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A Long Term Incentive Plan (LTIP) is a structured reward system designed to retain and motivate employees by tying their compensation to long-term company goals.

These plans often span over 3–5 years and align employee interests with organizational success.

What is a long-term incentive plan?

A long-term incentive plan (LTIP) is a compensation structure designed to reward employees for achieving long-term strategic objectives and creating sustained value for the organization over an extended period.

LTIPs are typically implemented as part of an organization's overall compensation strategy to attract, retain, and motivate key talent, particularly at the executive and senior management levels.

What are the key characteristics of a long-term incentive plan?

Key characteristics of long-term incentive plans include:

Performance-based rewards: LTIPs are often performance-based, meaning that the rewards employees receive are tied to the achievement of specific performance metrics or financial targets set by the organization.
These metrics may include measures such as revenue growth, profitability, shareholder returns, earnings per share (EPS), or total shareholder return (TSR).‍
Vesting periods: LTIPs typically have vesting periods, during which employees must remain with the company and meet certain eligibility criteria to become entitled to the rewards.
Vesting periods are intended to incentivize employee retention and align employee interests with long-term organizational goals.‍
Equity-based awards: Many LTIPs include equity-based awards, such as stock options, restricted stock units (RSUs), or performance shares, as a significant component of the overall reward structure.
Equity awards provide employees with a stake in the company's future performance and align their interests with those of shareholders.‍
Multi-year performance measurement: LTIPs often incorporate multi-year performance measurement periods, typically spanning three to five years or longer. By focusing on long-term performance outcomes, LTIPs encourage employees to make strategic decisions that contribute to sustainable growth and value creation over time.‍
Goal setting and performance targets: LTIPs require clear goal setting and performance targets to define what success looks like and how rewards will be earned. These targets are typically established in alignment with the organization's strategic objectives and may be adjusted periodically to reflect changing business conditions.‍
Communication and transparency: Effective communication and transparency are essential components of LTIPs to ensure that employees understand the program's objectives, performance metrics, eligibility criteria, and potential rewards.
Clear and consistent communication helps employees stay engaged and motivated to achieve long-term goals.‍
Risk management and governance: LTIPs require robust risk management and governance mechanisms to mitigate potential risks and ensure that incentive plans are aligned with the organization's risk appetite and values.
This may include oversight from the board of directors, compensation committee, or other governing bodies.

What are the types of long term incentive plans?

There are multiple types of LTIPs, each suited for different organizational goals. Companies may use one or a combination depending on their structure.

Stock Options: Right to buy company stock at a fixed price in the future
Restricted Stock Units (RSUs): Shares granted with conditions and vesting
Performance Shares: Shares awarded based on hitting key goals
Deferred Bonuses: Cash incentives paid after a defined period
Phantom Stock: Cash equivalent of stock value, without equity dilution

Why are long term incentive plans important?

LTIPs serve as powerful tools for long-term engagement and succession planning. Here’s why they matter for both employees and organizations:

Help retain top-performing and high-potential talent
Align employee goals with company strategy and long-term performance
Drive consistent high performance and future planning
Reduce short-term thinking in decision-making
Support leadership continuity during business transitions

Who is eligible for a long term incentive plan?

Eligibility for LTIPs varies by company, but it’s typically offered to employees in critical or leadership roles. Some companies extend these plans to high performers across levels to foster wider engagement.

Executives and senior leaders
Mid-level managers with strategic influence
High-potential or mission-critical talent
Employees in revenue-driving or technical roles

When are long term incentive plans paid out?

LTIPs are paid out after the completion of a vesting period, which is typically 3–5 years. The payout depends on meeting predefined goals.

After the end of a set performance period
Upon achieving financial or strategic milestones
On completion of project or tenure-based terms
At the end of the vesting schedule defined in the agreement

Survei denyut nadi karyawan:

Ini adalah survei singkat yang dapat dikirim secara berkala untuk mengetahui pendapat karyawan Anda tentang suatu masalah dengan cepat. Survei ini terdiri dari lebih sedikit pertanyaan (tidak lebih dari 10) untuk mendapatkan informasi dengan cepat. Survei ini dapat diberikan secara berkala (bulanan/mingguan/triwulanan).

Pertemuan empat mata:

Mengadakan pertemuan berkala selama satu jam untuk mengobrol secara informal dengan setiap anggota tim adalah cara terbaik untuk mengetahui apa yang sebenarnya terjadi dengan mereka. Karena ini adalah percakapan yang aman dan pribadi, ini membantu Anda mendapatkan detail yang lebih baik tentang suatu masalah.

eNPS:

eNPS (skor Net Promoter karyawan) adalah salah satu cara yang paling sederhana namun efektif untuk menilai pendapat karyawan tentang perusahaan Anda. Ini mencakup satu pertanyaan menarik yang mengukur loyalitas. Contoh pertanyaan eNPS antara lain: Seberapa besar kemungkinan Anda akan merekomendasikan perusahaan kami kepada orang lain? Karyawan menjawab survei eNPS dengan skala 1-10, di mana 10 menunjukkan bahwa mereka 'sangat mungkin' merekomendasikan perusahaan dan 1 menunjukkan bahwa mereka 'sangat tidak mungkin' merekomendasikannya.

