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Long-Term Incentive Plan (LTIP)
Long-term incentive plans will recognize and reward the attainment of strategic goals and objectives measuring performance periods that are typically 2-5 years in duration.
Although LTIPs are not commonly used in nonprofit organizations, they are widely used in for-profit businesses as part of the executive compensation package. They also can be used to retain and reward other levels of management and non-management employees, typically high potentials and high performers. LTIP awards are typically delivered as one of the following:
- Cash*
- Stock Options
- Restricted Stock
- Stock Appreciation Rights (SARs)
- Performance Units
- Performance Shares
- Phantom Stock
*Most common vehicle for non-profits
But there are positive and negative considerations in a LTIP:
| Positives | Negatives |
|---|---|
| Because the payout is typically awarded at the end of a 3- to 5-year period, this type of variable pay program helps retain highly talented employees. It creates a sense of ownership and serves as the basis for long-term capital accumulation. | The goals and objectives of long-term plans are most often those of the organization and its executive team (not always of the individual). The 3- to 5-year performance period can place a strain on the performance-reward connection. Companies can overcome this by having an annual LTIP grant cycle, so each year there is an award opportunity based on a 2- to 5-year performance period. |
Memory Jogger
Although a long-term incentive plan is not commonly used in a nonprofit organization, when used, a(an)_______award would be most appropriate.