LTIP—tax treatment

What is an LTIP?

A long-term incentive plan (LTIP) is a term that is commonly used among listed companies to describe an executive share plan under which share based awards are made to senior employees with a vesting period of at least three years. In accordance with corporate governance guidelines, most LTIPs now require a total vesting and holding period of at least five years. For companies listed on the London Stock Exchange, there is also a specific definition of long-term incentive scheme in the Financial Conduct Authority (FCA) handbook.

Various different types of awards can be made under an LTIP and it is common for an LTIP to be operated in conjunction with an employee benefit trust, which is used as a vehicle to deliver shares to employees when their awards vest.

The most common type of awards that can be made under an LTIP include:

1. •

   conditional share awards (which are sometimes known as restricted stock units (RSUs))

2. •

   nil-cost options

3. •

   forfeitable shares, which are sometimes described as restricted stock, and

4. •

   share appreciation rights (SARs)

Many LTIPs also allow for the grant of tax-advantaged