How it works

Organizations have identified the many benefits of paying for performance while focusing their organizational structure on long-term success. Different from the main drivers of a management incentive plan (MIP), which is based on a given fiscal year’s results, a long-term incentive plan (LTIP) will be based on desired future outcomes—generally between three and five years—to ensure continuing shareholder value creation while retaining a strong senior leadership team. As such, it is customary to find a significant portion of the organization’s senior leadership and decision makers’ annual compensation granted in the form of LTIP.

A free and reliable repository of long-term incentive practices is found in proxy statements, in which publicly traded companies in the U.S. must disclose their compensation programs, benefits, and perquisites provided to their top executives. Since these statements are crucial for supporting shareholder-level decision-making, compensation designers can gain valuable insights into prevalent long-term incentive plans by reviewing the annual disclosures of public companies, particularly those of industry competitors or market leaders in sectors such as fast-moving consumer goods (FMCG), technology, retail, financial services, pharmaceuticals, energy, and other relevant industries.

looks_oneDetermine the eligibility of a long-term incentive program