Long-term Incentive Plan Calculator

Long-Term Incentive Plan (LTIP) Payout Calculator

function calculateLTIPPayout() { var targetGrantValue = parseFloat(document.getElementById('targetGrantValue').value); var performanceMultiplier = parseFloat(document.getElementById('performanceMultiplier').value); var sharePriceGrant = parseFloat(document.getElementById('sharePriceGrant').value); var sharePriceVesting = parseFloat(document.getElementById('sharePriceVesting').value); var employeeTaxRate = parseFloat(document.getElementById('employeeTaxRate').value); if (isNaN(targetGrantValue) || isNaN(performanceMultiplier) || isNaN(sharePriceGrant) || isNaN(sharePriceVesting) || isNaN(employeeTaxRate) || targetGrantValue <= 0 || performanceMultiplier < 0 || sharePriceGrant <= 0 || sharePriceVesting <= 0 || employeeTaxRate < 0) { document.getElementById('result').style.display = 'block'; document.getElementById('performanceAdjustedGrantValue').innerText = 'Please enter valid positive numbers for all fields.'; document.getElementById('equivalentShares').innerText = ''; document.getElementById('grossPayoutValue').innerText = ''; document.getElementById('taxAmount').innerText = ''; document.getElementById('netPayoutValue').innerText = ''; return; } var performanceAdjustedGrantValue = targetGrantValue * (performanceMultiplier / 100); var equivalentShares = performanceAdjustedGrantValue / sharePriceGrant; var grossPayoutValue = equivalentShares * sharePriceVesting; var taxAmount = grossPayoutValue * (employeeTaxRate / 100); var netPayoutValue = grossPayoutValue – taxAmount; document.getElementById('performanceAdjustedGrantValue').innerText = '$' + performanceAdjustedGrantValue.toLocaleString('en-US', { minimumFractionDigits: 2, maximumFractionDigits: 2 }); document.getElementById('equivalentShares').innerText = equivalentShares.toLocaleString('en-US', { minimumFractionDigits: 2, maximumFractionDigits: 2 }) + ' shares'; document.getElementById('grossPayoutValue').innerText = '$' + grossPayoutValue.toLocaleString('en-US', { minimumFractionDigits: 2, maximumFractionDigits: 2 }); document.getElementById('taxAmount').innerText = '$' + taxAmount.toLocaleString('en-US', { minimumFractionDigits: 2, maximumFractionDigits: 2 }); document.getElementById('netPayoutValue').innerText = '$' + netPayoutValue.toLocaleString('en-US', { minimumFractionDigits: 2, maximumFractionDigits: 2 }); document.getElementById('result').style.display = 'block'; }

Understanding Your Long-Term Incentive Plan (LTIP) Payout

Long-Term Incentive Plans (LTIPs) are a crucial component of executive and key employee compensation, designed to align employee interests with the long-term success and shareholder value of a company. Unlike short-term bonuses, LTIPs typically vest over several years and are often tied to specific performance metrics and the company's stock price performance.

What is an LTIP?

An LTIP is a form of equity compensation that rewards employees for achieving strategic, multi-year goals. These plans are intended to encourage sustained performance and retention. Common forms of LTIPs include:

• Restricted Stock Units (RSUs): Promises to deliver company shares or their cash equivalent after a vesting period, often contingent on continued employment and sometimes performance.
• Performance Share Units (PSUs): Similar to RSUs, but the number of shares ultimately received is directly tied to the achievement of specific performance targets (e.g., revenue growth, earnings per share, total shareholder return) over a multi-year period.
• Stock Options: Give the holder the right, but not the obligation, to purchase company stock at a predetermined price (the grant or exercise price) within a certain timeframe.

Our calculator focuses on a common structure where a target dollar value is granted, converted to equivalent shares at grant, and then the final payout is determined by performance achievement and the share price at vesting.

Key Components of an LTIP Payout Calculation

To understand your potential LTIP payout, several factors come into play:

1. Target Grant Value: This is the initial dollar value of your LTIP award, assuming target performance is met. It's the baseline for your potential incentive.
2. Performance Multiplier: This percentage reflects how well the company (or your specific business unit) performed against the pre-defined LTIP metrics. A multiplier of 100% means target performance was achieved. It can be lower (e.g., 50% for threshold performance) or higher (e.g., 150% or 200% for maximum performance).
3. Share Price at Grant: If your LTIP is equity-based, this is the company's stock price on the day your award was granted. This price is used to determine the initial number of "equivalent shares" your target grant value represents.
4. Share Price at Vesting: This is the company's stock price on the day your LTIP award vests and becomes payable. The higher the share price at vesting compared to the grant price, the greater the value of your shares.
5. Employee Tax Rate: LTIP payouts are generally considered taxable income. This is your estimated marginal tax rate that will be applied to the gross payout.

How the Calculator Works (Example)

Let's walk through an example using the calculator's default values:

• Target Grant Value: $100,000
• Performance Multiplier: 120%
• Share Price at Grant: $50
• Share Price at Vesting: $75
• Employee Tax Rate: 30%

Step 1: Calculate Performance-Adjusted Grant Value
This is your target grant value adjusted by the actual performance achieved. $100,000 (Target Grant Value) * (120% / 100) = $120,000

Step 2: Determine Equivalent Shares Granted
This converts your performance-adjusted value into the number of shares you effectively earned based on the share price at the time of grant. $120,000 (Performance-Adjusted Value) / $50 (Share Price at Grant) = 2,400 shares

Step 3: Calculate Gross Payout Value
This is the total value of your shares at the time they vest, before any taxes. 2,400 shares * $75 (Share Price at Vesting) = $180,000

Step 4: Estimate Tax Amount
This is the estimated tax liability on your gross payout. $180,000 (Gross Payout Value) * (30% / 100) = $54,000

Step 5: Calculate Net Payout Value
This is your final take-home amount after taxes. $180,000 (Gross Payout Value) - $54,000 (Tax Amount) = $126,000

This calculator provides a clear estimate of your potential LTIP payout, helping you understand the impact of company performance and stock price fluctuations on your long-term compensation.