Rewarding staff who help a company perform in the long term has its benefits

In the current climate anything retailers can do to reward loyal staff is a bonus. And for many retailers it has meant a shift towards longer-term incentive structures, that reward staff for their service.

Long-term Incentive Plans (LTIPs) are cash, share or share option based incentives, which aim to align employees more closely with the financial interests of shareholders. “The simple logic is that shareholders invest for the longer term and confining employees to an annual incentive opportunity might encourage behaviour that is too short term in focus,” explains Total Reward Solutions director Mark Childs.

LTIPs are typically rolling three-year programmes according to Childs. “An award can be, but is not necessarily, made every year and the value from the plan is contingent on the results over a three-year performance period,” he says.

What is used within the LTIP depends on the company. “Whether they use cash, shares or share options often depends on the ownership structure of the business. For example, a listed company can use shares or share options whereas a privately owned company will usually use cash units as the plan currency, simply because their shares are illiquid,” says Childs.

Smaller businesses

Among larger listed retailers, LTIPs are a commonplace motivating tool for management level staff but they are less common in smaller retail firms or privately owned business. “This is a shame because an LTIP can help to differentiate the reward offering for a smaller business and is, after all, self-funded. In other words, nothing is paid out unless the required results are achieved and if they are the shareholders will typically be pleased to see those who have created wealth for them are able to participate in the wealth created,” says Childs.

Bookseller Blackwell and fashion retailer H&M have both set up an LTIP in recent months. Blackwell has formed a new ownership structure modelled on the John Lewis Partnership in which all staff will be eligible for shares in the company, given away by life president Toby Blackwell. Likewise at H&M, the Stefan Persson Family has donated Skr1bn (£93.9m), or more than four million shares, to a newly established foundation, the Stiftelsen H&M Incentive Program, which will be allocated to employees over time.

As well as encouraging and acknowledging employees’ long-term involvement the retailer says the new LTIP will also help improve the retailer’s attractiveness as an employer and aid recruitment. The scheme will launch next year providing it is approved at the company’s EGM.

“Our hope is that H&M will continue to develop well and that the employees will benefit from H&M’s value growth in the same manner as a shareholder,” says H&M chairman Stefan Persson.

BENEFITS OF LTIPs

  • Can be financially advantageous to all concerned
  • Focuses staff and management attention on what matters in the long term
  • Reduces staff churn rates