A Long-Term Incentive Plan (LTIP) is a type of employee benefit program that is designed to motivate and retain key employees by offering them a stake in the long-term success of the company. The purpose of an LTIP is to align the interests of employees with those of the company’s shareholders, and to encourage employees to work towards the company’s long-term goals.
LTIPs can take many forms, but they typically involve the grant of stock options or restricted stock units (RSUs) to employees. Stock options give employees the right to purchase shares of the company’s stock at a predetermined price, while RSUs are promises to deliver a certain number of shares of the company’s stock to employees in the future, subject to certain conditions.
LTIPs are usually tied to specific performance goals, such as reaching certain revenue or earnings targets, or achieving a certain stock price. This provides a clear incentive for employees to work towards these goals, as they will directly benefit from the company’s success.
Whom long-term incentive plan granted
Long-Term Incentive Plans (LTIPs) are typically granted to key employees, such as senior executives, managers, and other employees who play a significant role in the company’s success. The idea behind granting LTIPs to these employees is that they have a direct impact on the company’s performance, and therefore, by incentivizing them to work towards the company’s long-term goals, the company can improve its chances of success.
It is common for companies to establish specific criteria for granting LTIPs, such as job title, years of service, performance evaluations, and individual contribution to the company’s success. Companies may also limit the number of employees who can participate in the plan, or use other measures to ensure that the program is targeted to those employees who are critical to the company’s success.
It is worth noting that not all employees will be eligible for an LTIP. The exact criteria for participation will vary from company to company and may be determined by factors such as the company’s size, industry, and financial situation. Nevertheless, LTIPs are a valuable tool for companies looking to reward and retain key employees and promote long-term success.
Types of long-term incentive plans
There are several types of Long-Term Incentive Plans (LTIPs) that companies may use to incentivize and retain key employees. Some of the most common types of LTIPs include:
- Stock Options: Stock options give employees the right to purchase shares of the company’s stock at a predetermined price. Stock options are usually granted at a discount to the market price of the stock, and employees may exercise the options at any time during the option’s term.
- Restricted Stock Units (RSUs): RSUs are promises to deliver a certain number of shares of the company’s stock to employees in the future, subject to certain conditions, such as meeting performance targets or remaining with the company for a specified period of time.
- Performance Shares: Performance shares are a type of equity-based compensation that is tied to specific performance goals, such as reaching certain revenue or earnings targets, or achieving a certain stock price.
- Phantom Stock: Phantom stock is a form of deferred compensation that is designed to mimic the economics of stock ownership without actually granting employees ownership of the company’s stock. Phantom stock is usually tied to specific performance goals, and employees receive cash payments based on the performance of the company’s stock.
- Stock Appreciation Rights (SARs): SARs give employees the right to receive the appreciation in value of a specified number of shares of the company’s stock, without actually owning the stock. SARs are usually tied to specific performance goals, and employees receive cash payments based on the performance of the company’s stock.
Each type of LTIP has its own advantages and disadvantages, and companies must consider the specific goals of their plan, the demographics of their workforce, and the current tax laws and regulations when selecting an LTIP. Additionally, the terms of each type of LTIP can be customized to meet the specific needs of the company and its employees.Regenerate response
Income tax on long-term incentive plan
Income tax on long term incentive plan is taxable under the head of ‘Salary’. The long-term incentive plan is fully taxable in the hands of employees and becomes part of taxable income. The long-term incentive plan is treated as perquisites and the perquisite value is calculated as the fair market value of the stock at the time of vesting, less any amount paid by the employee for the stock. The perquisite value is then added to the employee’s taxable income and is subject to tax as per the employee’s tax bracket.
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