Long Term Incentive Plan

This is an incentive device used by listed companies to encourage their senior executives to build up a shareholding, thereby aligning their interests with those of their shareholders.

In a Long Term Incentive Plan ("LTIP"), free shares are provided to participants subject to the fulfilment of specified conditions. These shares are held in trust and once the specified conditions are fulfilled the trustees release the shares to the senior executives.  

Requirements

• Shareholder approval is required.
• An Employee Benefit Trust is normally set up to administer the plan.
• Conditions precedent will normally be attached to any award; and
• Normally subject to forfeiture.

Tax Treatment

There is no tax relief available to the LTIP, its primary dual purposes are reward and retention of senior executives. Therefore, income tax will be chargeable when the participant acquires the shares. In order to cover the tax liability due, the participant may sell his shares.

The cost of setting up the LTIP and contributions to the trustees enabling them to fund the plan may be tax deductible.  

Benefits

• Its flexibility ensures that plans can be designed to meet the corporate needs of a company, its employees and shareholders.
• The executive benefits from the full value of the shares (unlike other company share option incentives where the participants benefits from the growth of the share value through the duration of the exercise period).

For further information please complete the enquiries form.

This briefing has been prepared for general guidance only and should not be acted upon without specific advice. Please contact us if you need further information.