Long-Term Incentives (LTIs): Aligning Talent, Performance & Growth

1. Introduction to Long-Term Incentives

Let’s face it—keeping great employees around for the long haul is no small feat. That’s where long-term incentives (LTIs) come into play. LTIs are rewards that vest over a period of time, usually more than one year, designed to motivate employees to commit to the company’s long-term success. They build ownership, alignment and long-term engagement.

Why should you care? LTIs increase retention, align employee goals with company strategy, and boost engagement by offering meaningful future rewards.

2. Importance of Long-Term Incentives in Employee Retention

LTIs are a strategic response to high turnover: they create future-focused rewards, cultivate a sense of ownership, reduce hiring costs, and strengthen company culture. When employees see a clear path for growth and that their long-term effort is rewarded, they’re much likelier to stay.

3. Types of Long-Term Incentive Plans

Common LTI vehicles include:

• Stock Options: The right to buy company shares at a set price after vesting.
• Restricted Stock Awards (RSAs) / RSUs: Shares granted and vested over time.
• Phantom Stock: Cash value tied to hypothetical shares — useful for private firms.
• Performance Shares: Shares awarded if strategic goals are met.
• Deferred Compensation: Salary or bonuses paid later to provide tax or retention benefits.

4. Stock Options vs. Restricted Stock Units (RSUs)

Stock options provide upside if company value rises above the exercise price, while RSUs deliver shares outright at vesting (no purchase required). Options are often used by startups for growth incentives; RSUs are common in mature companies for predictable value.

5. Performance-Based Long-Term Incentives

Performance-based LTIs tie rewards to measurable targets (revenue, EBITDA, customer metrics). Vehicles include performance shares, cash plans based on long-term KPIs, and accelerated vesting when targets are met early. The key is clear, realistic, and aligned metrics.

6. How to Design an Effective Long-Term Incentive Program

1. Define the purpose: retention, alignment, or performance?
2. Know your audience: tailor to roles and career stages.
3. Set measurable goals: transparent and trackable.
4. Pick the right vehicle: equity, cash, or hybrid.
5. Communicate clearly: educate employees about value and progress.

7. Legal and Tax Considerations for Long-Term Incentives

LTIs involve securities laws, employment law, tax timing (vesting vs. sale), and deferred compensation rules (e.g. 409A in the US). Always involve legal and tax advisors when designing and launching a plan to avoid unexpected liabilities.

8. Long-Term Incentives for Executives vs. General Employees

Executives often receive higher-value, custom LTIs tied to company-wide metrics. General employees typically access broad-based programs (RSUs, profit-sharing) designed for retention and fairness. Personalization across levels improves perceived fairness and effectiveness.

9. Measuring the Success of Long-Term Incentive Plans

Key metrics: retention among high performers, achievement of performance targets, participation rates, and employee engagement scores. Use both quantitative metrics and qualitative feedback to iterate and refine your plan.

10. Future Trends in Long-Term Incentive Strategies

Trends include personalization, ESG-linked incentives, real-time recognition, behavior-based rewards, and tech-enabled transparency. Modern LTIs are adaptable, tying incentives to evolving business and employee needs.

Conclusion & Next Steps

LTIs are more than financial perks — they’re strategic levers for retention and alignment. If you want to design an effective program, define purpose, tailor to your workforce, ensure legal compliance, and measure outcomes. Need help drafting one? Contact us—our team can help you build an LTI plan that drives long-term value.