Remember your first long-term incentive plan? It could be straightforward stock options with a simple vesting schedule or restricted stock that felt like a golden handcuff. 

Fast forward to today, and LTI plans have transformed dramatically. Modern compensation professionals juggle everything from performance shares tied to ESG metrics to special retention awards with complex double-trigger vesting conditions. 

While executive pay has grown over 400% since 1990, the structure and purpose of these plans have evolved even more significantly. 

What drove these changes? 

How have economic shifts, regulatory requirements, and talent needs reshaped the compensation landscape? 

Let's explore what LTI plans looked like in 1995 versus today's sophisticated programs and what might be coming next.

LTI Trends in 1995: What Used to Matter Three Decades Ago? 

In 1995, long-term incentive plans looked remarkably different from today's complex programs. Simpler structures dominated the compensation landscape, focused primarily on stock options with basic performance requirements. This approach reflected the business priorities and regulatory environment of the era.

Stock options reigned supreme in the mid-1990s executive compensation world. According to data from the time, options accounted for nearly 40% of total executive compensation packages by the late 1990s. Companies like Quaker Oats operated under "The Quaker Long Term Incentive Plan of 1990," which primarily granted stock options with straightforward vesting schedules and 10-year expiration terms.

Performance metrics in this era were also much more straightforward. Most companies rely heavily on basic financial measures like earnings per share (EPS). In fact, EPS was far and away the most common performance metric in the 1990s, used by as much as 90% of publicly traded companies. Companies valued simplicity - executives and boards could easily understand that a company's earnings multiplied by its price-to-earnings ratio equaled its stock price.

Another hallmark of 1995-era LTI plans was their limited reach within organizations. Most plans restricted participation to senior executives and key employees. The Quaker Oats plan explicitly stated that "The Participants and the Benefits they receive under the Plan shall be determined solely by the Committee" with benefits granted "only to Employees" defined as "any person employed by the Employer as an officer or key employee".

Change-in-control provisions were also less sophisticated. Many plans, like Quaker's, simply canceled outstanding awards upon a change in control and provided immediate lump-sum cash payments to participants. These provisions lacked the nuanced double-trigger mechanisms common in today's plans.

Accounting treatment heavily influenced LTI design choices. Since stock options didn't require an accounting charge before 2006, they were effectively "free" from a financial reporting perspective. Murphy noted in his "perceived cost" hypothesis that this accounting treatment meant boards viewed options as less expensive than other forms of compensation, leading to their prevalence.

Governance standards were also less rigorous. While compensation committees existed, they typically had fewer independent directors and less oversight.

These relatively straightforward LTI designs reflected the business world of three decades ago—one with less global competition, fewer regulatory requirements, and different shareholder expectations. The evolution from these basic structures to today's sophisticated plans tells how dramatically the corporate landscape has shifted since the mid-1990s.

LTI Trends in 2025: What Matters to Employees Now? 

Today's LTI landscape bears little resemblance to the programs of 1995. Compensation plans have evolved dramatically to address changing employee expectations, market dynamics, and regulatory requirements.

Performance metrics now extend far beyond simple EPS measurements. Companies increasingly incorporate relative total shareholder return (TSR) as a primary metric or a modifier. According to recent data, TSR is used by 76% of public companies for performance shares/units. This shift reflects companies' desires to measure performance against relevant peers rather than arbitrary internal targets.

Environmental, Social, and Governance (ESG) metrics have moved from experimental to mainstream. Over 75% of larger U.S. companies have adopted some form of ESG measurement in their incentive plans, with even higher percentages in Europe. Nordea Bank's 2025-2027 LTIP includes ESG scorecard metrics covering "lending, investments and internal operations emission reduction, gender balance, fair treatment and credit profile" alongside traditional financial measures.

The mix of award types has diversified significantly. While stock options dominated in 1995, today's plans typically use a balanced approach of performance shares (76% of public companies), restricted stock units (85%), and selectively deployed stock options (33%). Private companies show different patterns, with performance cash being the preferred vehicle (46%) due to liquidity concerns.

