Sample Long-Term Incentive Plan LTIP Design

Sample_Documents

DISCLAIMER: This is a sample template provided for informational purposes only. It does not constitute legal, tax, or financial advice. Organizations should consult their own legal and tax advisors and tailor this document to reflect their specific business needs, geographies, and applicable laws.

Document Header

Document Title	Long-Term Incentive Plan (LTIP) Design for <Company Name>
Document Type	Long-Term Incentive Plan (LTIP) Design
Category	Variable Compensation
Company	<Company Name>
Version	<Version Number>
Effective Date	<Effective Date: <Date>>
Last Reviewed	<Date>
Next Review Due	<Date> (recommended annual review)
Document Owner	<Owner Role: e.g., Head of Total Rewards>
Sponsors	<Executive Sponsor: e.g., Chief Human Resources Officer>; <Compensation Committee Chair>
Approvers	<Approver 1: e.g., Compensation Committee> ; <Approver 2: e.g., Board of Directors>
Confidentiality	<Confidentiality Level: e.g., Internal - Restricted>
Document ID	<Doc ID>

Purpose and Objectives

Define a market-aligned Long-Term Incentive Plan that attracts, motivates, and retains key talent while driving sustainable value creation for shareholders and stakeholders of <Company Name>.
Align reward outcomes with multi-year strategic goals, such as revenue growth, profitability, return on capital, innovation progress, and responsible business measures (e.g., safety, sustainability).
Establish clear, consistent, and auditable rules for eligibility, award sizing, performance metrics, vesting, payout, and administrative governance.
Balance competitiveness, affordability, and prudence by managing share usage, dilution, and cost within agreed financial guardrails.
Ensure compliance with applicable accounting, tax, securities, labor, and data privacy requirements in <Country> and other jurisdictions where <Company Name> operates.

Scope and Applicability

In Scope

All LTIP programs sponsored by <Company Name>, including equity-based and cash-based long-term awards.
Employees within eligible roles and levels across <Regions/Countries> as defined in the Eligibility section.
Grants made under the <Plan Name> equity plan and any sub-plans for specific countries.
Administration processes, governance, system integrations, and vendor interactions.
Plan variants for listed, pre-IPO, or private ownership structures, subject to Board approval.

Out of Scope

Short-Term Incentive (STI) or annual bonus programs.
Sales incentive compensation plans.
One-time special retention or transaction grants outside the approved LTIP calendar, unless specifically authorized per the Special Awards section.
Benefits plans and pension arrangements, except where referenced for compliance or offsets.

Applicability

This policy applies globally unless country-specific addenda supersede a provision to comply with local law.
Where there is a conflict between this document and the governing equity plan prospectus or award agreement, the plan prospectus and the award agreement control.

Plan Philosophy and Design Principles

Pay for Performance: A significant portion of senior leaders’ compensation is at risk and tied to long-term results.
Ownership Mindset: Equity awards promote alignment with shareholder interests through direct ownership or value tracking.
Simplicity and Transparency: Metrics are limited to high-impact measures with clear line-of-sight and defined calculation methods.
Market Competitiveness: Targets benchmarked to <Peer Group Description> using data from <Vendor Name> and independent advisors.
Affordability and Dilution Control: Adherence to share reserve, burn rate, and overhang limits approved by the Board.
Good Governance: Robust controls, clawback provisions, and compliance with applicable laws and listing standards.
Global Inclusion: Adaptations for legal, tax, and mobility considerations while preserving core principles.

Plan Overview and Key Definitions

Plan Vehicles (typical mix for a mature public company):
- Performance Share Units (PSUs): <Percentage> to <Percentage> of total LTIP target (illustrative default: 50 percent).
- Restricted Stock Units (RSUs): <Percentage> to <Percentage> (illustrative default: 30 percent).
- Stock Options (SOs): <Percentage> to <Percentage> (illustrative default: 20 percent).
Performance Period: Standard 3-year measurement period for PSUs; RSUs and options vest over 3 to 4 years.
Grant Date: The date the Board/Committee approves awards or such later date as specified in award agreements.
Vesting: Time-based or performance-based; service requirements apply unless waived per policy.
Target Award (LTI opportunity): The award value at target performance expressed as a percentage of base salary or a fixed <Amount>.
Payout Range for PSUs: Typically 0 percent to 200 percent of target based on performance; calibrate to <Company Name> risk tolerance.
Clawback: Right to recoup or cancel awards in the event of material misconduct, financial restatement, or breach of restrictive covenants.
Change in Control (CIC): Defined per plan and award agreements; may include double-trigger vesting rules.
Eligible Earnings for grant sizing: Base salary as of <Date> or average <Period> per policy.
Fair Value for accounting: Determined under ASC 718 or IFRS 2 using market-consistent assumptions.

