Long-Term Incentive Plans (LTIP) in Australia: 2025 Guide & Trends

Long-Term Incentive Plans (LTIPs) are under the spotlight in 2025 as Australian companies respond to tighter regulations, investor scrutiny, and a shifting talent market. Once the domain of top executives, LTIPs now reach deeper into organisations, promising to align employee interests with long-term business goals. But what exactly are LTIPs, how have they changed this year, and what should you know if you’re offered one?

What is a Long-Term Incentive Plan and Why Do They Matter?

At their core, LTIPs are compensation schemes designed to reward employees—especially executives—for achieving strategic, multi-year goals. Unlike annual bonuses, LTIPs typically vest over three to five years and are often linked to metrics like share price growth, return on equity, or total shareholder return (TSR).

• Share-based awards: Most LTIPs involve shares, options, or performance rights, which only become yours if targets are met.

• Cash-based LTIPs: Some plans pay out in cash, but usually still depend on long-term performance hurdles.

• Retention and alignment: By stretching rewards over several years, LTIPs aim to keep key people on board and focused on sustainable company success.

For employees, LTIPs can be a pathway to significant wealth—but they come with complexity and risks, especially if company shares don’t perform as hoped.

2025 Policy Updates: What’s Changed for LTIPs in Australia?

This year, Australia’s regulatory and corporate landscape has forced a rethink of how LTIPs are designed and disclosed. Key 2025 updates include:

• New ATO guidance on employee share schemes (ESS): The Australian Taxation Office has clarified tax treatment for LTIPs, especially regarding deferred tax and reporting for start-ups versus ASX-listed firms. Employees should watch for changes to upfront versus deferred tax liabilities, especially on share vesting events.

• ASX Corporate Governance Council updates: Listed companies now face stricter requirements to justify and disclose LTIP targets and outcomes. Boards are under pressure to ensure LTIPs are genuinely ‘at risk’—not just rubber-stamped payouts.

• Say-on-pay and shareholder activism: 2025’s AGM season has seen major funds and proxy advisors push back against overly generous LTIP awards, especially where targets are seen as too easy or not aligned with shareholder returns.

• Diversity and ESG links: More companies now tie part of their LTIP to environmental, social, and governance (ESG) outcomes—such as emissions reductions or workplace diversity targets—reflecting broader trends in corporate accountability.

For employees, these changes mean LTIPs are more transparent but potentially harder to achieve. For companies, the challenge is to balance talent retention with fair and defensible pay practices.

Real-World LTIP Examples: What Do They Look Like in 2025?

To bring this to life, here’s how some leading Australian companies are structuring their LTIPs this year:

• Big Four Banks: CBA and Westpac have shifted to ‘balanced scorecard’ LTIPs, with 50% of awards tied to financial metrics and the rest to customer satisfaction and climate targets. Vesting periods remain four years, with no retesting of failed targets.

• Tech Start-Ups: Fast-growing tech firms like Canva offer performance rights that vest based on both company valuation milestones and individual KPIs. Employees can elect to sell shares at vesting or defer for possible tax advantages.

• Mining & Resources: BHP’s LTIP now incorporates safety and decarbonisation goals, with a portion of awards subject to meeting Scope 1 and 2 emissions reduction targets by 2027.

These examples highlight two trends: a move towards broader participation (not just executives), and a greater emphasis on non-financial measures as part of LTIP design.

What Should Employees and Investors Watch Out For?

If you’re offered an LTIP or analysing a company’s pay structures, keep these points in mind:

• Vesting conditions: Understand what must be achieved, over what period, and whether targets are realistic or stretch goals.

• Tax timing: Know when you’ll be taxed—on grant, vesting, or sale—and whether you have flexibility to defer or spread your tax bill.

• Market risk: If LTIPs are share-based, your reward can fall if the share price drops, even if targets are met. Diversification is key.

• Clawback and malus provisions: Many 2025 plans allow boards to reduce or cancel LTIP awards in cases of misconduct or restated earnings.

For investors, scrutinising LTIP disclosures in annual reports can reveal whether a company’s incentives are truly aligned with long-term shareholder value—or simply rewarding mediocrity.

The Future of LTIPs: More Inclusive, More Accountable

Looking ahead, expect LTIPs to become more accessible to middle management and high-performing employees, not just the C-suite. Regulatory and investor scrutiny will continue to force companies to justify pay-for-performance, with ESG targets taking a bigger slice of the pie. For employees, understanding LTIPs is now a core part of financial planning—especially with the right mix of ambition and caution.