LTI: How to Motivate Valuable Employees in the Long Run
Companies are constantly looking for effective ways to motivate and retain key employees. One of these tools is the long-term incentive system – LTI. In this article, we will discuss what LTI is and why it is beneficial to use such a program to motivate experts and top managers.
What is it and why is it needed?
LTI (Long Term Incentive) is a long-term incentive program for employees. Term Incentive Plan or deferred compensation plan.
In a typical short-term incentive system, bonuses are paid for achievements in the current quarter or year. LTI provides rewards that are calculated over several years.
LTI Principles
There are a few basic principles that are important to follow when developing an LTI incentive plan.
1. Linking to the company’s strategic goals. Long-term motivation programs should be aimed at those aspects of the business that are a priority for its development and growth .
Types of LTI
There are 4 main types of LTI programs:
- LTI is associated with an increase in the company’s price.
- LTI is related to length of service.
- LTI is related to work outcome.
- LTI with cash reward.
Their main differences can be studied in more detail in the figure below.
LTI system linked to company price increase
LTI, associated with the increase in the company’s price, is based on the reward of employees for their contribution to the growth of the business’s market capitalization. Typically, rewards are stock options. Let’s look at the employee motivation system using the example of Company X.
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- The goal of the program: to increase the market value of the company’s shares by 30% over the next three years.
- Remuneration: Employees are granted stock options in the company with the option to purchase them at a fixed price after three years .
LTI System Linked to Work Experience
LTI, based on experience, rewards employees for long-term work in the company. Sometimes specialists get tired of working in the same place.
LTI system linked to work result
Performance-based LTI motivates employees to achieve set goals and KPIs. When team members achieve set goals and metrics, they receive shares or options.
Let’s look at a performance-based reward system using the example of Company Z.
- The goal of the program: to motivate employees to achieve KPIs.
- Reward: The team is awarded company shares after achieving or exceeding the plan.
LTI system with cash reward
LTI with cash reward is based on the payment of cash for achieving results that correspond to the company’s strategic goals. The main methods of incentives are:
- Monetary reward for achieving KPIs or strategic goals.
- Bonuses for completing long-term projects.
- Reward for exceeding plans or implementing innovations.
Examples of LTI
Avito has launched the LTI motivation program, which is selling is not a monologue aimed at retaining key employees. This tool has another advantage: when applying for a job at the company, many candidates are interested in the motivation program.
To launch the new motivation system, Avito worked in several stages:
- We looked at all the departments and assessed the hierarchy levels to understand who makes a significant contribution to the company’s development.
- We tied rewards to specific KPIs.
- We made the goals and results of each team member transparent, they can be viewed on a special resource.
RetailCRM
RetailCRM decided to link the income of key managers to the company’s capitalization. To develop the LTI system, they studied the experience of other companies, selected the LTI type and motivation method, and the vesting schedule. They developed a document describing the terms of the program and the amount of remuneration.
How to Develop LTI
1. Set strategic goals for the company
Goals should be specific, measurable, achievable, relevant and time-bound. For this, you can use the SMART methodology .
2. Select the LTI type and define the vesting schedule
Based on your strategic goals, choose the appropriate type of LTIP that will motivate employees to achieve them. This could be shares, stock options, cash bonuses, or other incentives.
3. Ensure that LTI complies with legal requirements
It is important to carefully check the legal requirements in news us all countries where the company operates. Make sure that the type of LTI you choose complies with tax, labor and corporate regulations to avoid legal problems and penalties.
4. Create an LTI plan
To effectively implement an LTI program, create a detailed plan. LTI plans come in many shapes and sizes. To create one, follow these steps:
- Create a roadmap with a clear structure for LTI implementation.
- Create reports on the development of the LTI system, results achieved and problems encountered.
- Assign responsible persons to oversee the vesting schedule.
- Regularly review and update LTI-related policies to keep them current with changing conditions.
5. Introduce employees to the new motivation system
The team should learn from employers about the new LTI system, its goals, and long-term compensation conditions. Conduct webinars, create guides and instructions, and add them to the company’s knowledge base. Understanding LTIP will motivate the team to strive for better results.
