Long Term Incentive Plan (LTIP)
The phrase “Long-Term Incentive Plan” is generic but in practice is normally applied to arrangements where shares are released to selected executives over a period of years, subject to performance and/or loyalty conditions.
Download the Long Term Incentive Plan fact sheet
Corporate governance
The use of shares as opposed to share options has been encouraged by a number of reports on corporate governance, since some option schemes are seen as primarily tax-driven.
In a typical structure Long Term Incentive Scheme shares are placed into an employee benefit trust and then released on the achievement of performance and/or loyalty targets. Under a bonus matching scheme, participants give up some or all of their cash bonus in exchange for shares held in trust. If the criteria are met, the participant may receive the reserved shares plus additional free shares.
ABI Guidelines
Companies can design LTIPs as they wish, though quoted companies may wish to take account of guidelines issued by the Association of British Insurers (“ABI”).
The recipient of a Long Term Incentive Option normally pays full income tax on the benefit when received and there will also be employer and employee NICs if the shares are quoted, readily convertible into cash or shares in a private subsidiary.
You may download our factsheets on the above subjects, view our online Directors’ Guide or ask for a free consultation.
