Long-Term Incentive Plan (LTIP)

A Long Term Incentive Plan (“LTIP”) is not a specific type of share plan, but can apply to any kind of plan that usually operates by releasing shares to selected higher level executives over a long term period (at least 3 years, and often 5 years or longer).

Download free LTIP Fact Sheet

About the Long Term Incentive Plan

Long Term Incentive Plans are frequently used in larger or listed companies to benefit selected individuals at director or management level. Long Term Incentive Plans can be structured in a variety of ways but a common approach is to award shares to individuals on a deferred basis, so that individuals only have the right to receive the shares subject to stretching performance targets.

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Employee Share Schemes for Private Companies

Benefits of a Long Term Incentive Plan

Under a Long Term Incentive Plan, the individual benefits from the whole value of the share – unlike a share option, where he will only benefit from the growth in value of the shares beyond the exercise price. The company can therefore use fewer shares to deliver the same level of reward provided under an option plan – which can assist with dilution issues.

This also avoids the difficulty of “underwater” options – a Long Term Incentive Plan can never be underwater since shares can never be worth less than nothing.

Particular advantages of the Long Term Incentive Plan are that it:

  • avoids dilution for shareholders
  • avoids difficulty of underwater options
  • can attach significantly stretching loyalty and performance targets, including bonus shares for extraordinary performance or clawback for underperformance
  • aligns executives’ interests with that of shareholders
  • the plan structure can be tailored to meet specific needs of your company
    promotes long-term view and retention of key employees
  • encourages growth by linking awards to performance conditions
  • provides a framework to include new participants, if required
  • attracts top candidates to to you company

For more detailed information on the benefits of Long Term Incentive Plans, please download our fact sheet, or call 020 8949 5522 to speak with one of the team.

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How RM2 can help you

At RM2, we believe in taking a consultative approach to building share plans and finding out precisely what our clients are looking to achieve. This approach helps us to deliver a professional and effective service, helping clients meet their goals and plan for the future. Our highly experienced team are well positioned to guide your company through every stage of the share scheme process, including:

1. Strategic review

The design will flow from your objectives, so the more precise you are the better. What is your business plan, and what you need from your employees to execute this plan successfully? Do you want to focus people on an exit? Do you want to reward all employees as a team? Do you have just one key recruit in mind? We will ask you lots of questions to tease out your objectives.

2. Plan design

At this stage, you will need to decide on any rights and conditions to attach to shares, such as performance conditions and leaver provisions. Don’t worry: we’ll recommend features for you. A key decision is the amount of equity you want to set aside for share schemes. We’ll help you with an indicative valuation and some equity modelling.

3. Shareholder resolutions

Once the design and modelling are complete, we will work through your company structure and identify what changes need to be approved by shareholders. We will then prepare resolutions to be passed and work with you to obtain approval from shareholders.

4. Articles of association

The core of a share scheme is the set of rights and restrictions attaching to shares, and these are set out in the articles of association. We will prepare amendments so that these rights and restrictions strike the right balance between delivering value to employees and protecting the interests of other shareholders.

5. Share valuations

The share valuation can have an enormous impact on how employees are motivated and the tax treatment of the shares. We will prepare a valuation and agree this with HMRC. Just as importantly, we can help you understand the meaning and implications of that valuation, and how you should adapt your strategy according to the result.

6. Employee communications

Communicating information about your share scheme to all the participants is vital its success. As standard, we will provide all clients with easy-to-follow notes explaining your scheme. We can provide further help and guidance on how to effectively promote your scheme if you wish.

7. Share Plan administration

Once your scheme is implemented it will need to be administered to ensure it remains compliant. We have the most experienced Operations team for share schemes in the UK, so you can be confident that your scheme is in capable hands.

8. Ongoing support

We try to be as proactive as possible when it comes to monitoring your scheme’s performance. We can help improve any equity-based arrangements. You and we are always learning.

Employee Share Scheme Aftercare

Once an employee share scheme is setup, it is vital that it is administered effectively to ensure that:

  • your share plans remain compliant
  • all relevant documents are filed online with HMRC
    the intended tax benefits are achieved
  • employees are kept aware of their awards and the benefits
  • your share plans remain relevant

What our clients say

Tom Wolfenden

Tom Wolfenden
Group General Manager, Technopolis Group Ltd
From our initial meeting through to the final deliverables, the RM2 team were impressive. I liked the straightforward advice and the quality and efficiency of service gave me confidence in the solutions that were proposed. I would gladly turn to RM2 for advice in the future.

Next steps

We have successfully designed, implemented and administered over 1,150 share plans across a range of sectors, so you can rest assured your plan will be in the best possible hands.

If you would like to find out more about how a Company Share Option Plan can help your business, why not call a member of our team directly on 020 8949 5522, request a callback using the button located at the top of the page, download our fact sheet or send an email to enquiries@rm2.co.uk.

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