long-term incentive plans
DESCRIPTION
Long-term Incentive Plans. Reward System. Reward System. Job Analysis. Benefits. Job Description. Managing Base Pay. Jpb Evaluation. Working conditions. Variable Pay. Long-term Incentives. Recognition Awards. Recruitment. Selection & Hiring. Training & Dev’mt. Career planning. - PowerPoint PPT PresentationTRANSCRIPT
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Long-term Incentive PlansLong-term Incentive Plans
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Reward SystemReward System
Reward SystemReward System
Job AnalysisJob Analysis
Jpb EvaluationJpb Evaluation
Managing BasePay
Managing BasePay
Job DescriptionJob Description BenefitsBenefits
Working conditionsWorking
conditions
Variable PayVariable Pay
RecognitionAwards
RecognitionAwards
Long-termIncentivesLong-termIncentives
RecruitmentRecruitment
Training & Dev’mtTraining & Dev’mt
Perf. evaluationPerf. evaluation
HR PlanningHR Planning
Selection & HiringSelection & Hiring
Career planningCareer planning
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Long-Term IncentiveLong-Term Incentive
Long termIncentivesLong termIncentives
DeferredCompensation
DeferredCompensation
BenefitsBenefits
STOCKSSTOCKS
Stock OptionsStock Options
ESOPESOP
ESPPESPP
Restricted StocksRestricted Stocks
Long-term CashLong-term Cash
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Long Term IncentiveLong Term Incentive
LTI’s are
• compensation programs deferring the payout for more than one year
• focusing on performance beyond this one-year time line.
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Deferred CompensationDeferred Compensation
Bonus or incentive deferred at a later date, typically to increase benefit retirement plan
No social security or other social contributions to be paid on the deferred amount until amount cashed
Tax effective in many countries as not cashed before retirement, therefore benefiting of favorable tax rates
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Long-Term Cash Incentive (LTCI)Long-Term Cash Incentive (LTCI)
Increasingly popular amongst multinationals
Usually spread over a 3 year period
Paid at the end of the period if objectives attained
In addition to the annual incentive plan and, very often, in replacement of a deficient stock option plan
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Stock Option Plan (SOP)Stock Option Plan (SOP)
Definition• The right given:
– by a company (granter)
– to a person (optionee)
– to buy(exercise)
– a stated number of shares of company common stock
– at a prescribed price(grant or strike price)
– over a specified period(exercise period)
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Stock Option Plan (SOP)Stock Option Plan (SOP)
Definition
• Exercise Period: the time when the optionee has the right to buy a stated number of shares at the prescribed price
• Vesting Period: the prescribed time that needs to be met before a stated number of shares may be purchased
• Underwater: when the Grant Price is lower than the option price
• In-the-Money: when the Grant Price is higher than the option price
• Cash-Less: Simultaneously buy and sell the stock and receive the net appreciation in exercise price in stock or cash
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Stock Option Plan (SOP)Stock Option Plan (SOP)
$ 8
$ 9
$ 10
$ 11
$ 12
$ 13
$ 3
$ 4
$ 5
$ 6
$ 7
1 2 3 4 5 6 7 8 9 10
Years
Stock Price
Strike/grant price grant
Underwater
In the money
Exercise period
Vesting Period
Waiting
Period
25% 50% 75% 100%
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SOP - Discounted / Premium PricesSOP - Discounted / Premium Prices
Discounted• Option grants made with exercise prices below the fair
market value at grand date
Premium-Priced• Option grants made with exercise prices above the fair
market value at grand date.
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SOP - Indexed Stock OptionsSOP - Indexed Stock Options
The exercise price is moving according to an Index like S&P 500
Rationale: an executive should be rewarded for outperforming the market, not coasting it.
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SOP - Step OptionSOP - Step Option
Option grants made with a fixed exercise price, but the grants are subject to forfeiture if performance goals are not met
Example: the company achieves 15% annual earnings per share growth over the next two years
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SOP - SOP - Cliff/Accelerated Vesting Cliff/Accelerated Vesting
These shares also generally vest after a specific number of years; however, vesting may be accelerated if the company achieves certain pre-established goals.
Example: EPS reached$ 0.65 and maintained for at least 3 consecutive quarters
Example: when Operating Profit reach100 mio, 25% of options are vesting immediately
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Employee Stock Ownership Plan (ESOP) Employee Stock Ownership Plan (ESOP)
An ESOP is an employee benefit plan operating• through a trust that accepts tax-deductible contributions
from the company• to accumulate company stock• which is then allocated to accounts for individual
participants.
The ESOP can acquire both new and existing stock.
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ESOP - AdvantagesESOP - Advantages
Employees• ESOPs help employees develop a sense of ownership in
and commitment to the firm, and help to build teamwork. • No taxes on ESOPs are due until employees receive a
distribution from the trust, usually at retirement when their tax rate is lower.
Shareholders of closely held corporations• Helps to diversify their assets by placing their shares of
company stock into an ESOP trust and allowing them to purchase other marketable securities for themselves in their place.
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Employee Stock Purchase Plan (ESPP) Employee Stock Purchase Plan (ESPP)
Gives employees the chance to buy stock, usually through payroll deductions over a defined "offering period."
The price is usually discounted up to 15% from the market price
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Restricted Stock Restricted Stock
Awarding an employee a number of shares with restrictions placed on the holder’s ability to sell or transfer the shares.
When the restrictions lapse, the employee is allowed to hold or sell the shares free and clear of any restrictions
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Type of Restricted StockType of Restricted Stock
Time-Vested• An award of shares that actually are received only
after the completion of a predefined service period
Performance-accelerated• Restricted stock granted only after attainment of
specified performance objectives
Performance-versed• This is a grant of stock to employees upon
attainment of defined performance objectives
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