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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.
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?
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.
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.
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.
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.
There are certain employee groups that are particularly well suited to granting LTIPs, including:
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.
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.
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.
They give employees a greater sense of ownership over the business, as they have a direct financial stake in its success. LTIPs can help to align an employee’s goals with those of the company, making them more likely to go the extra mile to help achieve corporate objectives.
Once a key employee has proven their worth in increasing sales or reducing costs, they should be rewarded accordingly. To keep them onboard for the long haul and incentivized to take on additional responsibilities or to help with company expansion, such employees should be awarded LTIPs.
If an LTIP is structured correctly, it can make it financially unattractive for a key employee to leave the company. This way, a company can protect its investments in human capital and maintain a core group of highly skilled workers.
When choosing an LTIP, it's important to consider the goals you want to achieve. For example, small companies, and especially start-ups that compete with more established enterprise entities would do well to offer their key workers LTIPs. This helps offset the fact smaller organizations cannot offer all the perks a bigger corporation can. In this instance, it’s advisable to offer the employee an equity deal. That way they have a personal stake in the company. This is a key benefit for top talent to pick a small start-up over an established company - to have personal stake and ownership.
LTIPs are also an especially powerful way of keeping individuals motivated during lean times. The key workers a business relies upon will be more likely to stay loyal and incentivized to produce their best work at this critical time of a business’ life cycle if they perceive that a big future pay day is coming.
LTIPs should be performance-based, not just granted for the duration of service to the company. Hence, they shouldn't be used as a retention tool, but as an award for productivity measured according to the specific targets of your company. If an employee is only staying with the company for the LTIP, it's likely they're not fully committed to the organization and its goals.
Your strategic use of LTIP should be part of a holistic compensation and benefits package that considers the needs of all your employees. That way, your organization becomes a workplace that promotes the growth of its key workers, which in turn promotes organizational growth.
LTIPs that are too generous can result in the company losing control of its own destiny. If an LTIP is not well designed, it can also result in significant payouts for employees who are no longer with the company. To avoid these pitfalls, companies should consider LTIPs that are:
These LTIP design elements will help ensure that employees are rewarded for long-term success, and that the company does not overcommit its equity.
LTIPs are a tool to incentivize and retain your best talent, so make sure you are using them as such. Whilst the trickle down benefits of LTIPs for workers outside the C-suite is in full swing, not every employee is vital to the long term success of your business.
LTIPs come in all shapes and sizes, so it’s important to pick the one that is right for your business goals and your employees. Do your own research on LTIPs before implementing them in your company. Consult with the experts, and make sure you understand all the pros and cons of LTIPs before moving forward. The most important thing to remember about LTIPs is that they are a tool, not a cure-all.
LTIPs are only as good as the performance metrics or peer-group you set. If these aren’t realistic or attainable, your LTIP will do more harm than good. There are several questions that need to be thought through properly before establishing your firm’s LTIPs. For instance, should you reward sales or sales activity? Should you grant LTIPs to employees with rare skills or extensive experience, or both?
With careful planning, LTIPs can be a great tool for retaining and motivating your key employees. No longer reserved solely for the C-suite, LTIPs are now a powerful way of retaining and ensuring you keep getting the best out of the human capital your business relies upon.
LTIPs are a great way to keep your employees motivated and focused on the long-term health of the company, rather than simply cashing out their stock options and looking for other opportunities.
LTIPs allow you to keep your top talent motivated, focused, and - most importantly - with your company for the long haul. The current job market is rife with unprecedented opportunities for job seekers. In the US alone there are around 10 million job openings yet some 8.4 million people remain unemployed. This is symptomatic of the mismatch between current compensation packages and what workers really want.
Workers today, can pick and choose who they work for. Or even if they work for a corporation at all. LTIPs provide a way to differentiate your organization from your competitors and secure the best talent possible.
When done correctly, they can help you retain your best employees and keep them focused on the long-term success of your company. Avoid using LTIPs as a replacement for salary or benefits, or to simply reward loyalty. Instead, focus on using the incentive plans to achieve specific goals that will help grow your business. When done correctly, the long term incentive plans will keep your employees engaged and motivated to assure the success of your company.