Eligibility and Participation

Eligibility Criteria

Regular employees at or above <Career Level/Grade>.
Key roles critical to long-term value creation (e.g., senior R&D, product leadership), as nominated by management and approved by HR/Total Rewards.
New hires in eligible roles may receive a pro-rated annual grant and/or a new-hire grant.
Contractors, interns, and temporary workers are not eligible unless explicitly approved.

Participation Tiers (Illustrative)

Career Level	Target LTI as % of Base Salary	Typical Vehicle Mix
CEO and NEOs	<Percentage> to <Percentage> (e.g., 300 percent)	60 percent PSUs / 30 percent RSUs / 10 percent Options
EVPs/SVPs	<Percentage> to <Percentage> (e.g., 150 percent)	50 percent PSUs / 30 percent RSUs / 20 percent Options
VPs/Directors	<Percentage> to <Percentage> (e.g., 60 percent)	40 percent PSUs / 40 percent RSUs / 20 percent Options
Managers/Key Talent	<Percentage> to <Percentage> (e.g., 25 percent)	0 to 30 percent PSUs / 70 to 100 percent RSUs
Non-U.S. or Private Subsidiary Key Roles	<Percentage> or <Amount>	Cash LTIP or phantom units per local plan

Ineligible Categories

Employees on performance improvement plans at grant date, unless approved as an exception.
Employees on unpaid leaves exceeding <Number> months at grant date, unless stated otherwise in local addenda.

Award Vehicles

Performance Share Units (PSUs)

Performance-based awards that convert into shares (or cash equivalent) after a <Number>-year performance period.
Metrics: Typically 2 to 3 measures such as Relative TSR, Revenue CAGR, Adjusted EBITDA Margin, ROIC, or strategic milestones.
Payout: 0 percent to 200 percent of target per metric with weighting; capped at 200 percent unless the Committee approves otherwise.
Dividend equivalents: Accrued and paid or credited in shares only upon vesting, and only to the extent underlying PSUs vest.

Restricted Stock Units (RSUs)

Time-based awards that vest over <Number> years in equal annual installments or a cliff vesting schedule.
Standard vesting cadence: 33 percent per year over 3 years or 25 percent per year over 4 years.
Dividends/dividend equivalents: Accrued and payable upon vesting only.

Stock Options (SOs)

Rights to purchase shares at the exercise price equal to the grant-date fair market value.
Vesting: Typically 25 percent per year over 4 years; 10-year term from grant date.
Exercise: Cash or cashless per broker arrangements; blackout restrictions may apply.

Cash-Based LTIP or Phantom Units (for non-listed entities)

Cash-denominated units that mirror PSU or RSU design where equity is impractical.
Payout tied to the same performance and vesting schedule; subject to <Country> deferral or taxation rules.

Performance Metrics and Goal Setting

Metric Selection

Relative TSR versus <Peer Index/Custom Peer Group> to capture market-aligned value creation.
Internal financial metrics such as Revenue CAGR, Adjusted EBITDA Margin, and ROIC to reinforce operational discipline.
Strategic or ESG measures (e.g., product launch milestones, safety incident rate, emissions intensity) where material to strategy.

Weighting (Illustrative)

Relative TSR: 40 percent
Revenue CAGR: 30 percent
ROIC: 30 percent

Goal Calibration

Use 3-year plan targets aligned to Board-approved long-range plan.
Set Threshold/Target/Maximum levels for each metric using historical performance, peer benchmarks, and investor guidance.
Ensure goals are rigorous yet achievable to avoid windfall or demotivating outcomes.

