Author: Trent Burley – Private Wealth Advisor at McGill Junge Wealth Management
In our recent article, we introduced the 5-4-3-2-1 methodology for accelerating business value. That framework emphasizes alignment between business, personal, and financial goals. A natural next step in the process is identifying how to empower your leadership team to think like owners, while protecting your equity and long-term control. One of the most effective strategies is implementing a long-term incentive plan (LTIP).
Why Long-Term Incentive Plans Matter
For many privately held businesses, the challenge isn’t just growth—it’s ensuring that growth is sustainable, transferable, and not dependent solely on the owner. Long-term incentive plans align your key leaders with your vision by rewarding them for increasing enterprise value over time. The result? Leaders who act like business owners are rewarded like business owners —without shareholders giving up control of their equity.
The Benefits of LTIPs for Business Owners
1. Drive Enterprise Value
LTIPs tie rewards to measurable outcomes like profit or EBITDA growth, revenue milestones, or increases in company valuation. This creates a direct link between key leader’s performance and impact on business value, motivating leaders to focus on aligned long-term growth, not just short-term wins.
2. Think and Act Like Owners
By participating in a performance-based reward system, your leadership team is incentivized to think about strategic decisions through the same lens you do—as if they were equity shareholders.
3. Attract and Retain Top Talent
LTIPs provide a compelling recruiting and retention tool by rewarding loyalty and long-term impact, ensuring your best people stay engaged and invested in your company’s future.
4. Maintain Control of Equity
Unlike stock grants or broad equity sharing, LTIPs allow businesses to structure deferred compensation awards with vesting schedules as a retention tool, that provide the rewards and incentives aligned with owners without transferring equity ownership.
LTIPs vs. ESOPs: Choosing the Right Tool
Employee Stock Ownership Plans (ESOPs) and LTIPs aim to align employees with the success of the business, but they function differently:
• When LTIPs Make Sense: You want to incentivize key leaders and contributors, protect equity, and retain ownership and flexibility.
• When ESOPs Make Sense: You’re looking for an ownership succession exit strategy, a broader ownership culture, and potential tax benefits.
• LTIPs & ESOPs Combined: these tools can even be layered together, with LTIPs focusing on leadership retention and ESOPs providing broader partial or full ownership succession.
| Factor | LTIPs | ESOPs |
| Primary Benefit | Motivates and retains key leadership talent to grow enterprise value. | Creates broad employee ownership culture and liquidity for owners. |
| Equity Control | No equity transfer required; owners maintain full voting rights. | Requires a sale of stock to the ESOP trust—owners give up some or all equity. |
| Scope of Participation | Typically limited to key executives and leaders. | Broad-based; covers most or all employees. |
| Complexity | Flexible, customizable, relatively simple to administer. | Highly regulated, with ongoing compliance and valuation requirements. |
| Liquidity Impact | Payouts often deferred until a liquidity event or retirement. | Requires funding for stock repurchases and annual valuations. |
How LTIPs Fit into the Value Acceleration Process
When integrated into a broader exit planning strategy, LTIPs become a bridge between your current leadership structure and your eventual succession or sale. They:
• Support continuity by giving your team clear financial incentives to grow value.
• De-risk a future exit by proving the business can thrive without the owner’s daily involvement.
• Increase valuation in the eyes of buyers who see a committed, incentivized leadership team already in place.
If the 5-4-3-2-1 framework helps you identify what needs to change in your business, long-term incentive plans are one mechanism to help make it happen:
• A leadership team empowered to drive growth as if it were their own company.
• A clear path to protect ownership, maximize valuation, and create a business that’s transferable on your terms.
Whether you’re considering an LTIP, an ESOP, or a hybrid approach, our advisory team can help you design the right plan to motivate leaders, grow value, and safeguard ownership.
To explore more about integrating business, personal, succession and exit planning, email trent.burley@nm.com or visit www.mcgilljunge.com. This article is provided for educational purposes only and is not intended as legal or tax advice.
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