Long-term incentives (LTIs) are a form of variable compensation that is earned in the present but whose payment is deferred and spread over time. LTIs can be cash compensation but often are in the form of stock or stock options. Their purpose is to give employees an incentive to stay with the organization and to have a long-term stake in company performance. LTI awards are often an important component of executive compensation.

LTI compensation can be a strategic compensation vehicle to promote long-term retention and alignment with company goals. LTI can be a win-win for all participants. LTI can generally be broken down into following three types: stock options, restricted stock units (RSUs), and performance shares. LTI is more prevalent for employees at higher levels of an organization because the value of the company is predominately affected by those with line-of-sight into the long-term strategic vision of the company.

The compensation system will automatically apply the predefined business rules to deal with the event appropriately. Key system capabilities for LTI management include tracking and reporting incentive grants and approvals, managing vesting schedules for multiple concurrent plans, and providing a rules engine to handle eligibility, awards, and exercising of options.

If you are still managing your LTI plans in spreadsheets, consider that now may be the time to move to an automated total compensation platform to simplify administration of the plans, integrate LTI with total compensation, and improve compliance.