A long-term incentive program (LTIP) can be described as a business policy that rewards employees who achieve certain goals, which result in an increase in shareholder value.
In a typical LTIP the employee, which is usually an executive, has to fulfill different conditions or demands. In certain types of LTIPs the recipients are given specific restricted options as well as stock award.
Understanding Long-Term Incentive Plan (LTIP)
A long-term incentive program (LTIP) even though it is targeted at employees, it is actually an aspect of the business in itself, which is striving for growth over the long term. When the objectives of the growth plan of a business align with those of the LTIP, key employees know what performance indicators to concentrate on to improve the company and earning more personal pay.
The incentive program is designed to retain the best talent in a competitive workplace as the business continues to evolve in predetermined , potentially profitable directions.
Different types of LTIPs
One kind one type LTIP can be one that is the 401(k) pension plan. If an company matches a certain percentage from an employee’s pay to the plan the employees are more likely to remain with the business until they retire.
The typical business has a vesting plan that decides the amount of retirement account retirement contributions a worker can make when he or she leaves the business. The business usually retains a portion of its contribution over the initial five years of a employee’s tenure. When an employee has become full vested, they are entitled to all the retirement plan’s contributions going forward.
Option stock are a different type of LTIP. Following a specified period of time in employment, employees may be able to buy shares of the company at a reduced price while employers pay the remainder. The employee’s rank is boosted by the proportion of shares held.
In other situations it is possible for the company to give restricted shares to workers. For instance, an employee might be required to surrender the stock they were gifted if they quit within three years after receiving it. Every year from now onwards the employee could be granted rights to an additional 25% gift stock. In the five-year period following receipt of restricted stocks employees are typically fully invested.
An example of an LTIP
In June 2016, Konecranes PLC’s director’s board at Konecranes PLC agreed to a new share-based LTIP for key employees. The plan offered competitive rewards in relation to earnings and the accumulation of shares of Konecranes PLC.
The LTIP was a period of discretion of the calendar year 2016. Rewards could be based on the continued work or service, and also on Konecranes ‘ adjusted earnings prior to interest, taxes depreciation and amortization (EBITDA). Rewards were expected to be paid out in Konecranes shares, as well as in cash prior to the end of August 2017. The cash was to be used for tax and other related expenses.
Shares that are paid under the plan can’t transfer during the period of restriction starting with the date that reward paid , and closing on Dec. 31, 2018.