Long-term incentive plan
A long-term incentive plan (LTIP) rewards managers, usually with deferred shares, based on performance measured over several years rather than one, discouraging the short-termism an annual bonus alone can invite.
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A chief executive's LTIP grants €300,000 of deferred shares, vesting after three years if cumulative earnings growth reaches 15%. Actual growth comes in at 9%, only 60% of the target (9 divided by 15). So 60% of the grant vests, €180,000, and the remaining €120,000 is forfeited because the multi-year target was only partly met.
Where it fits
TopicResponsibility Accounting & DecentralisationAdvancedSubjectManagerial AccountingAdvancedTopicDivisional Performance MeasurementAdvanced