Long Term Incentives

Companies may implement long-term incentive plans for a variety of reasons: To share a portion of the value created by Management, to attract or retain executives, to drive long-term decision making, to align the interests of Executives with those of Shareholders, and even to shift cash flow over time or change fixed costs to variable costs.

Strategically designed, a Long-Term Incentive Program helps a company meet its business plan, increase shareholder value, and provide wealth to its executives in a cost-effective and sustainable manner.

Long-Term Incentives can be implemented in companies with or without publicly traded shares. Although there may be variations, Long-Term Incentives can be broadly classified into five main types: stock/unit options, restricted stock/units, phantom shares, and performance shares/units. Given the flexibility in design parameters, there are a large number of possibilities, allowing companies to customize a solution based on the unique characteristics of their business, their executive team, and the labor/competitive market context.

Restricted stock or units are an alternative that is often used when retention is the primary objective of the plan. Performance shares and performance units are more complex, but provide additional benefits, including high growth potential for executives, a strong link between compensation and performance, and solid and sustainable corporate governance. They are often used by companies that want to achieve the objectives of a Business Plan or long-term strategic objectives. This alternative is particularly popular among private companies that do not plan to launch an initial public offering in the short term.

CompStrategy services in terms of Long-Term Incentives typically include processes such as:

• Design of the Long-Term Incentive Plan that best suits the objectives sought by the Company
• Evaluation of the situation and needs of the company/organization, Analysis of accounting and financial information/business plan/risks
• Identification of the elements that serve to measure the value created for Shareholders
• Review of executive market compensation
• Review/recommend/define the desired competitive level
• Quantification of the cost impact of the designed plan
• Recommend update guidelines

CompStrategy can help with:

• Design of Long-Term Incentive Plans: Stock Options, Restricted Stock, Phantom Shares, Performance Units/Shares
• Evaluation of market competitiveness in Long-Term Incentives
• Analysis of Proxies from the Management or Board perspective
• Calibration of cost vs. value created for Shareholders
• Valuation of Options based on the Black & Scholes methodology
• Advice and Administration of Long-Term Incentive Grant Cycles