Background

A Long Term Incentive Plan, or LTIP, generally involves the award of free shares over a period of at least 3 years subject to the achievement of performance targets.

Performance Targets

The targets can be individual, corporate or possibly divisional and are commonly set over a 3 or 5 year period. If they are met, then the participant will receive the shares outright. Good practice increasingly involves a phased release of shares depending on how well the company performs.

A variant of the LTIP is a deferred bonus plan. This can require a participant who receives an annual cash bonus to set aside a percntage of that each year for the purchase of shares. If performance targts are subsequently met over a period of time (often 3 to 5 years) the company will match those purchased shares with a specified number of free shares.

Taxation

• Tax treatment depends on legal structure but is often similar to Unapproved Share Options.