Unlocking the potential of Long-Term Incentive Plans (LTIPs): a deep dive into emerging trends

As India's business landscape evolves rapidly, LTIPs are becoming more diverse, adaptable, and strategic in their adoption.

In brief

• Long-Term Incentive Plans (LTIPs) are expanding their reach, particularly in equity-based plans, to include a more diverse group of employees.
• These plans are being used for cash allowances and benefits, especially in response to market changes triggered by the pandemic.
• Industries such as electric mobility, logistics automation, fintech, and generative AI are driving economic growth and shaping the strategies related to LTIPs.

In today's dynamic corporate landscape, retaining top talent has become a strategic imperative. Long-Term Incentive Plans (LTIPs) have emerged as a compelling solution, transforming from mere rewards for high performance into powerful tools that align employees with a company’s vision. 

The EY LTIP report, based on a comprehensive survey conducted during FY22-23, sheds light on the evolving landscape of LTIPs, presenting critical insights that echo across diverse sectors.

Traditionally reserved for senior management, LTIPs are now reaching a broader base of employees, especially in the realm of equity-based plans. Organizations, in their pursuit of attracting top-tier talent, are extending LTIPs beyond executive roles. This strategic shift marks an industry-wide recognition of LTIPs not just as performance rewards but also as instruments to create lasting wealth.

One of the report's standout findings is the transformative role played by new-age digital enterprises and start-ups. These innovators are reshaping the LTIP landscape by expanding the frequency, incentivization, and coverage of plans. In a world where adaptability is key, LTIPs are being increasingly utilized to compensate for cash allowances and benefits, particularly in response to market shifts catalyzed by the COVID-19 pandemic.

Furthermore, as industries evolve, so do the LTIPs. Sectors like electric mobility, logistics automation, fintech, and Generative AI are propelling economic growth and influencing LTIP strategies. Companies operating in these domains are leveraging LTIPs not only to reward high-performing individuals but also to foster company-wide and individual achievements.

The EY LTIP report delves into the pivotal role of emerging technologies, demanding specialized skill sets. These technologies are compelling organizations to extend LTIPs to a broader employee base, challenging the conventional notion that LTIPs are exclusively for key individuals. In essence, the report underlines that LTIPs, when intelligently designed, are powerful tools for retaining both high-performing executives and employees across various levels.

Strategic shift in the objective of LTIPs 

The global economy and businesses faced significant disruptions due to the COVID-19 pandemic. This has prompted companies to rethink and adapt the design and implementation of Long-Term Incentive Plans (LTIPs). The findings from the EY survey confirm this shift, revealing that companies have moved away from generic objectives to focus on specific, tailored goals.

Organizations are now reassessing their LTIP strategies, leading to substantial changes in the overall structure of these plans in recent years. Emerging trends indicate a willingness among companies to customize LTIP components, creating incentive plans that best suit their employees' needs.

What's noteworthy is that while retaining talent remains a primary objective, there has been a significant emphasis on rewarding performance, fostering wealth creation, and supplementing cash salaries. According to the survey data, in FY23, approximately 22.2% of companies prioritized recognizing employees' performance, reflecting the evolving landscape of LTIPs in response to changing business dynamics.