As the name suggests, LTIPs aren\u2019t designed to deliver an immediate reward; instead, such plans are typically structured to last three to five years<\/strong>. This is done with a view towards encouraging employees to excel over an extended period of time, as the better the business fares over the life of the plan, the greater the rewards will ultimately be for participants. <\/p>\n\n\n\n Typically, time<\/strong> and performance<\/strong> conditions apply with long-term incentive plans for private companies. So, participants are effectively promised shares after a specified number of years and as long as certain performance goals are achieved. If the value of company shares increases during the life of the plan, participants will benefit<\/strong> even more. <\/p>\n\n\n\n The type of LTIP that a business opts for will depend upon their own individual needs and objectives. There are several possibilities, but among long-term incentive plan examples<\/strong> are: <\/p>\n\n\n\n So, how might all this play out in practice? Let\u2019s look at a hypothetical real-world<\/strong> scenario\u2026 <\/p>\n\n\n Fred runs a large company, Tangerine<\/strong>. They specialize in exporting citrus fruit, and over the past two decades, they have been extremely successful. Last year, they nearly broke nine figures in profit. <\/p>\n\n\n\n There was one problem, though. Fred started his company in 1998. He was 30 years old. He\u2019s now 50 and while he\u2019s not slowing down \u2013 his morning fitness routine sounds more strenuous than mine \u2013 he has started to make plans for transitioning the business after he retires. <\/p>\n\n\n\n Fred has always cared a lot about his employees. Right from the start, he was a firm believer in profit-sharing<\/strong>. Some employees recall that they were able to send their children through school on these extra bonuses. <\/p>\n\n\n\n So, Fred didn\u2019t know what to do. He wanted to retire comfortably, he wanted to make sure his business continued to grow, and he wanted to make sure that his employees were well taken care of. <\/p>\n\n\n\n Tangerine is a private company<\/strong>, and they certainly had plenty of callers \u2013 interested in taking them public or acquiring them. But Fred couldn\u2019t do either of those. Neither one would guarantee all three things on his list. <\/p>\n\n\n And not just any old long term incentive plan \u2013 one that would work for him. He decided on a Restricted Stock Units<\/strong><\/a> (RSU<\/strong>) plan. This did two things. It gave a great incentive<\/strong> for employees to remain with the company \u2013 the longer they work at Tangerine, the bigger their payout. But not only that \u2013 how hard they work, and how well the company performs also affects how large their payout will be. With just one plan, Fred came up with a great way to merge two great benefits into one solution for his dilemma \u2013 ensuring his company would continue to grow.<\/strong> <\/strong><\/p>\n\n\n\n If that was all the LTIP did, that would be fantastic. But Fred didn\u2019t just implement any <\/i>LTIP. Fred\u2019s LTIP didn\u2019t merely ensure that his company would have the best employees, it also ensured his other two needs \u2013 to retire comfortably<\/strong>, while ensuring his employees were looked after.<\/strong> Because now, the employees own the company. With his LTIP, he has converted the private company that he owned into a private company that his employees own. He can be sure that they\u2019ll be taken care of \u2013 after all, they\u2019ll be taking care of themselves. <\/p>\n\n\n It can transform<\/strong> your business in more ways than you can imagine. And because private companies don\u2019t have a public market or the easily accessible company valuation it supplies, it\u2019s more important than ever for private companies to ensure their LTIPs are designed in a way that benefits their company in more than one way. <\/p>\n\n\n\n There are many different long term incentive plans for private companies to choose from, above and beyond the three referred to briefly earlier here. To attempt to list them all and go into the potential positives and negatives associated with each would be beyond the scope of this blog piece. Also, what LTIP makes most sense for you will depend upon, for example, your location, your industry, and the structure of your company, so it won\u2019t be a one size fits all solution, and the type of plan that best suits your needs may not be as suitable for another business. All that said, one of the general pluses associated with LTIPs is that they are incredibly flexible<\/strong> \u2013 each plan can be customized ad infinitum. <\/p>\n\n\n\n Your best bet is to go through all of the different designs and plans with somebody who specializes in equity compensation management. Otherwise, you could potentially end up with the wrong LTIP, or at least one that is not the best fit for you and your employees. <\/p>\n\n\n\n What if Fred didn\u2019t know about RSUs \u2013 what if he found an LTIP that was pretty good, <\/i>and he figured that was as good as he would get? He might\u2019ve managed to retire, or keep his company successful, but he couldn\u2019t have achieved both, as well as looking after his employees if he had chosen the incorrect LTIP. <\/p>\n\n\n At Global Shares<\/strong>, we have helped companies of all sizes to set up and manage award-winning employee share plans. We can take you through setting up an LTIP that will bring out the best in your company. Contact us for a commitment-free demo<\/a> today. <\/p>\n\n\n\n\n
How Fred made a long-term incentive plan work for his company<\/h2>\n \n\n\n
Fred came up with an idea: A long-term incentive plan (LTIP)<\/h2>\n \n\n\n
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<\/figure>\n<\/div>\n\n That\u2019s the power of an LTIP that works for you<\/h2>\n \n\n\n
How Global Shares can help you set up and manage your LTIP<\/h2>\n \n\n\n