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.

INVESTOPEDIA EXPLAINS '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. Year-End Bonus

    A reward paid to an employee at the end of the year. Many year-end ...
  4. Carried Interest

    A share of any profits that the general partners of private equity ...
  5. Option

    A financial derivative that represents a contract sold by one ...
  6. Stock Option

    A privilege, sold by one party to another, that gives the buyer ...
Related Articles
  1. Options & Futures

    The Dangers Of Options Backdating

  2. Options & Futures

    A New Approach To Equity Compensation ...

  3. Options & Futures

    Should Employees Be Compensated With ...

  4. Options & Futures

    Evaluating Executive Compensation

Hot Definitions
  1. Capitulation

    When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  4. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  5. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  6. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
Trading Center