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Term Incentive Plan (LTIP) is a compensation program designed to reward employees based on their performance and contribution to an organization's longterm goals.
What Is a Long-Term Incentive Plan? A long-term incentive plan (LTIP) is a company policy that rewards employees for reaching specific goals that lead to increased shareholder value. In a typical LTIP, the employee, usually an executive, must fulfill various conditions or requirements.
ESOPs are qualified retirement plans and they are designed to accumulate funds for retirement. While LTIPS and ESPPs could be used to accumulate savings for retirement, they are frequently used to accumulate savings for other financial goals, such as college tuition or a vacation home.
For employees, LTI can be a reward for outstanding performance and are a vehicle for capital accumulation. For shareholders, LTI are a vehicle that aligns employees with the performance of shares (for market-based equity vehicles) and the long-term vision of the company.
Such structures are also often called 'performance shares' or, in the US, 'restricted stock units'. LTIP is, however, just a name that can be given to any form of long term incentive that a company awards to its employees. An LTIP may reward and employee with shares, cash or other commodities such as cryptocurrency.
Stock options are another type of LTIP. After a set length of employment, workers may be able to purchase company stock at a discount while the employer pays the balance. The worker's seniority in the organization increases with the percentage of shares owned.
An LTIP works by rewarding employees (usually senior employees) with cash or shares of company stock (see more here) for meeting specific goals.