Mercer has broadly welcomed the Federal Government’s proposals on company share schemes, although it has concerns about the details of the proposed rules.
The company said the rules were broadly in line with its perspective on aligning equity pay with performance and timeframes.
However, Mercer has submitted some concerns about the Government’s proposals to the Investment and Financial Services Association for use in the body’s submission to the Productivity Commission hearings in Melbourne later this month.
“Tax on shares with disposal restrictions (as opposed to performance or service conditions) will not be deferred,” Mercer said in its submission.
“As a result, many of the salary sacrifice plans in operation will not qualify for the deferral.
“Also, employees granted restricted shares will still face a cash flow issue as they will be required to pay the tax before they are able to sell the shares to fund the liability.”
Mercer said it left Australia in the position of being one of the few countries that tax equity compensation on termination of employment.
“We would argue that this is counter to the idea that executives should be required to retain a stake in the company for a period of time post-termination,” it said.
“This is to discourage excessive risk taking prior to leaving and share in the upside/downside performance resulting from actions taken while still employed.”
Mercer estimates half of the value of the shares owned by an employee on leaving their job would need to be sold to pay the tax.
