Market Practice in the ASX100 for loans to KMPs
Key takeaways:
- Loans are rare across the ASX 100. Only 12% disclose use.
- Financial institutions account for most key management personnel (KMP) loans.
- Loan funded share plans in the ASX 100 are few, reflecting a downwards trend.
Despite the recent federal budget impact on capital gains tax, loan funded share plans are viable for many companies. They also carry risks that are not present in performance rights plans, which are ASX 100 majority practice. See Guerdon Associates prior look at the benefits for boards and management of loan funded share plans.
However, loan plans are unused across the majority of the ASX 100 and few companies outside of the banking industry provide loans to KMP executives.
What’s the difference between a loan funded share plan and a loan to KMP executives?
A loan funded share plan is a form of long-term incentive plan where company grants an interest-free, limited recourse loan to the employee for the sole purpose of acquiring shares at their market value. The shares are under a holding lock for the term of the performance and vesting period. They may be subject to service and/or performance conditions and may include partial loan forgiveness linked to performance measures.
The balance repayable on the loan is the lesser of the value of the shares and the loan balance at the repayment date:
- If the share price is greater than the loan balance, the employee enjoys the share price appreciation.
- If the share price is lower than the loan balance, the repayment is the value of the shares at that time.
A loan to a KMP executive may be a loan for other reasons, such as asset acquisition, to cover executive tax obligations or provide relocation support to facilitate recruitment. These loans are generally full recourse, with the executive being ‘on the hook’ for repayment of principal and interest.
What are ASX 100 companies doing?
We examined the prevalence of loans in the ASX 1001. In accordance with section 2M.3.03 of the Corporations Regulation 2001, all loans to KMP must be disclosed in the remuneration report, with additional detail for loans over $100,000. We found only 12 companies (12%) in the ASX 100 that have disclosed loans made to KMP.
Nine of these companies (75%) are financial institutions and can be reasonably deduced to be personal loans and mortgage financing. Of the remaining 3 (25%):
- One has an ongoing loan funded share plan, with outstanding loans to four executives, representing 6.5 times total fixed remuneration
- One has discontinued its loan funded share plan but still provides franchise funding loans representing 1.2 times total fixed remuneration
- One provided a loan to fulfil tax equalisation obligations, representing 27% of total fixed remuneration
The loans from the financial institutions were provided at arm’s length of interest (75%) and the other 3 loans were made interest free (25%) except for the franchise funding. The disclosures for these loans were all found in the remuneration report and could also be found in the financial statements.
Has the use of loan funded plans changed?
The 2022 Guerdon Associates analysis of loan plans found 2 companies with loan funded share plans on the ASX100, and 6 across the ASX 300. Current analysis shows only 1 company with loan funded plans in use across the ASX 100.
The bottom line
Provided the usual lending rules and commercial interest rates are applied, loans made to KMP executives by banks carry no governance risk. In fact, it may be a bad look if KMP went to a different bank for mortgage finance.
Limited-recourse loan-funded share plans require a clear rationale for their use. Significant share price reductions will leave the company exposed to a loss. In contrast, the reduction in performance share value is borne by the executive, aligning their experience with shareholders. Additionally, the capital tied up in these plans could otherwise be invested in future profit generating activities, such as growth, technology, or research and development. However, for companies with stable long-term earnings, these plans remain an option to increase executive shareholding and align executive performance with share price growth and dividend yield.
- The analysis considered the FY25 Annual Reports of the ASX 100 constituents as at June 2026.