30 SECOND GUIDE: LTIPs

By CITY & FINANCE REPORTER

Updated: 06:05 EST, 22 March 2013

The Daily Mail City team explains Long Term Incentive Plans (LTIPs)

Upmarket teabags?

No. As warming and comforting as a cup of tea may be, these are far more satisfying. LTIPs stands for Long Term Incentive Plans. They are performance related awards which are deferred and paid in shares. They are usually paid out after three years.

Remuneration: Bonuses have been a contentious issue in the last few years, with the EU wanting to cap all bank bonuses at a maximum of one year's salary

How do they work?

It differs between companies which use different criteria for these awards to measure performance. Chief executives of banks for example can receive up to five or six times their £1million plus salary in LTIPs. Criteria used to determine how much they get includes financial performance and non financial performance – which can range from the reputation of a firm to its compliance with regulations.

How much are they worth?

They can be huge. Just hours after the Chancellor delivered his Budget Barclays revealed nine of its top executives shared £40million in shares from LTIPs and deferred elements of annual bonuses dating back to 2010. Firms, particularly banks, are under pressure to reduce these bonuses and introduce more stringent criteria to measure performance.

Can it be stopped?

Banks have used powers to claw back millions of pounds of these bonuses from executives after a string of scandals. But the EU wants to go much further and cap all bank bonuses at a maximum of one year’s salary, unless shareholders vote for a bigger award.