LTIP and talent retention in the C-suite

Attracting and retaining top executive talent is crucial for a company’s success. In this highly competitive environment one strategy being increasingly adopted is the use of Long-Term Incentive Plans (LTIPs) where those in the C-suite have their awards linked to company performance over

Promoting loyalty

Offering equity awards that vest over extended periods can help companies to encourage their executives to think and act like long-term owners. Plans that pay out once may only keep executives focused until they achieve that goal. However, plans that pay out in stages can help maintain focus and drive performance over a longer period.

The aim should be to have executives not only trying to hit targets for this year, but look to move the company forward to sustain its growth in multi-year strategies. Where a plan is structured to pay out in stages, contingent on certain targets being reached, it can serve to align the interests of executives and those in the C-suite with the long-term goals of the company.

Financial planning for business leaders

What’s also massively important is spending the time and resources on making sure that these senior executives are up to speed on what their offerings entail and how best to manage their equity compensation and broader finances.

Speaking on a recent episode of the Prosperity At Work podcast Bob Fritz, Head of Executive Advisory at J.P. Morgan Private Bank, said “think about what a C-suite executive is going through. They’re spending the vast majority of their time running the business. That’s their job and it consumes them most of their days. Then, on the weekends, when they’re kind of off the clock, they want to spend time with their family and friends and do all those other things. So, while they’re really smart and experienced, they don’t always spend the time to analyze their own compensation and benefit plans as much as they should.”

You can listen to that full interview here.

Why an LTIP?

A long-term incentive plan is a form of equity compensation that offers the recipient incentives beyond their basic salary, usually in the form of company stock, for achieving predetermined goals. The payment is deferred and usually spreads over 3-5 years to stimulate ongoing progress. LTIPs are often reserved for executive-level and above whether it’s a private or public company, and our Trends in Equity Compensation Report showed that 97% of public companies offer their executives either fully equity or blended (cash and equity) based incentives.

Benefits of LTIPs

• Attract, incentivize, and retain talent: With LTIPs, your employees have the opportunity to earn additional financial rewards, granting them a share in the wealth of a company, which can be an ideal tool for attracting skilled people when recruiting.
• Flexibility in compensation structure: LTIPs are flexible. They can take many forms such as options or restricted stocks. What you choose and how your employees are rewarded can be tailored to best suit your own business needs.
• Save time and money: Replacing a salaried employee can be costly and especially so when it comes to a vacated seat in the C-suite. There is not only the loss of knowledge and experience to contend with but also the disruption to continuity and the cost of hiring and training a suitable replacement. Better to retain the top talent you have, than risk losing them to your competitors.

What next?

Incentivizing and retaining top executives through LTIPs is a win-win strategy for both employers and employees. Linking rewards to performance can help to keep leaders focused, motivated, and loyal, ultimately driving the company towards long-term success.

To learn more about LTIPs and discover how J.P. Morgan Workplace Solutions can work with you and your executives to design, launch and manage your equity awards contact us today.