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.
Employee Share Schemes
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.
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
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
5. Share valuations
6. Employee communications
7. Share Plan administration
8. Ongoing support
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
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.
Relevant resources
