What happens when your execs don't understand your LTIP – and how to fix it

Long-Term Incentive Plans (LTIPs) are crucial for aligning strategic objectives with how senior leaders are rewarded.

These plans tie executives' success to the company's long-term goals, creating a direct link between performance and reward. LTIPs typically include performance conditions that determine how manyshares will 'vest' at the end of the plan, aligning these conditions with strategic objectives like profitability, shareholder return, and even ESG metrics like decarbonisation.

But when these plans are poorly explained, the connection between executive rewards and business achievements weakens.

Companies often overestimate their executives' understanding of LTIPs, but better communication can bridge this gap and make executives feel more valued and included.

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Misaligned incentives lead to confusion

LTIPs are designed to motivate senior leaders to achieve specific goals. When executives don't fully understand the details and benefits of these plans, they can't effectively align their efforts with the company's strategic objectives.

This misalignment leads to confusion, reducing the plan's effectiveness in driving desired behaviours such as focusing on long-term profitability and sustainability.

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The trickle-down effect

This lack of alignment doesn’t just affect the top of the organisation. When your leaders aren’t fully on board, it’s challenging to instil a culture of long-term thinking and strategic alignment throughout the company.

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The financial literacy gap

Even highly skilled executives may not have deep financial expertise. This gap can make it difficult for them to understand the full value of their LTIP, or the mechanics behind it. The knock-on effect is that these expensive plans don’t have the desired impact on behaviours, and importantly retention.

We’ve heard stories of execs leaving for what appeared a more lucrative job offer, forfeiting a huge number of shares in the process, simply because they didn’t understand what they were giving up.

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The role of effective communication

So, how can communication fix this? The solution lies in clear, consistent, and comprehensive communication strategies tailored to bridge the knowledge gap. 

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Here’s how: 

1.    Clear communication materials: Create easy-to-understand guides, FAQs, and explainer videos for your execs. These materials should demystify complex terms and processes, making them accessible to everyone. 

2.    Training and education: Invest in tailored training sessions that simplify LTIPs. Use straightforward language and real-life examples to ensure that executives fully understand how these plans work and their strategic importance.

3.    Regular updates: Maintain an ongoing dialogue about LTIPs.Provide regular updates on performance conditions and maintain transparency through the life of the plan.

4.    Personalise the message: Tailor communication to the individual.Personalised messages explaining the value of each recipient’s award, including personalised videos, make sure that each executive understands how LTIPs benefit them individually and align with their personal goals. 

5.    Clarity of explanation: Make sure all communications about LTIPs are clear and straightforward. Avoid jargon and complex terminology. When executives can easily understand the plans, everyone benefits.

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Success through understanding

When executives truly understand LTIPs, you’ll be driving the right behaviours across the organisation. Clear, continuous, and comprehensive communication is key. By investing in these efforts, you'll see higher engagement, better understanding, and ultimately, a more motivated and aligned leadership team.

Need help with your communication strategy?

At RewardPro, we specialise in breaking down complex concepts and crafting clear, impactful communication strategies.Whether you need training for your executives or engaging materials for your team, we’re here to help. Let’s chat about how we can drive the right behaviours through better communication.