Performance periods now better balance short-term goals with long-term vision. The industry has settled on three years as the "sweet spot" for most performance cycles—providing enough time for strategies to generate results while maintaining meaningful participant incentives.

Human capital metrics have gained prominence alongside financial measures. Companies increasingly recognize the connection between workforce well-being and business performance. Metrics tracking engagement, diversity, development opportunities, and other people-focused outcomes have become standard components of modern LTI programs.

Award agreements have grown more sophisticated, with provisions addressing clawbacks, equity ownership requirements, and post-termination treatment. Double-trigger change-in-control provisions—requiring both a change in control and qualifying termination to accelerate vesting—have replaced the single-trigger approaches common in 1995.

Technology has transformed LTI communication and administration. Participants now access real-time award information through mobile apps and dashboards—starkly contrasting the paper certificates deposited with company secretaries in 1995.

The regulatory landscape has shifted dramatically. With the 2006 accounting change requiring the expensing of stock options, the playing field between different award types leveled, leading to more thoughtful plan design decisions based on business objectives rather than accounting treatment.

These changes reflect a fundamental shift in how companies view LTI plans—not just as compensation tools but as strategic instruments to drive business results, retain critical talent, and align employee actions with company priorities in an increasingly complex global marketplace.

The Evolution of LTI Trends in the Last 30 Years 

LTIs 1995 vs. 2025 - At a glance…

The fundamental shifts 

The past three decades have brought remarkable changes to long-term incentive plans. Several key shifts stand out:

From simplicity to complexity. 1995's straightforward stock options have evolved into sophisticated award mixes with multiple metrics and nuanced vesting conditions.

From financial-only to balanced scorecard. Companies have moved beyond EPS to incorporate financial, strategic, and ESG metrics. 

From HR-driven to stakeholder-driven. Plan design now emerges from a collaboration between compensation committees, HR, legal, finance, and consultants.

From executive-only to organization-wide. About 53% of public companies now grant equity below the VP level, recognizing that value creation happens throughout the organization.

From measuring inputs to measuring outcomes. Plans now focus on measurable impact rather than just rewarding tenure and position.

From accounting-driven to strategy-driven. The 2006 accounting rule change spurred companies to select award types based on strategic objectives rather than favorable accounting treatment.

From standardization to customization. Companies now tailor LTI programs to their specific business model, talent needs, and strategic priorities instead of following one-size-fits-all approaches.

These shifts reflect broader changes in business priorities, stakeholder expectations, and governance standards that continue to shape compensation practices today.

The impact of technology 

Technology has transformed how companies manage their long-term incentive programs. In 1995, LTI administration was essentially a manual process involving spreadsheets, paper certificates, and limited visibility for participants. 

Modern LTI platforms now offer sophisticated modeling capabilities that were unimaginable three decades ago. Compensation teams can run complex simulations to forecast the impact of various award structures, vesting schedules, and performance metrics. This allows for more precise incentives targeting specific business objectives and talent needs.

Employee visibility has dramatically improved through technology. In the 1990s, participants might have received an annual statement of their holdings with limited context. Today, interactive dashboards enable employees to visualize their equity potential through price simulations, monitor vesting schedules, and track what's been granted, vested, and exercised—all in real time.

Technology has also transformed how managers engage with LTI programs. Modern platforms give managers comprehensive views of their team's compensation, including equity components. These tools deliver critical insights and benchmarks at decision points while maintaining guardrails that align with the company's compensation philosophy.

The administration burden has been significantly reduced through automation. Tasks that once required days of manual work—like letter generation, grant processing, and performance-based vesting calculations—can now be handled through rule-based systems that ensure consistency and compliance while reducing errors.

Analytics capabilities have expanded exponentially. LTI platforms offer multidimensional views of equity distribution, allowing compensation professionals to analyze data across locations, business units, employee grades, and other dimensions. These insights help companies ensure their LTI programs deliver the intended impact and remain competitive.

Personalization at scale represents another technology-driven advancement. Companies can now tailor communications about equity awards to individual recipients based on factors like level, location, and plan participation, making these sometimes complex benefits more understandable and appreciated.

