Authored by Joyce Cheng, Director, Prime Remuneration Services
Equity was built to inspire. But for many of Australia's scaling and listed companies, employee share plans are quietly falling short of that promise.
From Series B through to ASX-listed businesses, equity has long been a cornerstone of talent strategy, yet for founders and employees holding options issued at peak valuations, the impact of today's market has been real.
Our Director of Remuneration Services, Joyce Cheng explores what this means for employee share plans, and what companies can do about it.
A shifting market is changing how equity is valued
Ongoing shifts in market conditions are reshaping how companies are valued.
Rates have risen sharply, AI is disrupting established business models, and geopolitical tensions — from the Middle East to broader global instability have added further uncertainty.
Investors are responding by placing greater emphasis on profitability, capital efficiency and sustainable growth, creating a more selective market where some companies are attracting strong valuations while others face increasing pressure.
Together, these forces have created a materially different valuation environment from the one that existed just a few years ago.
What this means for Employee Share Plans
For companies with employee share plans, this shift has real implications.
Many options granted in prior years- particularly during the COVID-era technology boom were issued at valuations reflecting a very different environment.
Today, those options may sit at or above current value. There is no requirement to reprice them, but the question is whether they are still serving their intended purpose.
Because equity only works when employees believe in it.
When options are out of the money, they quickly lose perceived value. This is especially true in sectors such technology, where equity has long been a core part of the value proposition – used to attract and retain engineers, product leads as well as senior operators who accept lower base salaries in exchange for meaningful upside. When that upside disappears, so does the incentive structure built around it.
Employees disengage, and equity can shift from a meaningful incentive to something that is largely discounted. This creates a subtle but important risk to retention and alignment.
Treating equity plans as active, not static
In this environment, employee share plans can no longer be treated as static structures. They require active consideration to ensure they remain relevant, understood and aligned with employee expectations.
This may involve reconsidering the type of equity being offered, how and when grants are made, how equity is communicated internally, or, in some cases, whether existing exercise prices remain aligned with current market conditions.
Importantly, this is not purely negative.
Periods of valuation reset can create an opportunity to re-establish equity as a meaningful incentive. New grants at more realistic valuations can carry genuine upside, restoring the link between performance and reward.
What questions should founders be asking?
In the current environment, the question is no longer just what equity are we offering? but is it valued in a way that still makes it meaningful?
For companies that issued options in a different market environment, now is a natural point to reassess. Not because it is required, but because the effectiveness of equity depends on how it is perceived today.
This often comes down to two factors: whether the plan structure remains fit for purpose, and; whether the valuation underpinning it continues to support meaningful outcomes. A plan can be technically sound, but if the valuation no longer reflects market conditions, the impact can be lost.
At Prime, we work with companies to establish and review their employee share plans holistically, ensuring equity continues to function as a genuine tool for retention, alignment and long-term value creation.
If there is any uncertainty around whether your current plan is still achieving its intended outcome, it may be time to revisit your approach.
The information in this article contains general advice and is provided by Primestock Securities Ltd AFSL 239180. That advice has been prepared without taking your personal objectives, financial situation or needs into account. Before acting on this general advice, you should consider the appropriateness of it having regard to your personal objectives, financial situation and needs. You should obtain and read the Product Disclosure Statement (PDS) before making any decision to acquire any financial product referred to in this article. Please refer to the FSG (www.primefinancial.com.au/fsg) for contact information and information about remuneration and associations with product issuers. This information should not be relied upon as a substitute for professional advice, and we encourage you to seek specific advice from your professional adviser before making a decision on the matters discussed in this article. Information in this article is current at the date of this article, and we have no obligation to update or revise it as a result of any change in events, circumstances or conditions upon which it is based.
