Providing share options to employees is a burdensome and complicated task that requires a deft hand to deliver, according to a new survey conducted by international consultancy firm Deloitte.

The report found that while the appetite for Employee Share Option Plans (ESOP) remains strong, with 94 per cent of respondents saying they are a valuable incentive, only 37 per cent of respondents had issues share options in the last three years.

ESOPs are generally used most by fast growing companies, who are usually short on capital and revenue, to incentivise employees by providing them with shares in the business. However, in Australia 81% of those surveyed, agreed that tax reasons were the main consideration for their reluctance to utilise ESOPs.

Roan Fryer, Deloitte Tax partner, said, “Employee share options are a flexible and low-cost way for fast growth businesses to compensate, attract and retain high-performing talent who can be the difference between a garden shed business and a household name.”

Fryer continued, “However, the associated tax rules here in Australia make them difficult and expensive to use, in contrast to other jurisdictions such as the USA and UK, where concessional taxation treatment of certain ESOPs (such as the deferral of the taxing point) have allowed businesses to effectively leverage ESOPs, resulting in greater employee participation in ESOPs and, ultimately, staff retention.

“There is a clear opportunity for business to work with policy-makers to improve the current situation, where ESOPs are left in the ‘too-hard bucket’ and help transform them from a barrier into an enabler of innovation,” he said.

The vast majority (89%) of respondents stated that they would be more inclined to issue share options, if employees were taxed on financial gains at the time of receipt of the ESOP proceeds rather than earlier, as is currently the case in Australia.