Long-Term Incentive Plan (LTIP)

What Is a Long-Term Incentive Plan?

A long-term incentive plan (LTIP) is a company policy that rewards employees for arriving at specific objectives that lead to increased shareholder value.

In a normal LTIP, the employee, typically an executive, must satisfy different conditions or requirements. In certain forms of LTIPs, beneficiaries receive special capped options notwithstanding stock awards.

Seeing Long-Term Incentive Plan (LTIP)

A long-term incentive plan (LTIP), while geared toward employees, is actually a function of the business itself taking a stab at long-term growth. At the point when objectives in a company's growth plan match those of the company's LTIP, key employees know which performance factors to zero in on for working on the business and earning more personal compensation.

The incentive plan holds top ability in a profoundly competitive workplace as the business keeps developing in predetermined and possibly lucrative bearings.

Types of LTIPs

One type of LTIP is the 401(k) retirement plan. At the point when a business matches a percentage of an employee's paycheck going into the plan, employees are bound to work for the company until retirement.

The business commonly has a vesting schedule that determines the value of retirement account contributions a worker might take while leaving the company. A business normally holds part of its contributions over the initial five years of a worker's employment. When an employee is completely vested, they own all of their retirement plan contributions moving forward.

Stock options are one more type of LTIP. After a set length of employment, workers might have the option to purchase company stock at a discount while the employer pays the balance. The worker's position in the organization increments with the percentage of shares owned.

In different cases, the business might give restricted stock to employees. For instance, the employee might need to surrender gifted stock if leaving in no less than three years of getting it. For every year proceeding, the worker might have rights to another 25% of the gifted stock. Following five years of getting restricted stock, the employee is generally completely vested.

Illustration of a LTIP

In June 2016, the board of directors of Konecranes PLC agreed to another share-based LTIP for key employees. The plan gave competitive rewards in view of earning and accumulating shares of the company.

The LTIP had a discretionary period of calendar year 2016. Potential rewards depended on nonstop employment or service and on Konecranes Group's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). Rewards were to be paid partly in Konecranes shares and partly in cash toward the finish of August 2017. The cash was expected to be utilized to cover taxes and related costs.

Shares paid under the plan couldn't be moved during the restriction period, beginning when the reward was paid and ending on Dec. 31, 2018.