Payout Curves and Caps

Below threshold: 0 percent payout for that metric.
Threshold: 50 percent of target payout.
Target: 100 percent of target payout.
Maximum: 200 percent of target payout with straight-line interpolation between points.
Absolute TSR negative cap: If absolute TSR is negative over the performance period, cap the TSR metric payout at 100 percent.

Goal-Setting Governance

Management proposes metrics and goals with analytical support from <Vendor Name> and Finance.
Compensation Committee approves metrics, weightings, and goals no later than <Date> each year.
Mid-cycle changes are discouraged and permitted only for objective, unanticipated events with Committee approval and clear disclosure.

Grant Cycle and Award Determination

Annual Grant Timeline (Illustrative)

Q4: Identify eligible population; refresh market data; propose design changes.
January: Committee approves vehicle mix, metrics, and goals.
February/March: Grants approved and communicated; grant agreements distributed via <Vendor Name> portal.
Ongoing: Monitor performance; quarterly scorecards to Committee; finalize payouts after performance period ends.

Grant Sizing Methodologies

Percentage of base salary as of <Date> (default).
Role-based grant bands with minimum/median/maximum award values.
Market value benchmarking by <Vendor Name> using <Peer Group>.
Hiring or promotion grants calibrated by pay positioning, criticality, and internal equity.

Conversion from Value to Units

RSUs and PSUs: Target units = Target value divided by the <Average of <Number> trading days closing price around grant date>.
Options: Options granted using a conversion factor derived from fair value (e.g., Black-Scholes). Options units = Target value divided by option fair value, not share price.

New Hire and Promotion Grants

New hires eligible for a pro-rated annual grant based on start date and role; may receive a sign-on LTI with vesting aligned to annual grants.
Promotions outside of the annual cycle may receive a supplemental grant with Committee approval; limited to <Percentage> of annual pool.

Special Retention or Recognition Grants

Authorized for critical retention needs, strategic projects, or M&A integration.
Require a business case detailing rationale, population, proposed design, and cost impact.
Subject to annual cap of <Percentage> of total LTIP value unless Committee approves exceptions.

Vesting, Dividend Equivalents, and Holding Requirements

Standard Vesting Schedules

PSUs: Vest after a 3-year performance period subject to Committee certification.
RSUs: 3-year graded vesting (33 percent per year) or 4-year graded vesting (25 percent per year).
Options: 4-year graded vesting, 10-year term.

Dividend/Dividend Equivalents

Accrue during the vesting period and are paid only to the extent underlying shares vest.
No dividends or dividend equivalents paid on unearned or forfeited awards.

Post-Vest Holding Periods

Officers at <Level> and above must hold net after-tax shares for <Number> years after vest, or maintain ownership guidelines of <Multiple> times base salary.

Payout Calculation Examples (Illustrative)

PSU Payout Example

Employee Target PSU value: <Amount>
Share price average for conversion: <Amount>
Target units granted: <Number>

Payout factors by metric:

Relative TSR (40 percent weight): Achieved 60th percentile vs peers = 150 percent
Revenue CAGR (30 percent weight): Achieved 90 percent of target = 80 percent
ROIC (30 percent weight): Achieved at target = 100 percent

Weighted payout factor:

0.40 x 150 percent + 0.30 x 80 percent + 0.30 x 100 percent = 120 percent

Final payout:

120 percent x Target units = <Number> earned units

RSU Vesting Example

Target RSU value: <Amount> converted to <Number> RSUs
Vesting: 33 percent per year over 3 years
Shares delivered each year net of withholding

Termination, Retirement, Leaves, and Special Circumstances

Standard Termination (Voluntary or For Cause)

Unvested awards forfeit upon termination of employment.
Options, if any are vested, must be exercised within <Number> days for voluntary termination; immediate forfeiture for termination for cause.

Involuntary Termination Without Cause

Unvested RSUs and options may be pro-rated for service through separation date, subject to Committee discretion.
PSUs continue to the end of the performance period on a pro-rata basis, with payout based on actual performance unless award agreement states otherwise.

Retirement

Retirement definition: Age <Number> with <Number> years of service, or Rule of <Number>.
RSUs and options may continue vesting on original schedule or be pro-rated; PSUs remain outstanding with payout based on actual performance, all subject to plan rules.

