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 ?
M2 EQUITYBITES-March 16, 2018-Neste reports on disposal of own shares under Long-term Incentive Plan 2013
NORDIC BUSINESS REPORT-March 16, 2018-Neste reports on disposal of own shares under Long-term Incentive Plan 2013
Morgan Stanley analyst Adam Jonas said he sees Tesla CEO Elon Musk's long-term incentive plan as an "aspirational marketing tool" to attract talent and capital as competition increases in both electric vehicles and autonomous vehicles.
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.
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.
Takeda Pharmaceutical Company Limited (Company) announced today that the meeting of the Board of Directors resolved to continue the long-term incentive plan (LTI) for members of the Board of Directors, which has been adopted since fiscal 2016.
Last year's big jump in Darroch's pay was mainly due to the fact he did not bank a long-term incentive plan in 2014.
7million in shares from a long-term incentive plan, taking his overall pay package to PS6.
Mr Baggs, who was appointed in March, 2010, is also in line to receive hundreds of thousands of pounds worth of shares in the next four years under a long-term incentive plan.
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.
The award - made under the bank's long-term incentive plan - is on top of a Au2 million annual bonus already confirmed by the group and Mr Hester's Au1.
Long-term incentive plan performance measures shifted to capital efficiency, cash flow and total shareholder return; and

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