Navigating the global landscape of long-term incentive plans
In today’s interconnected business world, long-term incentive (LTI) plans have become a cornerstone of executive compensation. These plans are designed to align the interests of senior management with those of all stakeholders, promoting long-term strategic goals and sustainable growth.
By rewarding executives for achieving significant milestones, LTIs ensure that their focus remains on the company’s future trajectory rather than solely short-term gains. This alignment is crucial in an increasingly competitive global labor market, where attracting and retaining top talent is more important than ever.
At WTW, we believe that effective executive compensation strategies are built on a foundation of clear principles. Our Executive Compensation Guiding Principles are deeply intertwined with LTI plans, each playing a crucial role in shaping these strategies:
Purpose
LTIs are crafted to fulfill the strategic objectives of the organization. They motivate executives to achieve long-term goals that drive business success and shareholder value.
Alignment
By linking executive rewards to company performance, LTIs ensure that the interests of executives are closely aligned with those of shareholders, fostering a culture of shared success and mutual benefit.
Engagement
LTIs are designed to engage with shareholders and stakeholders on the company’s long-term strategic priorities and ensure connection to executive incentives, helping foster a sense of ownership and commitment that encourages sustained long-term performance.
Accountability
LTIs incorporate mechanisms such as performance metrics, malus and clawback provisions, which hold executives accountable for their actions and decisions, reinforcing the commitment to ethical leadership and sustainable development.
As companies expand their operations globally, understanding the nuances of LTI practices in different markets is essential.
Across various business and geographic landscapes, several key themes consistently emerge in the design of LTI plans. Performance-based incentives and the integration of ESG metrics are widely adopted, reflecting a global focus on aligning executive interests with long-term shareholder value and sustainable development. The emphasis on accountability is evident through the increasing use of clawback and malus provisions, ensuring a shared commitment to sustainable growth and effective risk management.
For companies with globally dispersed executive teams, it is crucial to understand and tailor LTI plans to align with both local regulatory requirements and global best practices. The adage that incentives drive behaviors, both positive and negative, underscores the importance of carefully designing these plans to encourage the right behaviors and risk management.
As businesses expand internationally, they must navigate the complexities of different LTI frameworks while maintaining a cohesive strategy that supports their broader corporate objectives.
To learn more about developing a global LTI plan for your company to attract and retain top talent and foster sustainable long-term growth, be sure to complete the form to the right and download our full white paper.