Death or Disability

Unvested RSUs and options vest in full or pro-rate per plan; PSUs vest at target or pro-rated based on elapsed service, as specified in award agreements.

Leave of Absence

Vesting continues during protected leaves as required by law; for unpaid or extended leaves, vesting may be tolled per local policy.

Change in Control (CIC)

Double-trigger vesting: Acceleration occurs only upon CIC and qualifying termination within <Number> months post-CIC.
Treatment of PSUs at CIC:
- If awards are assumed/replaced: Continue to end of performance period; number of units may convert at target or based on performance through CIC date.
- If not assumed: Convert to time-based awards or vest pro-rata per plan terms.
All CIC provisions must align with governing plan and shareholder-approved terms.

Misconduct and Clawback

Awards are subject to clawback in cases of material misconduct, financial restatement, or breach of restrictive covenants, in accordance with <Country> law and listing standards.

Mobility and International Considerations

Grant documentation and prospectus translated for <Country> labor law compliance; works council consultation where required.
Tax withholding via sell-to-cover, net settlement, or payroll withholding; recharge agreements between entities as applicable.
Mobile employees (cross-border transfers):
- Track days and tax residency for sourcing of equity income.
- Apply pro-ration by service in each jurisdiction and comply with reporting.
- Seek advice from <Vendor Name> / tax advisor for complex cases.

Share Pool, Dilution, and Cost Management

Share Reserve: <Number> shares approved by shareholders on <Date>.
Annual Burn Rate Target: Not to exceed <Percentage> of weighted average basic shares outstanding.
Overhang Limit: Total outstanding awards plus shares available under plan not to exceed <Percentage>.
Recycling: <Full/Partial/No> share recycling policy per plan terms.
Evergreen: <Yes/No>; if yes, annual increase of up to <Percentage> of shares outstanding with shareholder approval if required.
Expense Budget: Annual LTIP expense budget of <Amount> monitored by Finance using ASC 718/IFRS 2.
Use cash-based LTI where equity supply is constrained or where local rules limit equity grants.

Accounting, Tax, and Compliance

Accounting

Equity awards accounted for under ASC 718 or IFRS 2 using grant-date fair value.
For PSUs with market conditions (e.g., TSR), fair value measured using Monte Carlo simulation by <Vendor Name> or independent valuation firm.
Modifications (e.g., changes to vesting conditions) trigger incremental expense analysis.
Forfeiture policy: <Estimate forfeitures / Account as they occur> consistent with accounting standards.

Tax

Withhold applicable taxes and social charges at vesting or exercise per <Country> law.
Section 409A (U.S.) compliance for any deferred cash LTI; avoid impermissible deferrals or accelerations.
Provide annual tax information statements as required; employees responsible for personal tax filings.

Securities Law and Listing Compliance

Grants made only during approved windows with pre-clearance for insiders.
Adhere to insider trading policy and blackout periods; 10b5-1 trading plans for executives where applicable.
File required disclosures per <Exchange/Regulator> rules.

Data Privacy and Information Security

Process personal data in accordance with <Country> privacy laws (e.g., GDPR equivalent) and <Company Name> policies.
Vendors must meet security and data processing standards per <Vendor Name> contract and DPA.

Governance, Roles, and Responsibilities

Board of Directors and Compensation Committee

Approve plan design, share requests, metrics, and goals.
Authorize annual and special grants; certify performance outcomes.
Oversee risk, dilution, and compliance.

Executive Management

Sponsor plan philosophy; propose design changes; ensure alignment with strategy and budget.
Recommend eligible participants and grant levels for Committee approval.

Total Rewards / HR

Own global policy, market benchmarking, grant sizing, and communication strategy.
Coordinate with Legal, Finance, Payroll, and vendors; maintain documentation and records.

Legal and Compliance

Draft and update plan documents and award agreements.
Advise on securities law, labor law, and data privacy compliance.

Finance / Accounting

Forecast and track plan cost, dilution, and expense; confirm fair value methodologies.
Ensure accurate financial reporting and support audits.

Payroll and Equity Administration

Process tax withholding, reporting, and settlement.
Maintain participant records and administer transactions via <Vendor Name> platform.

Managers and Participants

Managers support identification of eligible talent and ensure accurate data.
Participants acknowledge and comply with plan and insider trading policies.

