Back to basics: Long-term incentive plans

The long-term incentive plan (L-TIP) is an incentive arrangement that is normally associated with listed companies although the concepts are equally applicable to the private company situation. The typical L-TIP arrangement requires the company to arrange cash funding to a trust for the purchase of shares on behalf of employees who may (but not necessarily) receive dividends payable on the shares during the period that they are held by the trust. The shares are transferred from the trust to the employees at a later stage, conditional upon appropriate performance conditions being met and the employee staying with the company. The L-TIP usually operates as a high level executive scheme although it could conceivably be used for a wider all-employee group of employees. Careful structuring is required to introduce tax-efficiencies and to avoid tax-inefficiencies.