Are you are getting the best out of your LTIPs?

Whether you are a well-established organisation or still in early stages, it is important to make sure that the long term elements of your executive and key personnel remuneration are working properly for your business.

Whilst establishing whether or not this is the case will take some time and discussion, it is important for anyone connected with executive remuneration in an organisation to have an initial sense or understanding of what a plan is delivering.

To help with this, here are five quick-fire questions which will help you evaluate your long term incentive plans (“LTIPs”):

1. Do your LTIPs meet the reality of what is happening in your business?

Plans which were put in place during a more prosperous period may start to look out of kilter with the value now being delivered to owners/shareholders.  Alternatively, if you are growing, current levels of reward may not lock in the people you need.

2. Is a change of direction appropriate?

Doing the same as last year may be cost-effective and simple but it could also generate disquiet if it is not aligned with the business.  A good LTIP reflects and rewards the important things both in terms of performance and culture.

3. Are you making awards with the right frequency?

Where the value of the company has dipped, a single larger award (rather than annual awards) could generate more interest and be a better retention tool, so long as suitable balances and checks are also put in place.

4. Have you spread the awards widely enough?

Whilst award sizes should not be so small as to be meaningless, there is a correlation between increased retention and access to LTIPs.  Even if the current LTIP doesn’t lend itself to wider participation, there may be another complementary structure which could be introduced.

5. Is now the time for succession planning?

Part of any effective succession plan will include giving those coming through the business a clear view and a tangible understanding of what they are working towards.  Similarly, current owners need to be prepared for future changes.

For further information or to discuss any questions you may have, contact Stuart James.

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