03 Nov A Guide to Long Term Incentive Administration
Long term incentive administration utilizes performance-driven programs over the course of multiple years to compensate employees. Here, we discuss some basic options for long term incentive plans to help you determine which may best fit your company.
According to the Society for Human Resource Management (SHRM), there are two main types of long term incentives:
- Multi-year plans, which give rewards every two to five years
- Career-based plans, which are paid upon retirement or termination
Offering these types of rewards helps employers incentivize the organization’s long term strategic objectives. It also allows employees focus on specific performance objectives, and can even drive retention. Moreover, long term incentives may help employees establish a direct connection with company success, which can act as an ongoing motivator.
There are a few different types of long term incentives employers commonly offer, including:
- Stock Options: Public companies can incorporate stock options into their compensation plan to promote better company performance while also supporting retention. The better the company performs, the better their stocks will do, which acts as a company-wide motivator for employees who have invested in the organization. To reward loyalty, you can also offer an increasing discount on stock prices for every five years of employment.
- 401(k): Small Business Chron recommends using 401(k) options as a retention-boosting tactic by using a vested plan. This means you can increase the percentage of contributions you match with each year of service to encourage ongoing commitment from the employee.
- Vacation Time: Increasing vacation time with tenure is a common practice in many organizations. By factoring more vacation days into employees’ total rewards with each year of service, you may encourage some to stay on longer.
- Cash: Of course, cash awards are always one option to consider as well. You can measure performance against factors like projected growth and sales expectations and give awards accordingly. Just be sure the guidelines are clear so employees know exactly which outcomes qualify for cash awards.
Many employers find using both long and short-term incentives helps them strike a healthy balance to support the company’s immediate and far-reaching goals.
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