LTIPs not just for the C-suite

Sebastian Grzesik
LTIPs not just for the C-suite

In the current post-Covid age, where the Great Resignation is seeing workers reconsider their long term plans for staying with any one company, long term incentive plans (LTIPs) may just be the ticket to keeping your company’s top talent.

2021 was the year in which workers en masse weighed up the value of remaining loyal to their employer versus striking out on a new path. The employees who remained in their roles could have been forgiven for expecting recompense for their loyalty in the form of a pay rise. However, when this did not happen, many resigned from their jobs. Despite the fact that the global economy is growing once more since the pandemic, there are still millions more job openings than people looking for work.

Those who have resisted the Great Resignation trend can take their pick from a rich field of opportunities. Unless there is an incentive to remain in a corporation for the long term, companies will continue to experience huge levels of churn.

To attract and retain top talent in 2022, enterprises need to up their game.

A serious rethink of how long term incentive plans work and who they are for is required.

And this type of thinking is already taking hold. This year alone, as reported by Payscale’s 2022 Compensation Best Practices Report, the number of companies that say they have a compensation scheme or are actively planning one rose by a dramatic 86%. Another very telling figure from the same report revealed that 44% of organizations believed they are losing workers due to inadequate compensation plans.

Executive Summary of The 2022 Compensation Management Practices by Payscale

It’s no secret that retaining a strong workforce is the key to realizing organizational growth. The pandemic and ensuing lockdowns disrupted much about the way we do business. Now the question remains: in the post-Covid world, what is the best way for businesses to use LTIPs to help make up lost ground and regain growth momentum?

LTIPs defined

Long term incentive plans (LTIPs) are rewards granted in the future for work performed in the present if certain predetermined goals are reached.

LTIPs are often thought of as a tool for rewarding executives and other high-ranking employees. However, they can be used to incentivize a wide variety of employees, not just those in the C-suite. In this blog post, we'll discuss how LTIPs can be used to reward and motivate non-executive employees. We’ll look at how LTIPs are used traditionally as well as how that’s changing. We'll also look at some of the benefits that LTIPs offer to both employers and employees as well as what to avoid.

Certainly, LTIPs have become a popular and powerful way of attracting the best executive talent into an organization and preserving their personal investment in the success of that business over the years.

There isn’t any one particular form that an LTIP has to take. It’s just a matter of your employee hitting agreed upon targets and earning a bonus. The bonus can come in the form of cash, shares, or both. The targets that your employee must hit can be anything from increasing shareholder value to developing a new product. LTIPs are often used to retain key executives who might otherwise be headhunted by competitors.

However, this traditional way of looking at LTIPs is now changing. The bonuses once reserved for executives only are now trickling down to lower echelons within organizations. Before we look at how LTIPs have changed in recent years, we’ll first take a closer look at how they have been used historically.

Traditional LTIPs

Long term incentive plans customarily run for three to five years. They are traditionally aimed at motivating executives to create ongoing growth for a company. The classic forms of LTIPs include restricted stock and performance shares.

Historically, long term incentive plans have been used to entice and motivate the C-suite. Not simply a reward for performance, for the past two decades or so, LTIPs were meant to bring the top leaders into a company and get them to use their strategic thinking and execution to drive the firm forward.

Recent changes to how LTIPs are used

LTIPs are now being used to target a wider swath of employees within an organization. While in the past LTIPs were used to attract and retain top executives, they are now also being given to lower-level employees as a way of motivating them to stay with the company and perform well.

One reason for this shift is that the workforce is becoming more mobile. In order to retain talent, companies are increasingly offering LTIPs to a wider range of employees. Another reason for the shift is that LTIPs are seen as a way to incentivize employees to work together towards common goals.

According to research carried out by global human resources network WorldatWork, 63% of companies reserve their LTIPs for executive level staff and above. Whereas only 11% of companies surveyed stated that LTIPs were granted to all employees.

Long-Term Incentive Eligibility

However, as businesses are now looking to retain talent right across the entirety of their organization, that trend is changing.

Companies must now be much more strategic about which workers they target with long term incentive plans. Those who are vital to the success of your firm yet who are outside the C-suite are the new group to have firmly in your crosshairs when structuring your LTIPs.

In this instance, LTIPs are useful in not only keeping your high-performing and high-potential employees motivated and focused, but also retaining them to help ensure the long-term health of the company.

LTIPs help keep high-performing employees engaged

There are certain employee groups that are particularly well suited to granting LTIPs, including:

a) Sales employees

LTIPs can be given to salespeople to incentivize them to sell more products. Recent research reveals that incentives should be given for increased sales activity, and not simply used as a reward for a particular number of successful sales. When an enterprise creates a culture of incentivization of activity, sales will naturally increase as more of the workforce is motivated and gains recognition for their effort in building the company’s brand.

b) Rare skills employees

LTIPs can also be used to incentivize employees with very rare set of skills and technical knowledge such as engineers, bio-researchers, programmers and so forth. Granting the award in form of deferred shares or stock will encourage them to take ownership of their work and have stake in the company’s future. In that sense the top talent employee is motivated to have a long-term outlook and to produce work or do research that may not necessarily generate effects now but indispensable to the company’s well-being in the future. Beyond those benefits, granting shares is also a nice form of recognition and talent appreciation to your key workers.

c) Employees with extensive experience

Another group for which you should consider granting long term incentive plan are employees with extensive experience in a particular field that is crucial to the development of your company, but is difficult to acquire. This is particularly important in today’s market, where many positions are filled with junior employees that don’t have extensive training. These may include for instance solution architects, surgeons, product owners etc.

While awarding a lump sum payment as a LTIP is easiest, it might not be the best. Offering high performing and key staff stock options in your company means they are personally staked in the overall growth and success of the business. Alternatively, think about the impact of granting key workers not in the C-suite restricted stock. Using this type of LTIP means that the employee will remain both loyal and engaged over several years to realize the total amount of the promised stock, until the LTIP is fully vested.