A long-term incentive program (LTIP) will be a corporate policy which rewards employees for achieving specific goals that result in greater shareholder value.
In a typical LTIP the employee, which is usually an executive, is required to meet certain conditions or requirements. In certain types of LTIPs the recipients are given particular restricted options along with stock award.
Understanding Long-Term Incentive Plan (LTIP)
A long-term incentive program (LTIP) even though it is targeted at employees, it is actually part of the company in itself, which is striving for growth over the long term. If the objectives of the growth plan of a company align with those of the LTIP, key employees know which performance metrics to concentrate on in order to boost the business and earning more personal rewards.
The incentive plan is designed to retain the best talent in a competitive workplace while the company continues to grow in predictable and profitable directions.
Different types of LTIPs
One kind that is a type of LTIP can be an LTIP called the 401(k) retirement program. If an company matches a certain percentage from an employee’s pay that goes into the plan the employees are more likely to stay with the company until they retire.
The typical business has a vesting plan which decides the amount of retirement account contributions that a worker can make when he or she leaves the business. A company typically keeps a part of its contribution over the initial five years of the employee’s employment. When an employee has become completely vested in their retirement plan, they are entitled to all their retirement plan retirement contributions going forward.
Option stock are a different type of LTIP. After a certain 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 seniority of the worker is boosted by the share ownership percentage.
In other situations it is possible for the company to give employees restricted shares. For instance, an employee could be required to give up the stock they were gifted if they quit within three years after receiving it. Each year thereafter the employee could be granted rights to an additional 25 percent of stock. Following five years, after receiving restricted shares employees are typically fully invested.
An example of an LTIP
In June of 2016, the director’s board at Konecranes PLC agreed to a new share-based LTIP for key employees. The plan was designed to reward employees with competitive benefits in relation to earnings and the accumulation of shares of Konecranes PLC.
The LTIP included a discretionary time period in the calendar year of 2016. The potential rewards were contingent on continued work or service, and also on the Konecranes Group’s adjusted earnings prior to interest, taxes depreciation, amortization, and interest (EBITDA). The rewards were paid in part in Konecranes shares and in part in cash at the end of August 2017. The cash was to be used to pay tax and other related expenses.
The shares that were paid out under the plan can’t be transferred in the limitation period, which began the moment you received the award, and closing on December. 31, 2018.
