SMEs) in the US and UK have enjoyed the benefits that come with offering employees an ownership stake in the businesses. In the wake of the GFC employee share schemes, in particular, have grown in popularity overseas as businesses look for new ways to remain competitive and optimise their resources. This is because they provide an effective means to:

• Reduce salary and HR costs
• Access much needed working capital; something start-ups in particular can appreciate
• Increase productivity, with employees having a vested interest in the business’ success
• Attract and retain talented and productive staff, and keep staff turnover to a minimum
• Tackle the issue of succession and the transition of ownership

Why are Employee Share Schemes not utilised by more New Zealand businesses?

In short; one piece of legislation – the Securities Act – has over the years forced many SMEs to dismiss their implementation on the grounds that complying with the Act was too difficult, expensive and more trouble than it’s worth. This is all about to change…

New opportunities for employee share schemes

Change has come in the form of the Financial Markets Conduct Act 2013, which will kick-in from 1 April 2014.  Essentially this will exempt employee share schemes from the requirement for complex and expensive disclosure documents.  This reform will also give companies the additional flexibility to offer any type of equity security; not just ordinary shares, including non-voting shares and options.