What is a long-term incentive plan?
Produced in partnership with Jeremy Edwards of Baker McKenzie

The following Share Incentives practice note produced in partnership with Jeremy Edwards of Baker McKenzie provides comprehensive and up to date legal information covering:

  • What is a long-term incentive plan?
  • Forms of awards under an LTIP
  • Conditions
  • Distinction between the US and the UK
  • Operating an LTIP
  • Specific definitions
  • FCA Handbook
  • Directors' disclosure regulations

What is a long-term incentive plan?

A long-term incentive plan (LTIP) is a term that is commonly used among listed companies to describe executive share plans under which a company makes share based awards to senior employees with a vesting period of at least three years.

To meet institutional shareholder voting requirements (where shareholder approval is required), awards are usually made subject to the achievement of specified performance targets. Where the LTIP has stringent performance conditions, companies sometimes call their LTIP a performance share plan (PSP).

Another name for an LTIP that has been used commonly in the past is a restricted share plan.

For companies listed on the London Stock Exchange, there is a specific definition of long-term incentive scheme in the Financial Conduct Authority (FCA) handbook. See Specific definitions below.

The term LTIP is sometimes used in a broader context to describe any incentive arrangement, including cash bonus schemes, operating over more than one year. The meaning within the broader context should not be confused with the meaning of an LTIP used more generically to describe share incentive arrangements usually targeted at senior executives of listed companies and detailed in this Practice Note.

Forms of awards under an LTIP

The LTIP became the predominant vehicle for the making of longer term executive share incentive awards to FTSE 100 and 250 companies, and effectively replaced executive option plans (under

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