Employment has changed a lot in the past couple of decades. In the old days, many people would work for the same company for thirty years, their entire working life. That’s what everyone expected – to be a company man/woman and spend your entire career in the same four walls.
These days, that has all changed. Most employees only stay with a company for an average of two years. But even as the challenges of employee retention increase, the cost and disruption of recruiting and training new employees remain the same.
So, companies are looking for a way to change this trend. They’re looking for a cost-effective way to encourage employees to remain with them for a long period of time. Not only that, but they want to find a way to keep those employees engaged, motivated and focused. They don’t want employees who are just content to sit in the same chair – they want employees who are constantly looking for ways to grow the company while remaining within the company.
And that’s where long term incentive plans (LTIPs) come in. An LTIP is a compensation scheme that provides an incentive for employees to reach specific goals – either time-based or performance-based – which are tied to increased shareholder value.
Setting one up can be complicated, but it doesn’t have to be. Here’s a step-by-step guide to help you implement an LTIP for your company, and help your company unlock your employee’s potential.
Step one – choose your design
LTIPs are a very broad category of a compensation scheme. As such, there is a wide range of designs to pick from. There are two major considerations when choosing your plan design – incentive and vesting schedule.
The incentive you pick is very important and needs to reflect the type of company and average employee you have. Share options are a great incentive if you’re an up-and-coming company, whereas share awards are great for larger and more established businesses. Share options carry more risk, as well as more reward, whereas share awards are safer, but have less potential for major growth. Or, there are cash bonuses and various other ways of rewarding great work.
The vesting schedule is also an important consideration. Vesting refers to the goals the employee has to meet in order to receive their incentive. So, if an award vests after three years, once the employee has completed three years of service then they receive their award. Or, if there are performance conditions – for example, the employee has to hit certain sales targets – their award vests after they reach these milestones. There are different types of time-based vesting (cliff, ratable, etc.) as well as different types of performance-based vesting. The most important thing to consider again is what suits your business best, and what will incentivise your employees most.
Step two – check your compliance
This is the most important step to consider. Because you need to know before you start looking into launching your plan, that you’re following all the rules of all your potential jurisdictions. Particularly if you have multiple offices in different countries – each of these countries will have its own, very specific and very enforceable rules around equity compensation and tax. You will need to find an LTIP that works in all jurisdictions, for all participants.
You also need to ensure that you will be able to gather and retain your employees’ data in a compliant way. The new rules of GDPR, especially, have given some real teeth to privacy laws, and a mistake could cripple your company.
And you need to ensure that you have a dedicated team to cover the reporting. Because LTIPs bring a significant amount of reporting with them – taxes, payroll, and much, much more.
Step three – launch
This might seem like the easiest step, especially after you’ve handled the compliance. But it needs to be done correctly. You need to communicate the benefits of your LTIP to your company effectively, which requires more than just a single email or pamphlet. You need to ensure your employees know exactly what they stand to gain from joining your plan. After all, you don’t want to go through all this effort, only to see nobody join up because they didn’t understand the plan.
An effective communications plan starts well before your launch. You’ll want snappy, eye-catching designs, mixed with engaging and jargon-free content. You need an elevator pitch, followed by the details. It doesn’t take much, but it is vitally important to get right.
All of this might seem daunting. And, to be honest, it can be. But it’s important to remember just how much your company stands to benefit. Besides, you can actually make it incredibly simple.
Global Shares has been providing award-winning equity compensation plan management for nearly a decade and a half. We can do all of the above for you – walk you through the best designs and benefits for your company, provide your participants with customised online portals to view and transact their awards, take care of all the compliance and reporting, as well as create a stunning communication plan for your launch. Not to mention, our support teams.
Contact us today to find out how we can help take your company through the steps towards a stronger future.
Click here to read more about Long term incentive plans and how we can work with you.