Long-term incentive plan (LTIP)

Long-term Incentive Plans (LTIPs) are programs that offer to employees the opportunity to receive a bonus on top of their base salary. An LTIP provides incentives and bonuses over predetermined long-term periods, usually between three and five years

An executive's investment of time, energy and experience in a company is instrumental to business success. An LTIP values an employee's contribution to the growth of the organization by allowing him or her to reap the benefits, as if he or she were the owner.

How are LTIPs structured?

LTIPs can be designed flexibly, so they can be created based on your company's existing needs, goals and capabilities. It is critical to establish an LTIP in line with your company's philosophy from the outset. Establish performance periods and a reward system in line with strategic programs and goals. You can turn to us to build an LTIP appropriate to your case or rely on our team to conveniently manage your LTIP.

In fact, long-term incentive plans reward the achievement of long-term quantitative-financial and strategic-non-financial objectives functional to value generation and sustainable growth, consistent with the interests of Shareholders and fostering the sustainability of corporate performance in the interest of all stakeholders, in accordance with the provisions of the Corporate Governance Code.

Advantages of using an LTIP

The use of a long-term incentive plan discourages employees from acting unethically in the pursuit of short-term financial gains. People working in finance and sales must produce consistent results over several years, and this prevents people from distorting sales results in the early years, since such actions would be detected long before incentives were paid. Some companies offer both a short-term and a long-term incentive plan, and the latter is based on the results of the former, although the rewards are much more substantial in the long-term plan.

Employees who participate in long-term incentive plans often pay lower taxes on bonuses paid through such plans than on bonuses paid on short-term plans. This is because, in many countries, the tax rate on long-term capital gains is lower than the tax rate at which short-term incentives are taxed. Long-term plans are often reserved for high-level employees and are designed to ensure that these key employees remain loyal to the company. In situations where the company's performance deteriorates over time, the company's employees may end up with minimal rewards at the end of a long-term incentive plan.