How To Fix Long-Term Incentives | Everything You Need Know

September 27, 2023
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Long-term incentives (LTI) are a great way to motivate your employees by offering them higher pay and benefits in exchange for staying with the company for an extended period.

Here's a quick rundown of what they are, why you might use them, and how to implement them:

What are long-term incentives?

Long-term incentives are rewards that employees receive after completing a task or project—like reaching a sales quota or meeting another performance goal. These incentives can be paid out as cash or in-kind compensation, such as vacations or bonuses.

LTI is a great way to keep your employees happy and motivated. They can help you attract and retain top talent and help you avoid the "motivated" employee who's only in it for the money. They can also help you ensure your team is working hard enough, making them more productive when they're not paid extra.

LTI are usually bonuses or awards that are given out at the end of a period (typically one year). Still, it's possible to give them out more frequently—even monthly! They're typically paid in cash or stock, though some companies give them as gift cards or experiences instead of cash.

Use case of long-term incentives?

Long-term incentives can motivate employees with regular responsibilities or deadlines, and they may see little benefit from receiving praise from their boss or supervisor. They also make it easier for companies to track employee performance over time and see if there's a pattern of success or failure across multiple projects.

Long-term incentives are a great way to keep employees motivated and engaged, especially when those rewards might be difficult to attain otherwise. For example, if you offer a bonus for employee referrals, it will be much easier for them to refer potential new hires if there's money on the line.

There are three main ways to implement LTI: Cash Incentives and other Monetary Rewards, In-Kind Compensation, And Recognition Programs that include recognition awards.

Long-term incentives (LTIs) are a type of compensation that are designed to align the interests of employees with those of the organization over the long term. These incentives typically take the form of stock options, restricted stock units, or performance-based awards. In order to fix long-term incentives, organizations can take the following steps:

  1. Review the design of existing LTIs: Evaluate the current design of LTIs to ensure that they are aligned with the organization's long-term goals and objectives.
  1. Communicate the purpose and value of LTIs: Clearly communicate the purpose and value of LTIs to employees, and ensure that they understand how they can benefit from them.
  1. Align LTIs with performance metrics: Ensure that LTIs are aligned with specific performance metrics, such as revenue growth or profitability, so that employees are motivated to meet those goals.
  1. Monitor and adjust LTIs as needed: Continuously monitor the effectiveness of LTIs and make adjustments as needed to ensure that they are aligned with the organization's long-term goals and objectives.
  1. Be mindful of legal and regulatory compliance: Make sure that LTIs are in compliance with state and federal laws and regulations.
  1. Communicate the progress of the LTIs: Keep employees informed of the progress of the LTIs and how their performance is impacting the outcome of the plan.
  1. Keep it fair and transparent: When designing the LTIs, make sure that the plan is fair and transparent for all employees.

By following these steps, organizations can create a long-term incentives program that effectively aligns the interests of employees with those of the organization, while also being fair and transparent.

Read More: A Deep Dive Into Long Term incentive Compensation Structures | Guide 2023

How To Fix Long-Term Incentives

There are a few different ways that you can change your long-term incentive program:

Increase the amount of money given out per person or job done. This will increase the value of each award, making it more likely that people will want to use their resources (i.e., referrals) and others (i.e., colleagues who need help finding new hires).

Add additional rewards for reaching certain milestones—for example, a bonus for reaching 100% completion on an assigned project or task list item by the end of each month. 

Long-term incentives (LTIs) are an essential part of an effective total rewards package, as they provide employees with a sense of ownership in the company and align their interests with the long-term goals of the organization. However, if not properly designed and implemented, LTIs can have unintended consequences, such as excessive risk-taking, short-term thinking, and unintended consequences that may not align with the company's overall strategy. Here are some steps to fix LTI issues:

  1. Assess the Current LTI Program: Start by assessing the current LTI program, and identify its strengths, weaknesses, and unintended consequences. Collect feedback from employees and stakeholders on the program's effectiveness in achieving the organization's goals.

  2. Set Clear Objectives: Define clear objectives for the LTI program, such as aligning employee interests with long-term company goals, driving performance, or retaining key talent.

  3. Review Performance Metrics: Review the performance metrics used in the LTI program and ensure that they align with the organization's goals and strategy, are measurable and can be achieved over a reasonable period.

  4. Evaluate Plan Design: Evaluate the plan design, including the award structure, vesting schedules, and eligibility requirements. Ensure the program rewards behaviors that align with the company's values and strategy and that it motivates employees to achieve the desired outcomes.

  5. Address Risks and Unintended Consequences: Identify and address any unintended consequences or risks associated with the LTI program, such as excessive risk-taking, short-term thinking, or unintended consequences that may not align with the company's overall strategy.

  6. Communicate the Program: Communicate the revised LTI program to employees and stakeholders, including its objectives, performance metrics, and plan design. Provide clear instructions on how to participate in the program and how their performance will be evaluated.

  7. Monitor and Adjust: Monitor the LTI program regularly and adjust it as needed to ensure that it continues to achieve its objectives effectively.

By following these steps, companies can fix LTI issues and ensure that their LTI program aligns with the organization's goals and values, motivates employees to achieve desired outcomes, and avoids unintended consequences.

Conclusion

Long-term incentives allow you to benefit from sustained hard work, but if not structured correctly, they can expose you to an enormous risk of overspending. It's easier than ever to lose control of your financial situation due to expiring bonuses.

The best way to guard against this danger is to build a financial plan that protects you regardless of how your employer structures long-term incentive plans.

Find out how Compport can help you manage all your Pay Transparency process, book a demo today!

                                Frequently Asked Questions

Q1. What are long-term incentives?

Long-term incentives are rewards that employees receive after completing a task or project, such as reaching a sales quota or meeting a performance goal. These incentives can be in the form of cash, vacations, bonuses, or other types of compensation.

Q2. How can long-term incentives benefit my company?

Long-term incentives can help motivate and retain employees by offering higher pay and benefits for their commitment to the company over an extended period. They also align employee interests with the organization's long-term goals.

Q3. What are the different ways to implement long-term incentives?

Long-term incentives can be implemented through cash incentives and other monetary rewards, in-kind compensation, such as stock options or restricted stock units, and recognition programs that include awards and acknowledgment.

Q4. Can long-term incentives help improve employee retention?

Yes, long-term incentives can be an effective tool for improving employee retention. By offering rewards that are tied to the employees' long-term commitment to the company, LTIs create a sense of loyalty and provide a strong incentive to stay with the organization.

Q5. Are there any risks associated with long-term incentives?

Yes, there can be risks associated with long-term incentives, such as excessive risk-taking or short-term thinking. It's important to design and monitor the program carefully to mitigate these risks and ensure that they align with the company's overall strategy.

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