Phillips & Associates

Long-term and Short-term Incentive Plans

Executive Compensation Attorneys Representing Employees in the Greater New York City Area

Employers often use incentives to encourage and reward (or punish) employee performance. Executives in New York may receive variable compensation by participating in long-term and short-term incentive plans. Generally, short-term incentives are formula-driven awards that are provided over a period of a year. Long-term incentives are usually provided to induce an executive to achieve results over a period of longer than one year. Often, they are paid in stock. Sometimes executives receive a balance of short- and long-term variable compensation. At Phillips & Associates, our New York City executive compensation lawyers can help you determine a plan that works for you.

Long-term Incentive Plans

Incentive compensation programs are based on the idea that rewards drive employee behavior. They are put in place to produce targeted results by rewarding employees who are believed to be responsible for the results. Generally, the incentive is tied to specific performance metrics or goals.

Long-term incentive plans usually give rewards that are not tied to company share price. However, an executive is usually required to fulfill certain requirements as proof of contributing to an increase in shareholder value. One type of long-term incentive plan is a 401(k) retirement plan. Businesses match a percentage of an employee's paycheck that goes into a plan, and there is a vesting schedule that determines the value of the contributions that an executive can take with them when leaving the company. The employer may, for example, keep part of its contributions over the first five years of employment, but once an executive (or other employee) is fully vested, they own their retirement plan contributions going forward. Another long-term incentive is stock options. Executives are allowed to buy company stock at a discount with the employer paying off the balance. Another long-term incentive with which our attorneys are familiar is restricted stock.

Long-term incentives are often a large portion of executive pay. For median S&P 500 companies, they make up more than 60% of executive pay. The objective for an employer paying a long-term incentive is to provide a reward for executives that helps achieve the corporation's objectives with regard to maximizing value for shareholders. Often, long-term incentive compensation is a mix of equity and non-equity compensation, provided in the forms of stock options, performance shares, restricted stock, cash, and stock-settled performance units. Performance periods for long-term incentives are usually 3-5 years. An executive will not be paid from the incentive until the performance period ends.

Long-term incentive objectives can vary significantly but are usually structured to target a specific level of performance. They may involve a return to shareholders, but they can also include earnings per share or return on assets. An executive can usually get a greater long-term incentive by achieving a superior performance.

Short-term Incentive Plans

Short-term incentives also take different forms, but critically, they are usually related to rewards for a year or less of work. One type of short-term incentive is an annual incentive plan for achieving certain results that are identified at the start of a performance cycle. These short-term incentive plans are different from bonuses because they are usually not discretionary.

Discretionary bonus plans are plans in which management decides the size of a bonus pool and how much to allocate to an executive (or other employee) after a particular performance period. These plans do not pay out based on a pre-determined formula. There is no guarantee of payment.

Profit sharing plans are another type of short-term incentive. This is a plan whereby you share in your company's profits over a set period. A formula is followed in order to allocate the profits.

Other forms of short-term incentives include a spot award, which usually recognizes an achievement with regard to a specific task or project, and gain sharing plans, which share the results of gains in productivity.

Get Advice from an Employment Lawyer in New York City

If you are an executive in New York who is concerned about how long-term and short-term incentive plans can affect you, you should consult an experienced employment attorney. Contact Phillips & Associates at (212) 248-7431 or through our online form for a free appointment. We handle employment and whistleblower litigation in the Bronx, Queens, Brooklyn, Staten Island, and Manhattan; Westchester, Nassau, and Suffolk Counties; as well as Princeton, New Jersey, and Philadelphia, Pennsylvania.

PHILLIPS & ASSOCIATES
45 Broadway #430
New York, NY 10006
Tel: 212-248-7431
Fax: 212-901-2107

Client Reviews
★★★★★
Phillips & Associates did a wonderful job. I would recommend Brittany Stevens. Angel
★★★★★
Employment dispute I had a dispute with my former employer, Jesse Weinstein was patient and thorough with my case. He covered every angle and was able to help me with my dispute. I would recommend Jesse Weinstein and Phillips and Associates in the future to anyone. Margaret
★★★★★
I called at Phillips & Associates seeking for a consultation and I was very pleased with the conversation I had with Eugenio Benvenuto. He was able to answer my questions thoroughly and gave me reassurance. I highly recommend their practice. Giulia
★★★★★
Hands down the best law firm for labor disputes in NYC. Being in the restaurant industry for more than 30 years I can say that this law firm is the number one choice for workers in the restaurant business that need to sue their company for wrongful termination. A special compliment to my lawyer Brittany Stevens. An amazing person and well prepared experienced lawyer. She was professional and empathetic to my case and worked in a time appropriate manner. She never miss a phone call at any hour of the day.The other associates that assisted Brittany were Yusha Hiraman, Eugenio Benvenuto and Katerina Housos. They were all professional and answered any questions or concerns that I had. Brittany and her team helped me with what I needed, when I needed it. I want to thank them all (especially Brittany), for a job well done. Massimo
★★★★★
Jesse Weinstein handled my discrimination case. He was extremely patient and understanding throughout the process and remained professional and consistent even when I could not. I really felt like he had my back and I didn't have to worry. His expertise, combined with the experience of the Firm, resulted in the best possible outcome of my case. Although I wouldn't wish what I went through on anyone, things do and always will happen and I would highly recommend Jesse and this Firm to anyone facing discrimination or other workplace issues. Karen