Long-Term Incentive Plan - LTIP

What is a 'Long-Term Incentive Plan - LTIP'

A long-term incentive plan (LTIP) is a reward system designed to improve employees' long-term performance by providing rewards that may not be tied to the company's share price. In a typical LTIP, the employee (usually an executive) must fulfill various conditions and/or requirements that prove that he or she has contributed to increasing shareholder value. The incentives for doing this are usually conditional company shares, which are distributed in two parts. The first part represents an immediate distribution of half of the shares, while the remaining half of the shares will only be presented to the executive if he or she stays with the company for a predefined number of years.

BREAKING DOWN 'Long-Term Incentive Plan - LTIP'

Some businesses have replaced pure options-based incentives in favor of LTIPs. One criticism about how some firms have been using LTIPs is that executives still receive the second half of the reward even if their performance has not been exceptional in the subsequent years. This is because in order to receive the second portion of the shares, the executive must only succeed in not being terminated in the designated time span.

In some forms of LTIP, recipients receive special capped options in addition to stock.

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