Employee share schemes – a question of trust

Employee share schemes – a question of trust

Andy Hutt and Albert Homarwijaya, Share Scheme Specialists, highlight some practical benefits of employee share trust.

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An employee share trust (EST) is a common structure that employers (both listed and unlisted) use to manage the sale restrictions and forfeiture conditions that are often associated with their share-based incentive programs. However this is not the only practical benefit that an EST can deliver.

Contributing to an EST to enable the EST to purchase or subscribe for shares, can allow the employer to manage its costs and share capital position by having the trust acquire shares over a period of time before transferring them to employees. The EST can also “recycle” forfeited shares for future grants, avoiding potentially complicated buy-back requirements.

The potential benefits of using an EST include:

  • Hedging against rising share price (shares can be acquired progressively and warehoused in the EST). 
  • Company maintains control over shares, while at the same time the Trustee has a fiduciary duty to employees, providing greater transparency and integrity to the arrangement. 
  • The employer’s contributions to the EST may be tax-deductible (including where the EST uses the contributions to subscribe for newly-issued shares).

Typically, an EST would operate as follows:

  • The company makes a contribution to the EST 
  • The EST uses the contribution to either subscribe for shares from the company, or purchase them on-market 
  • EST delivers shares to the employee per their entitlement under an employee share scheme.

Below is an example structure of an employee share trust:

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