Long term incentive is a process to reward the consistent & employees having a good amount of work experience in the organization.
It also takes into account the work performance of the employee of long period of time. Long term incentives like cash bonuses, vacations, stock options etc are given to motivate and retain loyal employees.
Types of Long term Incentives
1. Long Sabbaticals: A sabbatical of a fairly long term works best for employees who feel that they can afford a break in their career without the fear of losing the job.
2. Employee Stock option benefits: Chances of getting stocks at lower rates which when matured to the fullest gives a good amount of return
3. Vacations Benefits for family & sponsored trips
4. Cash bonuses on completing certain vintage period in organization: Like extra amount on completing 5 years in an organization, 10 years, and so on. The monetary aspect would also encourage other employees to stay.
Metrics of Long term incentives
1. Total return on shareholder & stock performance increases
2. Return on Investments or good equity returns
1. It helps in keeping the morale & motivation of the employee consistent. Since he is working for such a long time, we expect there is no motivational issues
2. The company benefits from long term schemes like ESOP’s. The employee will invest in the hope of earning a good amount, thereby increasing the company’s finances.
3. Since the finances invested in ESOP are for a lengthy period of time, the company can expect good returns within these years
4. It also encourages low attrition, thereby saving on the direct/indirect costs involved with hiring of the new employees.
1. Some of the employees who are long term may become complacent. Complacency can cause severe implications among the junior employees of the organization
2. Sometimes Long term incentives may be flawed. It may be that the employees are getting tasks done by means of experience rather than by hard work.
3. Incentives differ from industry to industry & organization to organization. Thus in many industries having high attrition like insurance, sales, these plans may backfire, where the nature of the job is different.4. The LTI can work only when it is related to the employee aspirations & are mapped accordingly.
Thus it is important that we need to map the people who may be staying, and devise the incentive plans accordingly to make the most out of the person’s potential.