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.

Mark Gearing has recorded an interview on long term incentive plans(LTIPs).
Click on the link above to listen to the interview but please note you will need to register first.