Pre-IPO Long-Term Incentive Design

A large-scale, diversified enterprise was preparing for its IPO and needed to implement a strategic long-term incentive (LTI) plan to align key talent with shareholder interests.

Objectives

• Implement effective LTI plans to promote partnership and drive the IPO process.

• Strengthen pay-for-performance, motivating employees to maximize profits while preventing excessive risk-taking.

Key Features and Approach

1. LTI Workshops: Held workshops to evaluate various LTI vehicles, discussing the advantages and disadvantages of each.

2. Proposed LTI Structure: Recommended a plan covering senior executives, aligned with market practices, consisting of:

   • Deferred Bonus: A portion of the annual bonus was deferred. Upon vesting, employees could purchase phantom shares at a discounted rate.

   • Phantom Performance Shares: Share grants were linked to pre-defined KPIs and targets. Vesting occurred over three years, with dividend equivalents paid in cash. Individual performance conditions had to be met for full vesting; otherwise, shares were forfeited.

   • Phantom Share Options: Share options were granted annually with a three-year vesting period. Employees could exercise the options after vesting but were required to hold shares during employment.

3. Analysis and Support: Conducted scenario and cost analysis, provided documentation templates, and facilitated staff communication to ensure smooth implementation.

Results

The proposal was approved by the Board and became a cornerstone of the firm’s long-term strategy, aligning leadership with shareholder objectives and driving the IPO process forward.