Long-Term Incentive Plans: Towards to Be Reformed Rather than Being Removed

Abstract

In 1995, the Greenbury Report introduced the performance-related long-term incentive plans (“LTPs”) to the UK corporations and advised that the proposed new LTIPs should replace the previous schemes. LTIPs as a tool to motivate employees, not only to reduce agency costs, but also to help companies retain talent and maximise performance.  However, the results of adopting LTIPs did not reach the expectations, since the original purpose has been damaged. Based on the poor state of affairs, some have proposed the use of deferred shares or cash as an alternative to LTIPs. Unfortunately, these alternatives cannot fundamentally solve the problems on LTIPs. Because of these issues, introducing a new payment scheme is impartial. Therefore, it is more efficient and effective to reform the LTIPs. Currently, the core of the major challenges with LTIPs is the complexity and lesser transparency, and the correct explanation of LTIPs and the usage of remuneration committee can contribute to a more acceptable payment structure.