long-term incentive plan


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long-term incentive plan (LTIP)

a scheme which involves the periodic grant of SHARES in a company to the company's executive directors as an incentive for them to improve the financial performance of the company and align their interests more closely with those of the company's SHAREHOLDERS. LTIPs are similar to EXECUTIVE SHARE OPTION SCHEMES insofar as they involve the periodic grant and exercise of share awards, again the exercise of share awards being conditional on the attainment of specified performance ‘targets’ usually over a three year period. However, there are some notable differences. Firstly whereas options are granted at an ‘exercise price’ LTIP shares are usually granted at zero price (ie. they are given ‘free’). Secondly, ‘benchmarking’ is related specifically to the performance of other companies rather than the Retail Price Index, for example companies comprising a SHARE PRICE INDEX such as the FTSE-100, or more narrowly, a peer group of companies operating in the same industry. Thirdly, whereas options are exercised on an ‘all or nothing’ basis LTIPs are typically ‘scaled’ involving a minimum (partial exercise) point, rising to a maximum (full exercise) point. See PRINCIPAL-AGENT THEORY, BUSINESS OBJECTIVES, CORPORATE GOVERNANCE.

long-term incentive plan (LTIP)

a scheme that involves the periodic grant of SHARES in a company to the company's executive directors as an incentive for them to improve the financial performance of the company and align their interests more closely with those of the company's SHAREHOLDERS.

LTIPs are similar to EXECUTIVE SHARE OPTION SCHEMES insofar as they involve the periodic grant and exercise of share awards, again the exercise of share awards being conditional on the attainment of specified performance ‘targets’, usually over a three-year period. However, there are some notable differences. Firstly, whereas options are granted at an ‘exercise price’, LTIP shares are usually granted at zero price (i.e. they are given ‘free’). Secondly, ‘benchmarking’ is related specifically to the performance of other companies rather than the Retail Price Index, for example, companies comprising a SHARE PRICE INDEX such as the FTSE-100, or, more narrowly, a peer group of companies operating in the same industry. Thirdly, whereas options are exercised on an ‘all or nothing‘basis, LTIPs are typically ‘scaled’, involving a minimum (partial exercise) point, rising to a maximum (full exercise) point.

For example, in the case of GKN (2004), the engineering group, LTIP share exercises are based on the company's total shareholder return (TSR) (increase in share price with dividends re-invested) performance relative to that of companies comprising the FTSE-100 share index over three years. ‘Minimum’ share exercises are triggered if the company's growth in TSR is such as to place it in 50th position, rising to ‘maximum’ share exercises if the company's TSR growth is such as to put it in the top 25. For Allied Domecq (2004), the hotels and leisure group, the company's TSR is measured against that of 13 other hotels and leisure groups over three years. ‘Minimum’ share exercises are triggered if the company's TSR growth is such as to place it in the ninth position, rising to maximum share exercises if the company is in the top three. See PRINCIPAL-AGENT THEORY, FIRM OBJECTIVES, CORPORATE GOVERNANCE.

References in periodicals archive ?
Chief executive Alex Baldock was awarded almost 1.2m shares with a value of PS2.34m under the comp-any's long-term incentive plan.
Valmet Oyj (HEL:VALMT) reported on Thursday that a total of 389 Valmet shares have been returned to the company free of consideration under the terms and conditions of the long-term incentive plan 2018 to 2020.
LONDON (Alliance News) - John Wood Group PLC on Thursday reduced the long-term incentive plan awards for Chief Executive Robin Watson and Finance Head David Kemp, following pressure from shareholders.
Finally the AGM adopted the proposed resolutions concerning incentive awards to be granted to the CEO as part of the current long-term incentive plan and to approve a new long-term incentive plan.
PDL Community Bancorp (NASDAQ:PDLB), the parent of Ponce Bank, has said that it will hold a special meeting of stockholders on October 30, 2018 to put on vote a proposal to approve the PDL Community Bancorp 2018 Long-Term Incentive Plan.
The company has come under heavy fire from politicians over a long-term incentive plan introduced in 2012, which will see chief executive Jeff Fairburn pocket the bumper pay award.
In a statement, the company said: "Nicholas and Jonathan recognise that the 2012 long-term incentive plan could have included a cap.
Incentive Plan Design allows IPAC users to: Compare the prevalence of metrics and long-term incentive plan effectiveness by category in their plans to that of a selected peer group; analyze performance of average or median TSR among their peer groups by selecting one metric category over another for long-term incentive plans; and align long-term incentive plans to company performance and strategy.
He was also awarded a potential PS2.1m-worth of new shares under the long-term incentive plan, which will vest in three years subject to performance targets being met.
The Bank of Cyprus board of directors said it will propose to shareholders the introduction of a long-term incentive plan that will allow granting senior managers the option to acquire equity at a preferential price, linked to malus and claw-back provisions.
Chief Executive Stuart Gulliver will also get around PS3.7million in shares from a long-term incentive plan, taking his overall pay package to PS6.75million.
Provided 75 per cent of shareholders accept the Reubens' offer of 44.25p per share at an extraordinary meeting on March 7, and the Office of Fair Trading does not refer the proposal to the Competition Commission, the deal should be signed off by the end of next month to trigger staff payouts under Arena's share option scheme and a long-term incentive plan.

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