Implementation Guidelines

Project Timeline (Initial Launch or Material Redesign)

Define objectives, constraints, and governance <Date Range>.
Benchmark market and develop design options <Date Range>.
Model cost, dilution, and accounting impacts <Date Range>.
Stakeholder reviews and Committee decision <Date>.
Draft plan documents and country addenda <Date Range>.
Configure systems and test end-to-end <Date Range>.
Train HR, managers, and helpdesk <Date Range>.
Launch grants and communications <Date>.
Post-implementation review and adjustments <Date Range>.

Systems and Integrations

HRIS as system of record for eligibility, base salary, grade, and location.
Equity platform <Vendor Name> for grant agreements, participant portal, and transaction processing.
Integration with Payroll for tax withholding and reporting, and with Finance for expense and dilution reporting.

Documentation and Recordkeeping

Maintain Committee minutes, plan documents, award agreements, valuation reports, and communications for at least <Number> years.
Ensure version control and secure storage consistent with audit and privacy standards.

Risk Management and Internal Controls

Segregation of duties between grant approval, data maintenance, and transaction processing.
Pre-grant data validation and post-grant reconciliation controls.
Quarterly performance tracking and year-end certification by the Committee.
Annual SOX testing or internal audit review of key controls.
Formal exception process requiring documented business case and approvals.

Annual Plan Calendar

Month/Quarter	Activity
Q4	Market review; design confirmation; eligibility list; preliminary metrics and goals
January	Committee approval; finalize grant values and performance goals
February/March	Grant issuance; participant notifications; agreements available on <Vendor Name> portal
Quarterly	Performance scorecards to Committee; mobility/tax reviews; employee ownership tracking
Year 3 Q1	Performance certification for PSUs ending prior year; payout and delivery of shares/cash
Ongoing	Training refreshers; policy updates; audit and compliance checks; disclosure preparation

Review and Approval Process

Policy Review Cadence: Annually by Total Rewards with input from Legal, Finance, and <Vendor Name> as needed.
Approvals Required:
- Material changes to plan design, metrics, or share pool require Compensation Committee approval.
- New sub-plans, country addenda, or CIC provisions require Board approval and, if applicable, shareholder approval.
Documentation:
- Provide cost and dilution modeling, legal redlines, and market benchmarking to the Committee.
- Maintain signed resolutions and final plan documents in the corporate repository.

Country Addenda and Local Variations

Local addenda may adjust tax withholding, vesting rules for protected leaves, and participant consent language.
Where equity is not feasible, use cash-based LTI with equivalent performance and vesting constructs.
Consult with <Country> counsel and finance on withholding rates and recharge mechanisms.

Appendices and Worked Examples

Appendix A: Example Goal Matrix (Illustrative)

Metric	Threshold	Target	Maximum	Weight
Relative TSR Percentile	35th	55th	75th	40 percent
Revenue CAGR	<Percentage>	<Percentage>	<Percentage>	30 percent
ROIC	<Percentage>	<Percentage>	<Percentage>	30 percent

Appendix B: Option Grant Conversion Example

Target option value: <Amount>
Option fair value (Black-Scholes): <Amount>
Options granted = Target value divided by fair value = <Number> options
Exercise price: Equal to <Grant Date FMV> per share

Appendix C: Dilution and Burn Rate Calculation

Burn Rate = (Shares granted in year) divided by (Weighted average basic shares outstanding) = <Percentage>
Overhang = (Outstanding awards + shares available) divided by (Basic shares outstanding) = <Percentage>
Track by vehicle and geography to manage constraints and shareholder expectations.

Legal Notices and Disclaimers

Nothing in this document confers a right to continued employment or to any specific award. <Company Name> reserves the right to amend, suspend, or terminate the plan at any time, subject to required approvals and local law.
In case of conflict, the governing equity plan, prospectus, and individual award agreements prevail.
Participants should consult personal tax advisors regarding individual tax consequences.
Compliance with <Country> labor, tax, and securities laws may require modifications documented in country addenda.