Berdasarkan jawaban yang diberikan, karyawan dapat ditempatkan dalam tiga kategori yang berbeda:

Promotor
Karyawan yang memberikan tanggapan positif atau setuju.
Pengkritik
Karyawan yang bereaksi negatif atau tidak setuju.
Pasif
Karyawan yang bersikap netral dalam memberikan tanggapan.

How do long term incentive plans work?

Long term incentive plans work by granting employees rewards that vest over time, conditional on their performance and retention. The value of the incentive typically depends on the company’s success and can include equity or cash.

Employees are granted options or shares at the start of the plan
A vesting period is defined (e.g., 3–5 years)
Performance metrics (e.g., revenue growth, EPS) are set
If goals are met and the employee stays, the reward is granted
Rewards may come as cash, stock, or profit-sharing

How to design a long term incentive plan?

Designing an LTIP requires strategic planning, financial modeling, and a deep understanding of employee behavior and organizational needs.

Define the purpose—retention, performance, or alignment
Choose the right type of LTIP (stock, bonus, RSUs, etc.)
Set clear, measurable long-term performance goals
Establish a vesting schedule that encourages retention
Ensure legal and tax compliance in every jurisdiction
Communicate the plan transparently to employees

How to account for long term incentive plans?

Accounting for LTIPs involves estimating the cost of the plan and recording it over the vesting period. This ensures the expense is matched to employee service.

Recognize compensation expense over the service period
Use fair value methods for stock-based incentives
Update estimates periodically for changes in performance or attrition
Record liabilities for cash-settled LTIPs
Disclose the LTIP details in financial statements under relevant accounting standards (e.g., IFRS or GAAP)

How often are long-term incentive plan payouts typically made?

Typically, LTIP payouts are made according to one of the following schedules:

Vesting periods: Many LTIPs have vesting periods during which employees must remain with the company and meet certain eligibility criteria to become entitled to the rewards.
Vesting periods can vary in length but commonly range from three to five years or longer. Once the vesting period is complete, employees become eligible to receive their LTIP payouts.
Performance measurement periods: LTIP payouts may be based on the achievement of specific performance goals or targets over a predetermined performance measurement period.
Performance measurement periods typically align with the company's fiscal year or other reporting periods and may span multiple years. Payouts are made at the end of the performance measurement period based on the extent to which performance goals are met.
Annual or periodic payouts: Some LTIPs provide for annual or periodic payouts based on the company's performance or other predetermined criteria.
For example, cash incentive plans or performance share plans may provide for annual payouts based on annual performance targets or financial metrics. These payouts are typically made at the end of each performance period or fiscal year.
Milestone-based payouts: In certain cases, LTIP payouts may be tied to the achievement of specific milestones or events, such as the completion of a strategic initiative, a merger or acquisition, or the attainment of a certain market valuation.
Payouts are made upon the successful completion of the milestone or event as outlined in the LTIP.
Lump-sum or installment payments: LTIP payouts may be made in a lump sum or in installments, depending on the terms of the plan and the preferences of the company.
Lump-sum payments provide employees with the full value of their LTIP awards at once, while installment payments distribute the value of the awards over multiple periods.

How does a long-term incentive plan work?

Here's how a typical LTIP works:

Goal setting: The organization establishes long-term performance goals or objectives that align with its strategic priorities and shareholder interests. These goals may include financial metrics (e.g., revenue growth, profitability, earnings per share), operational targets (e.g., market share, customer satisfaction), or other strategic objectives.
Designing the plan: The organization designs the LTIP, including the types of incentives to be offered (e.g., stock options, restricted stock units, performance shares), eligibility criteria, performance measurement periods, vesting schedules, and payout structures.
The plan is typically developed in consultation with the board of directors, compensation committee, or other relevant stakeholders.
Communication and rollout: The organization communicates the details of the LTIP to eligible employees, including the goals, performance metrics, eligibility criteria, potential rewards, and the timeline for participation. Clear and transparent communication is essential to ensure that employees understand the program's objectives and how they can earn rewards through their performance.
Performance measurement: Throughout the performance measurement period, the organization tracks and evaluates progress toward the established goals or objectives.
Performance metrics are monitored regularly to assess performance against targets and determine whether employees are on track to earn rewards under the LTIP.
Vesting and eligibility: Employees must meet certain eligibility criteria and remain with the organization for the duration of the vesting period to become entitled to the rewards offered under the LTIP.
Vesting schedules may vary but often require employees to fulfill specific tenure requirements or performance conditions before becoming eligible to receive rewards.
Reward calculation: At the end of the performance measurement period, the organization calculates the rewards earned by eligible employees based on their performance against the established goals or objectives.
Rewards may be calculated based on predetermined formulas, performance scores, or other objective criteria outlined in the LTIP.
Distribution of rewards: Once rewards have been calculated, the organization distributes them to eligible employees according to the terms of the LTIP. Rewards may be paid out in the form of cash bonuses, company stock, or other equity-based awards, depending on the structure of the plan and the preferences of the organization.
Evaluation and review: After the completion of each performance measurement period, the organization evaluates the effectiveness of the LTIP in driving performance, achieving strategic objectives, and aligning employee interests with shareholder interests.
Feedback from participants and stakeholders may be used to inform adjustments or refinements to the LTIP for future periods.