1. Long-term Incentive Plans
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2. Reward System Reward System SESSION 7 - Long-Term Incentives
Job Analysis
Benefits
Job Description
Managing Base
Pay
Jpb Evaluation
Working
conditions
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Variable Pay
Long-term
Incentives
Recognition
Awards
Recruitment
Selection & Hiring
Training & Dev’mt
Career planning
Perf. evaluation
HR Planning

3. Long-Term Incentive SESSION 7 - Long-Term Incentives Long term
Deferred
Compensation
Long-term Cash
STOCKS
Benefits
Stock Options
ESOP
ESPP
Restricted Stocks

4. Long Term Incentive LTI’s are
compensation programs deferring the payout for more than one year
focusing on performance beyond this one-year time line.
SESSION 7 - Long-Term Incentives

5. Deferred 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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6. 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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7. 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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8. 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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9. Stock Option Plan (SOP)
Stock Price
$ 13
$ 12
$ 11
$ 10
Strike/grant price grant
In the money
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$ 9
$ 8
$ 7
$ 6
Underwater
$ 5
Exercise period
$ 4
Waiting
Period
25%
50%
75%
100%
$ 3
Vesting Period 1 2 3 4 5 6 7 8 9 10
Years

10. SOP - Discounted / Premium Prices
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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11. SOP - 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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12. SOP - 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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13. SOP - 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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14. 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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15. ESOP - Advantages Employees Shareholders of closely held corporations
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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16. 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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17. 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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18. Type 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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