Glossary of Terms

ASC 718/IFRS 2: Accounting standards governing stock-based compensation expense recognition.
Burn Rate: Annual share usage as a percentage of shares outstanding.
Clawback: Policy allowing recovery or cancellation of awards under specified conditions.
CIC (Change in Control): A transaction meeting thresholds defined in the plan, potentially triggering special vesting rules.
Fair Market Value (FMV): Share price basis used for grant and exercise calculations as defined by the plan.
Overhang: Total outstanding awards plus shares available under plan divided by shares outstanding.
Peer Group: Comparator companies used for market pay or TSR assessment.
Performance Period: Multi-year timeframe over which performance is measured for PSUs.
Relative TSR: Total shareholder return compared to a peer index or custom group.
RSU/PSU/Option: Restricted Stock Unit, Performance Share Unit, and Stock Option award types.
Target LTI Opportunity: The value of long-term incentives at target performance levels.
Vesting: The process by which an employee earns the right to shares or cash over time or upon achievement of goals.

Communication Section: Employee and Manager Guide

Welcome to <Company Name>’s Long-Term Incentive Plan. This program is designed to reward you for building sustainable value over time. While annual bonuses recognize what we accomplish in a single year, the LTIP focuses on multi-year results that matter to our long-term success and to our investors.

How the plan works:

Each year, eligible employees receive a target long-term incentive value. This value is converted into one or more types of awards. Most participants receive restricted stock units (RSUs) that vest over several years. Some roles also receive performance share units (PSUs) that pay out based on our results over three years, and stock options that benefit you when our share price grows.
Your target award is based on your role and market data. For example, a manager might have a target equal to <Percentage> of base salary, while a director might have <Percentage>. These are illustrative only; your own award will be shown in your grant documents.
RSUs vest over time as you remain employed. PSUs vest after we measure performance for the full three-year period. Options vest over time and can be exercised any time after vesting until the expiration date, subject to insider trading rules.
For PSUs, we set challenging but achievable goals each year. We define a threshold, target, and maximum, and your payout can range from 0 percent to 200 percent of your target depending on results. We do not pay dividends on unearned shares, and any dividends are paid only when shares vest.

What this means for you:

The LTIP helps you share in the value you create. When we grow revenue responsibly, improve profitability, and invest wisely, your long-term awards can be worth more.
The plan encourages an ownership mindset. Holding shares after vesting helps align your interests with those of our shareholders. Executives have additional share ownership expectations.
Long-term awards are meant to be held through market ups and downs. Short-term price changes do not affect vesting, and PSU payouts depend on three years of performance, not a single quarter.

Key dates and actions:

You will receive a grant notification in <Month> with your award details. Please log in to the <Vendor Name> portal to review and accept your agreements by <Date>.
Each quarter, we will share high-level progress against our multi-year performance goals. Final PSU results are reviewed and certified after the performance period ends.
When your awards vest, taxes will be withheld automatically. You will receive net shares in your brokerage account or a cash amount if the award is cash-settled.

Important reminders:

You must follow our insider trading policy, including blackout periods around earnings announcements. If you are designated as an insider, you may need pre-clearance to trade.
Leaving the company can affect your awards. If you resign, unvested awards usually forfeit. If you retire or leave due to certain circumstances, there may be pro-rated or continued vesting as described in your award agreements.
In the event of serious misconduct or a financial restatement, the company may cancel or recover awards under our clawback policy.

Where to get help:

For questions about your eligibility, target levels, or vesting, contact <HR Contact or Total Rewards mailbox>.
For help with the online portal, statements, or transactions, contact <Vendor Name> Support at <Contact Details>.
For tax advice, please consult your personal tax advisor. We cannot provide individual tax guidance.

This overview is a summary only. Your rights and obligations are described in the governing plan documents and your individual award agreements. If there is a conflict, those documents will control.

Document Information:

Document Type: Long-Term Incentive Plan (LTIP) Design
Category: Variable Compensation
Generated: August 24, 2025
Status: Sample Template
Next Review: <Insert Review Date>

Usage Instructions:

Replace all text in angle brackets < > with your company-specific information
Review all sections for applicability to your organization
Customize content to reflect your company's policies and local regulations
Have legal and HR leadership review before implementation
Update document header with your company's version control information
At bottom of the document you find a short example on how the content could be communicated to end-users, for instance employees.

This sample document is provided for reference only and should be customized to meet your organization's specific needs and local legal requirements.