Executive Share Schemes (ESS): Key legal issues executives should consider in relation to their executive remuneration

By Robert Lamb, Director at Hillhouse Legal Partners
| 5 min. read

Key takeaways

  • Mining and resource professionals and have many wealth creation opportunities presented to them during their working lives, often in the form of Executive Share Schemes (ESS), share options and grants.
  • When negotiating your employment contract and remuneration package it is important to fully understand the legal rights and obligation attached to ESS, for both the executive and the company.
  • A testamentary trust both protects your wealth and assets from unwelcome claims against your estate and provides trustees.

ESS: Beyond Life

It’s a rather melodramatic headline I admit, but I make no apology for it. All too often in life, mining and resources executives work hard to generate significant wealth and assets, only for the legacy they wish to pass on to those they love to be tied up in legal actions and their grieving relatives left to navigate confusing obligations relating to ESS, when they’re gone.

Here I touch on the legal issues executives should consider in relation to their executive remuneration, what happens if they resign, their role is made redundant or they pass away.

Mining and resource professionals and executives have many wealth creation opportunities presented to them during their working lives, often in the form of Executive Share Schemes (ESS), share options and grants.

These wealth opportunities can be significant, especially when performance goals are met and bonuses are paid that can be in region of hundreds of thousands to millions of dollars, and additional company shares granted, over and above your usual salary.

Among the first considerations for executives who may be negotiating their own employment contract and remuneration package or when negotiating with executive candidates or executives who are advancing to new roles within their company, is to fully understand the legal rights and obligation attached to ESS, for both the executive and the company.

For executives seeking legal advice about their employment contract or negotiating the terms of their remuneration, advice specific to ESS would be given at that time. Such legal advice (in conjunction with accounting, taxation and financial planning advice) would include your legal claim on your ESS and the obligations of the company, should you choose to resign, you are terminated, your role is made redundant or you die.  As your legal advisors we would so advise you on how best to deal with this valuable asset under your will and estate plan.

The fact is, people get sick or have accidents whether in their home country or abroad.

For executives taking up roles that require living and working overseas, advice relating to your ESS may include a conversation around international wills and residency, structures required for asset protection and obligations around asset accumulation which includes company shares that may be awarded during your overseas secondment. This all leads to what can be a discussion around what happens should you pass away when living overseas.

Failing to have an estate plan in place that includes a current will, your wishes outlining personal matters, the distribution of assets and instructions for managing what can be complex ongoing vesting and tax obligations relating of your ESS, are among the key considerations that need to be addressed.

A structure you’ll need to consider is a testamentary trust which activates under your will when you pass away. A testamentary trust both protects your wealth and assets from unwelcome claims against your estate and provides trustees, whom you appoint to manage the trust, flexibility for dealing with assets and making decisions including those pertaining to what can be significant ESS wealth.

Making clear arrangements will shore up your legacy and this will save grieving family members from the additional stress of sorting out legal matters, such as your ESS, which are inherently complex.

Next steps…

Ensuring the best possible outcomes for your ESS, starts with your remuneration package and employment contract, and usually ends with a well-considered estate plan.  In between, life can serve up unexpected challenges that can have legal impacts on your ESS and personal wealth.

Seeking legal advice so you clearly understand the benefits and obligations of your ESS when changing roles and beyond employment is not only beneficial for advancing your personal wealth, it provides important insights for career decision-making and any impacts caused by redundancy or ending your employment.

Reviewing your will and estate plan is an excellent place to start when it comes to shoring up the wealth benefits of your ESS. If your will is out of date, predates the ESS or does not include a testamentary trust, consider these red flags. Your next step should be to get advice to resolve those issues, however it will likely shine a light on many of the matters outlined in this article.

For further information, please contact Robert Lamb on +61 (0) 7 3007 2000 or email [email protected]

This article was originally published in Resources Unearthed.  Resources Unearthed is a solutions hub that provides integrated financial, legal, property and accounting & business advisory services for executives, professionals and business owners in the mining and resources sectors.

The information in this article is intended only to provide a general overview and has not been prepared with a view to any particular situation or set of circumstances. It is not intended to be comprehensive nor does it constitute legal advice. While we attempt to ensure the information is current and accurate, we do not guarantee its currency and accuracy. You should seek legal or other professional advice before acting or relying on any of the information in this blog as it may not be appropriate for your individual circumstances.

The information in this blog is intended only to provide a general overview and has not been prepared with a view to any particular situation or set of circumstances. It is not intended to be comprehensive nor does it constitute legal advice. While we attempt to ensure the information is current and accurate we do not guarantee its currency and accuracy. You should seek legal or other professional advice before acting or relying on any of the information in this blog as it may not be appropriate for your individual circumstances.