As organizations evolve their LTI strategies, LTI solutions like Compport are increasingly vital. Combining intuitive interfaces with powerful rule engines enables companies to build complex incentive plans in minutes rather than days while providing employees with the transparency needed to fully appreciate the value of their long-term incentives.

The human factor: what hasn’t changed? 

Despite thirty years of transformation in LTI plans, certain fundamentals remain constant:

The ownership connection still matters. Employees continue to respond strongly to owning a piece of the company they help build.

Understanding remains challenging. Even with advanced visualization tools, participants struggle to fully grasp LTI value and mechanics.

Recognition drives engagement. Beyond financial value, LTI awards continue to serve as powerful symbols of an employee's importance.

Fairness concerns persist. Employees still compare their awards with peers and evaluate whether the distribution aligns with contributions.

Trust in leadership influences how employees value their awards. When faith in company direction wavers, even generous grants lose impact.

Time horizons challenge human psychology. Our natural focus on the near term makes it difficult for any LTI program to counter short-term thinking effectively.

Communication hurdles endure. Many companies still struggle to explain their LTI value proposition effectively.

Risk-reward evaluation remains central. Employees continue weighing potential upside against the uncertainty of performance conditions and stock fluctuations.

These enduring factors remind us that while LTI programs have grown considerably more complex, their effectiveness still depends on addressing basic human needs for fairness, recognition, understanding, and reward.

LTI Trends 2035 and Beyond: Our Predictions 

Looking toward the future, we see LTI plans continuing to evolve in response to changing work models, technological advances, and shifting stakeholder expectations. While predicting ten years involves some speculation, clear patterns that point to substantial changes on the horizon are emerging. 

Companies at the forefront of compensation innovation are already experimenting with approaches that may become standard practice by 2035. Here are our predictions for how LTI plans will transform in the coming decade:

AI-powered personalization will reshape LTI delivery

By 2035, companies will use AI to customize LTI packages for individual employees based on their career stage, risk tolerance, and work preferences. Just as Amazon recommends products based on purchase history, compensation systems will recommend optimal equity mixes for each participant. Early adopters like Uber are already moving in this direction by offering employees some choice in how their equity is structured.

Real-time performance tracking will replace fixed performance periods

The three-year measurement window will give way to continuous performance tracking with real-time adjustments to vesting multipliers. Similar to how Tesla adjusts quarterly production targets while maintaining longer-term goals, future LTI plans will blend immediate feedback with sustained performance measurement.

Stakeholder metrics will gain equal footing with shareholder returns

Future LTI plans will expand beyond TSR to include equally weighted metrics covering customer satisfaction, employee well-being, community impact, and environmental stewardship. Companies like Microsoft already incorporate comprehensive stakeholder metrics into their incentive structures, creating a blueprint for broader adoption.

Conclusion 

Over the past 30 years, long-term incentive plans have evolved from simple stock options to sophisticated, data-driven strategies balancing financial, ESG, and human capital metrics. As LTI plans to continue adapting to future business needs, technology will play an even more significant role in customization, real-time tracking, and strategic alignment. 

Compport empowers organizations to design and manage modern LTI programs easily, leveraging automation, analytics, and intuitive dashboards to optimize rewards and enhance employee engagement. 

See Compport in action!

FAQs 

What does LTI mean? 

LTI stands for Long-Term Incentive, a compensation program designed to reward employees over an extended period, typically three or more years. It aligns employee interests with company success through equity-based or cash incentives, encouraging retention, performance, and long-term value creation.

What is the purpose of a long-term incentive plan? 

An LTI plan motivates employees to contribute to sustained company growth by offering rewards linked to long-term performance. It enhances retention, aligns employee goals with shareholder interests, and fosters strategic decision-making through stock options, restricted shares, performance-based awards, or other equity-linked compensation.

What is the LTI structure? 

An LTI structure includes award types (e.g., stock options, RSUs, performance shares), vesting schedules (time-based or performance-based), performance metrics (TSR, EPS, ESG), and eligibility criteria. It balances risk and reward, ensuring employees stay engaged while driving sustainable business performance over a multi-year horizon.