Types of Long Term Incentive Plans

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Types of Long Term Incentive Plans

Posted 01 November 2019

Revised 23 April 2020

Long term incentive schemes are to drive short-term, mid-term and long-term performance to motivate, enhance performance and retain employees.

Long-term Incentive Objectives

Create Shareholder Value

Encourage share price growth
Fund award through incremental value added
Leverage the company’s investment

Encourage Employee Performance

Encourage profitable multi-year investments
Help executives further understand long-term implications of business decisions and strategic direction of the company

Retention

Support retention of key executives and employees

Ease of Implementation

Board and regulatory approval
Plan adapted to fit within company and culture
Cost and share usage

Align with Market Practice

Align plan to international and local market practice

Exhibit 1

Summary of Long Term Incentive Plans

The three plans would help drive short-term, mid-term and long-term performance

Three Types of Long Term Incentive Plans

1. Deferred Restricted Stock Annual Bonus

Plan would encourage employee retention, drive short term performance and mitigate risk.

Company offers eligible employees’ choice to invest up to 30% of annual bonus into company shares, restricted for one year
Company could grant an additional 20% of shares on invested amount, providing the employee with an incentive to wait for award payout OR give the employee a 20% discount on the share purchase price
Giving employees the choice to participate voluntarily will provide a clear picture about how employees view the company
Employees who invest bonus are better aligned with Shareholders
Company would guarantee 30% voluntary deferred cash value, but only grant the 20% additional shares if employees remain employed for the one-year deferral period

2. Three Year Performance Restricted Stock

Plan ties performance requirements to restricted stock allocations, driving performance over the three-year vesting period.

How many shares vest depends on achievement against performance conditions, based on company performance targets? Future looking performance targets would be set based on Corporate three-year plans
Awards would be discrete, granted only every three years, to target mid-term performance, prevent “double-dipping”, control share usage and ease administration
Target and maximum award values should vary by position level and be aligned to market rates

Exhibit 2

Target and Maximum Award Values

3. Five Year Thrift / Savings Plan

An integrated incentive and savings scheme for all company employees to buy Shares.

Employees allowed to enroll only once per year into 12-month savings contract. Two invitations per year to allow new plan participants to come in (new recruits).
Price for Share purchase is average of 30 days prior to invitation
Each employee may contribute 5% to 15% of monthly salary by payroll deduction
Employee can suspend contributions at any time before end of Savings Period but has to wait for next invitation to re-enter plan
Savings will be applied at end of savings period to acquire Shares
Cumulative company match as a percentage of contributions per full year in plan. 15% for year 2; 25% for year 3; 35% for year 4; 50% for year 5
Shares purchased from Employee contributions may be withdrawn at any time, but employee will lose right to further company matches
Shares allocated as Employer contributions have ratable vesting, which begins after two-year period. 25% after year 2; 50% after year 3; 75% after year 4; 100% after year 5
Employee contributes 10% of annual salary each year for five years

Exhibit 3

Saving Plan Model

Leavers
Leaver provisions provide a basis for dealing with (good leavers and bad leavers) participants leave the organization prior to the vesting period.

Good Leavers

Includes employees leaving the organization due to death, disability, retirement, redundancy, or other reasons to be determined by the Board
In case of death immediate pro-rated vesting of unvested awards given to beneficiaries permitted within 90 days
All other Good Leavers, receive pro-rated proportion of awards as determined by the Board

Bad Leavers

Includes employees leaving the organization voluntarily or due to termination or other reasons to be determined by the Board
Forfeit all outstanding (unvested) awards under the program

Implementation Steps

Company to set up and ‘fund’ with employee share allocation
Company to determine fund operating guidelines
Cost benefit model - inputs, assumptions and outputs
Finalize proposed fund costing and Board approval
Finalize fund documentation
Company awards eligible employees

Executive Pay Design
In designing an executive pay, emphasize is on variable pay and long-term value creation strategy

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