Long Term Incentive Plans

A Long Term Incentive Plan is sometimes entered into between a senior executive, often at board or senior Leadership level, whereby shares can be awarded in his or her employer (or its parent company) at nil cost to the employee.

What is the purpose of a Long Term Incentive Plan (LTIPs)?

LTIPs aim to retain effective and sought-after executives in a very competitive job market. It's designed to ensure stability and reward medium and long-term growth. 

The plan will often include a period of continued employment and key performance indicators (KPIs) that must be met over a period of time. For example, under a Performance Share Plan (or PSP) every three years. The long-term goals are intended to increase shareholder value, under which the executive and other shareholders benefit as a business develops. 

Share options

Share options may be granted, which vest in stages over consecutive years, and discourage any exit given they will generally lapse unless leaving under 'good leaver' terms redundancy or ill health. 

Some options may be very valuable. Many large corporations may have very comprehensive share schemes within the business, such as:

• Performance Share Plans (PSP), 
• Restricted Share Plans (RSP) with 'wait and see' provisions 
• Deferred Share Bonus Schemes Restricted Stock Options (RSUs) - These are essentially non-transferable shares with certain conditions attached to them.

When is the benefit realised?

The executive has no legal title to or tangible benefit from them until the shares vest. 

Some companies may use the term LTIP to refer to an alternative arrangement, such as a cash bonus scheme with a performance or vesting period of more than one year. 

Most schemes are subject to strict terms and regulatory rules, not subject to negotiation or changes at the point of exit.

Get in touch

For more information and guidance on Long Term Incentive Plans, please contact our Employment Litigation Team on 023 8063 9311 or email enquiries@warnergoodman.co.uk.