Pre-IPO Long-Term Incentive Design for a Diversified Company 

Background
  • The firm was a large scale diversified enterprise preparing for IPO.

Objectives
  • Introduce effective LTI plans to promote partnership and ensure the alignment of interest between key talent and shareholders to drive IPO.
  • Strengthen pay-for-performance, motivating employees to maximize profits for the firm while preventing excessive risk taking.

Key Features and Procedures
  • Conducted LTI workshops to examine the features, pros and cons of different LTI vehicles.
  • Proposed LTI plans which consisted of deferred bonus, performance shares and share options. The plans only cover senior executives which are similar to market practices.
    • Deferred Bonus
      • A certain percentage of annual bonus would be deferred. When the deferred bonus become vested, employees could choose to purchase phantom shares and enjoy special discount
    • Phantom Performance Shares
      • The relationship among share quantum, KPIs and targets were pre-determined; actual share grants were based on achievement of firm-wide KPIs.
      • Share grant was subject to 3-year vesting, dividend equivalent will be paid to cash when shares become vested. Employees had to fulfill certain individual performance requirements in order for the shares to be vested; otherwise they will be forfeited and recouped by firm. Employees should hold the shares during employment.
    • Phantom Share Options
      • Share options were granted annually and vested in three years. Employees could exercise options after a certain period and should hold the shares during employment.
  • Conducted scenarios analysis and cost analysis, provided documentation templates and supported staff communication.

Results
The proposal was approved by the Board and became an important part of the firm’s long-term strategies.

​Illustration: Granting and Vesting Schedule of LTI Vehicles 
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