A Long-Term Incentive Plan (LTIP) is a discretionary employee reward scheme designed to align the interests of senior executives with the long-term performance of a company.
Under an LTIP, a company typically makes a cash contribution to a trust, which is then used to acquire shares on behalf of selected employees. These shares may generate dividends during the holding period.
The shares are usually transferred to employees at a later date, subject to specific conditions such as:
- Achieving performance targets (e.g. profit growth, share price, EBITDA)
- Remaining employed with the company over a defined period (vesting period)
How Long-Term Incentive Plans Work
Most LTIPs operate over a multi-year period (typically 3–5 years) and are commonly used for:
- Directors and senior executives
- Key decision-makers
- High-performing employees
The structure is designed to encourage long-term value creation rather than short-term gains.
Benefits of an LTIP
- Aligns employee and shareholder interests
- Encourages retention of key talent
- Rewards long-term performance
- Can improve company growth and stability
Tax Considerations
Careful structuring of a long-term incentive plan is essential to maximise tax efficiency. Depending on how the scheme is set up, there may be:
- Income tax implications on vesting
- Capital gains tax on disposal of shares
- National Insurance contributions
Professional advice is typically required to ensure the scheme is tax-efficient and compliant with relevant regulations.
Is an LTIP Right for Your Business?
Long-term incentive plans are most effective for companies looking to:
- Retain senior leadership
- Drive sustained growth
- Reward performance over time
Maximise the value of your LTIP
Work with David Craddock to create a long-term incentive plan that drives growth and rewards performance.