6 steps to making LTIPs work globally
How do you decide whether and how to use long term incentives for your global workforce? In the past many companies took a one-size-fits-all approach and rolled out the Head Office plan to their global operations. These days companies take much more consideration around dilution, local regulatory requirements, tax implications and the suitability of different types of arrangements for different populations.
Here’s 6 key considerations for your global LTI programme:
1. What’s the purpose of the programme?
- Ensure that the LTI programme supports your business and HR/reward strategy and pay philosophy.
- Know your overall objective for the plan. For example: company ownership, creation of shareholder value, talent retention or market competitiveness. Are there different objectives for certain populations or certain locations?
- Once you’ve identified your purpose and populations, consider the underlying vehicle that might be used; cash based plans may be motivating if you are addressing retention, stock based plans for ownership etc.
2. A global or local basis?
- Is eligibility and size of award being driven by internal equity or market competiveness?
- Do you have a global grading structure - if so where are you drawing the eligibility line? How does this fit with local market norms? For example, LTIPs traditionally go further down the organisation in the US than in Europe.
- Is there potential conflict between head office roles and front line local ones? For example, a regional HR Business Partner being eligible but a local market CFO not - how do you square this with local market norms and retaining talent? Consider the drivers for the LTIP on both a global and local basis.
- Typical award sizes differ around the world both in quantum and as a % of pay mix. How will your award sizes be determined? By global grade or local market? Will you be too generous in some locations and behind the market in others?
3. Be aware of the local market
- Who are your competitors and what are they offering?
- Consider your local market competitors for talent; LTIPs may not be prevalent in a locality but if your competitors are US or European multi-nationals LTIPs may well be in the pay mix.
4. Understand the Red Tape
- Each locality will have its own regulatory environment which may require engagement for approval but may also have implications for plan design.
- For example: Foreign Exchange restrictions, approval complications for cross-border stock options and lack of clarity on tax implications of owning stock in China which suggest phantom arrangements.
- Some countries tax the individual on grant (e.g. Belgium so delivering stock options that may be underwater at a future date might not be well received). Some tax on vest or exercise depending upon the vehicle used.
5. Understand the implications for employees
- It’s as important to communicate the implications as it is the plan design. Openly address any global versus local challenges such as deviating from the market or offering a global plan that has adverse implications for a particular group, and think creatively about potential solutions.
- For example: demonstrating that the quantum of total reward is competitive without the LTIs, a separate phantom arrangement or the ability to ‘opt out’ of the plan to reduce the tax burden.
6. Look after your globally mobile talent pool
- The long-term nature of the LTIP will mean that it is unlikely that your globally mobile employees will be in the same location throughout the plan’s duration.
- The implications and solutions will differ depending upon whether you have a Home or Host reward policy for international assignees, but take care to ensure that multi-jurisdictional trailing tax liabilities are dealt with properly for the individual and the company.
If you are thinking about redesigning your LTIP or rolling it out globally and would like to discuss plan design, please contact us on 020 3457 0894.