ESS wealth opportunities, vesting tax liability & non-financial performance metrics

If you are among this year’s executives who have received an unwelcome tax bill courtesy of your executive share scheme (ESS) vesting, this article probably won’t change what happened.

However, it does aim to provide insights for managing your ESS wealth opportunities, the inherent tax liabilities that affect it and other considerations that now include non-financial performance metrics that can impact your performance bonus awards.

ESS Vesting causes a taxing point

At different times during the year we ask our executive community to check their Executive Share Scheme (ESS). This is because an ESS usually has a taxing point at the time of vesting.  Regardless of whether you keep or sell your employee shares it creates assessable income causing a tax liability that could catch you off guard.

As reporting for the last financial year is completed, a number of executives will find themselves in the unhappy position of receiving an unexpected and significant tax bill, caused by their employee shares vesting during the past 12 months.

For executives, whose company’s share price fell significantly at the same time, it’s a double whammy of disappointment.

These executives may also face having insufficient realised share value that could leave them in a difficult cashflow position or unable to cover their tax obligation.

The entire ESS-tax saga is inconvenient, time consuming to solve and importantly, it’s not a situation any executive wants to repeat.

I’m a financial adviser with an ESS specialisation and while I advise many executives when dealing with the immediate impacts of funding their tax bill, I strongly encourage them to take a longer more proactive view at the overall remuneration and personal wealth.

There are a range of financial planning considerations that can make a positive difference. Among them how your ESS shares are owned.

It may be possible for shares to be held in a superannuation fund, trust or by the executive’s spouse.

This can provide greater tax efficiencies rather than adding to a high earning executive’s already considerable taxable income.

However, I hasten to add ESS often have a policy that can specify minimum a share holding which would need to be considered as policies can varying from company to company and depend on seniority.

When it comes to selling vested employee shares, either to pay your tax liability or to realise your share value and boost your personal wealth, how you sell your shares is important.

Generally known as Dollar Cost Averaging, an incremental approach to selling the shares can boost personal wealth. The premise is to release some shares at regular intervals and in doing so spread the sale of the shares over a number of prices.  This can potentially achieve an overall higher value rather than making a bulk sale of all shares and hoping the share price on the day hasn’t fallen.

Non-financial metrics set to impact ESS performance bonus

Of course each company has different ESS provisions and these must be both observed and managed to enable executives to make the most of what is often a multi-faceted renumeration package.

It’s for these reasons I’m keeping a close eye on developments in relation to performance bonus awards affecting non-financial metrics.

Among the more commonly discussed metrics are those pertaining to environmental, social and governance (ESG) metrics, which are now being added to executives’ long term incentive vesting criteria.

ESG hurdles written into ESS performance requirements appear to be driven by shareholders with concerns about climate change, community impacts and how leaders in the business should be driven to meet these terms and improve their social impact.

While there are currently only a small number of companies which have moved in this direction, it’s likely many others will follow as pressure to respond to these issues continues.

For executives there will be financial implications as their performance must be quantified before bonuses will be awarded.  Although it’s presumed focussing on ESG metrics addressing other non-financial hurdles will cause company prices to rise over time.

At this stage it’s a case of wait and see, but no doubt non-financial metrics will become an important renumeration negotiation point for executives that will need to be considered in future wealth and tax planning.

To learn more about ESS financial management, please contact James Marshall on +61 (0) 7 3007 2080 or email

To learn more about James, visit this link.

Webinar: ESS Accumulate wealth and Avoid paying MORE tax than you should!
Tuesday 29th August 12:30 to 1:30
Presenters:  James Marshall, Financial Adviser & ESS Strategist & Craig Barry, Accountant & Specialist Tax Adviser.
For more details and to register, click here.

Executive Strategies is a specialised information hub for executives and senior managers who may have founded their own business or who work for growing private, ASX listed companies or government businesses. Its purpose is to provide access to specialist advisers and information that addresses the often-complex issues affecting their personal prosperity.Stratus Financial Group and its advisers are Authorised Representatives of Fortnum Private Wealth ABN 54 139 889 535 AFSL 357306. This advice is general and does not take into account your objectives, financial situation or needs. You should not act on it without first obtaining professional financial advice specific to your circumstances.

*Please note: For advice and services relating to this matter that are not offered under the Fortnum Private Wealth AFSL, in accordance with our collaborative advice model, when required, such matters are referred to appropriately qualified professionals.