Long-Term Incentive Plan - LTIP

AAA

DEFINITION of 'Long-Term Incentive Plan - LTIP'

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.

RELATED TERMS
  1. Retention Bonus

    A payment or reward outside of an employee's regular salary that ...
  2. Signing Bonus

    A financial award, often issued in one or two lump-sum payments, ...
  3. Stock

    A type of security that signifies ownership in a corporation ...
  4. Stock Option

    A privilege, sold by one party to another, that gives the buyer ...
  5. Option

    A financial derivative that represents a contract sold by one ...
  6. Carried Interest

    A share of any profits that the general partners of private equity ...
Related Articles
  1. Options & Futures

    The Dangers Of Options Backdating

    This form of executive compensation can pose serious risks for investors.
  2. Options & Futures

    A New Approach To Equity Compensation

    The new financial accounting standard known as FAS 123R could take a bite out of your portfolio. Find out why here.
  3. Options & Futures

    Should Employees Be Compensated With Stock Options?

    Learn the good, the bad and the ugly sides of this type of payout.
  4. Options & Futures

    Evaluating Executive Compensation

    Find out how to determine whether a CEO is being overpaid.
  5. Personal Finance

    How To Get That Entry-Level Financial Analyst Job

    Landing a job as a financial analyst takes study, strategy and a lot of hard work. Here's how to hone your competitive edge.
  6. Savings

    All About Income

    Income is the money you or a business earns by providing goods or services, or through investments.
  7. Taxes

    Top Tips for Minimizing Taxes on Severance Pay

    A look at the top ways to lessen the tax burden on severance pay.
  8. Professionals

    8 Justifications For Sky-high CEO Salaries

    Why are CEO salaries so astronomically high? There may be more to the story than you think.
  9. Personal Finance

    8 Reasons Why Valued Employees Quit

    Salaries are important, but retaining top employees requires more than just providing competitive pay.
  10. Personal Finance

    Top 5 Ways to Retain Your Best Employees

    You need to think beyond salary to make the most talented people want to stay on for the long term.
RELATED FAQS
  1. Does my employer's matching contribution count towards the maximum I can contribute ...

    Contributions to 401(k) plans come from employee salary deferral and employer match dollars. According to the IRS, employees ... Read Full Answer >>
  2. How is marginal propensity to save calculated?

    Marginal propensity to save is used in Keynesian macroeconomics to quantify the relationship between changes in income and ... Read Full Answer >>
  3. Why should investors research the C-suite executives of a company?

    C-suite executives are essential for creating and enacting overall firm strategy and are therefore an important aspect of ... Read Full Answer >>
  4. How does the always be closing (ABC) strategy benefit a salesperson's sales funnel?

    It is good practice in sales to always be closing, because it's common for a salesperson's sales funnel to be leaky. When ... Read Full Answer >>
  5. How reliable or accurate is marginal analysis?

    Marginal analysis is designed to show how economic reasoning allows actors to accomplish more by understanding limits on ... Read Full Answer >>
  6. What does a merger or acquisition mean for the target company's employees?

    Suppose one sporting goods manufacturer merges with or acquires another sporting goods manufacturer. Before the merger and ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Stock Market Crash

    A rapid and often unanticipated drop in stock prices. A stock market crash can be the result of major catastrophic events, ...
  2. Financial Crisis

    A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated ...
  3. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  4. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
  5. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
  6. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!