6 Long-Term Incentive Plan Best Practices

What is a best practice for long-term incentive plans?

To help you plan the best long-term incentives, we asked HR professionals and business leaders this question for their best pieces of advice. From using an equity incentive plan to offering extra paid time-off, there are several features you can consider implementing into your business’ long-term incentive plan.

Here are six long-term incentive best practices:

  • Use an Equity Incentive Plan
  • Do Not Source your own Rewards
  • Itemize Big Plans into Smaller Objectives
  • Understand your Workplace Top-Down
  • Review Ongoing Plans Quarterly
  • Offer Extra Paid Time-Off


Use an Equity Incentive Plan

A best practice for long-term incentive plans is to use an equity incentive plan that ties a significant portion of the employee’s award to firm performance, and that uses vesting provisions that are based on some combination of time served and the achievement of predetermined performance targets.

A company may choose to use a variety of long-term incentive plans, such as a stock option program or a cash bonus program.

A stock option plan permits employees to purchase stock in the company at a specified price at a future time. Cash bonus plans provide cash payments to employees based on firm performance.

Saunav Kaushik, VinPit


Do Not Source your own Rewards

One best practice for long-term incentive plans is to never source your own rewards. The better options for this are participant support or reward fulfillment services. These options offer full-time responsiveness, which makes the participant experience much better overall. This not only betters overall performance but frees up more time for you too.

Sasha Ramani, MPOWER Financing


Itemize Big Plans into Smaller Objectives

Itemizing long-term incentive plans into smaller goals is the best way to achieve them. Making short- and medium-term goals that operate on a daily, weekly, monthly, and seasonal basis will help to keep focus on the larger mission. A long-term objective can feel insurmountable if the scope is too large, so breaking a huge idea into smaller and more manageable components is the best practice to realize the big goal.

Thomas Yuan, Sanebox


Understand your Workplace Top-Down

Doing your homework is the best practice for a long-term incentive plan as it helps you understand the strategic objectives you aim to support with your incentive program. You should know the most valued incentive for your employees and their expectations from your company. Similarly, you should understand the key consideration around the long-term incentive plans for better results.

You must identify the gap in the current incentive programs and their impacts on employee retention and motivation.

Likewise, evaluate all areas of business where incentives could improve the performance of workers. Lastly, analyze employees’ perceptions of long-term incentive plans and use the right strategies based on your observation to achieve your desired goals.

Charles Ngechu, EasyPaydayLoan


Review Ongoing Plans Quarterly

When planning a long-term incentive plan for your employees, it is recommended to schedule quarterly reviews to help you ensure that your company matches the industry trends. An incentive plan becomes ineffective if employees would rather than not have them because they are outdated. Hence, reviewing the plan often and adding more lucrative incentives is important.

Mehtab Ahmed, LoansJury


Offer Extra Paid Time-Off

One best practice for employee incentive programs is to offer extra PTO to top-performing employees. This goes a long way in promoting the mental well-being of the employee and fostering trust in the employee-employer relationship. Such incentives indicate that employers care for their employees beyond the office premises. Hence it aids in greater employee engagement and retention over time.

Radhika Gupta, USCarJunker



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