Short-Term vs. Long-Term Incentives: STIPs vs LTIPs Explained

Incentives are a powerful tool to align employee behavior with business goals. But not all incentives work the same way - or serve the same purpose. Understanding the distinction between short-term incentive programs and long-term incentive plans (LTIPs) is essential for building a well-rounded compensation strategy.

In this article, we’ll break down the differences, use cases, and design best practices for each type of incentive - focusing on financial incentives rather than equity or option schemes.

What Are Short-Term Incentives?

A short-term incentive plan (STIP) is a type of variable pay program that rewards employees for performance over a period of one year or less. These programs are also referred to as short-term incentive compensation or short-term incentive bonuses.

What Are Short-Term Incentives Used For?

STIPs are designed to:

• Drive immediate results

• Align daily work with business goals

• Encourage focus on tactical execution

• Motivate monthly, quarterly and annual performance

Common payout structures include:

• Cash bonuses

• Commission plans

• Quarterly team incentives

📥 Download Short-Term Incentive Plan Examples →

Examples of Short-Term Incentive Programs

Here’s an example of short-term incentives in action:

Sales Team STIP

• 60% based on individual quota achievement

• 30% on team revenue performance

• 10% on customer retention

• Payout frequency: Quarterly

• Bonus cap: 125% of target

Customer Success STIP

• 50% based on Net Promoter Score (NPS)

• 30% on churn reduction

• 20% on upsell contribution

• Payout frequency: Annual

What Are Long-Term Incentives?

Long-term incentives (LTIs), often delivered via an LTIP (Long-Term Incentive Plan), reward sustained performance over multiple years - usually 3 to 5. These incentives encourage strategic thinking, business alignment, and long-term value creation.

LTIP Meaning and Purpose

The LTIP meaning is straightforward: it’s a structured compensation mechanism designed to retain key talent and reward performance that drives sustainable growth.

Unlike short-term incentives, LTIPs are more forward-looking and often linked to milestones like:

• 3-year revenue CAGR

• EBITDA growth

• Customer lifetime value (CLTV)

• Market expansion metrics

LTIP Compensation Structures and Examples

While LTIPs are sometimes associated with stock options or equity, many companies implement financial LTIPs with deferred cash payouts or multi-year performance bonuses.

Long-Term Incentives Examples:

Executive LTIP Plan

• 3-year EBITDA growth target

• Bonus pool funded if threshold met

• Payout: Deferred cash over 2 years

• Vesting: Cliff vest at year 3

Operations LTIP Bonus

• Based on 3-year cost reduction and efficiency metrics

• Cash bonus up to 150% of base salary

• Includes retention kicker if employed at payout

🧠 Want help structuring your LTIP bonus model? Talk to an incentive consultant →

Short-Term vs. Long-Term Incentives: Key Differences

When to Use STIPs vs. LTIPs

Use Short-Term Incentive Plans When:

• You want to reward immediate results

• You're targeting operational KPIs

• You need to drive motivation quarter-over-quarter

Use Long-Term Incentive Plans When:

• You're aligning leadership with 3–5 year strategy

• Retention of key roles is critical

• Performance metrics require time to mature

For many companies, the right answer is both. A balanced incentive compensation plan includes short-term rewards to keep the engine running and long-term incentives to guide the ship.

How Bentega Helps

Designing and managing short-term incentive plans and long-term incentive programs can get complex - especially when scaling across roles and geographies.

Bentega makes it easy to:

• Build flexible STIP and LTIP plans

• Automate payout logic and approvals

• Track performance against goals

• Maintain visibility and auditability for HR, Finance, and leadership

🎯 Explore how Bentega can help you scale incentive compensation →

Conclusion

Whether you’re focused on short-term incentive bonuses to drive this quarter’s performance, or building a robust LTIP plan to retain senior talent, understanding the distinction between short-term and long-term incentives is key to total rewards strategy.

📥 Download our short-term incentive plan examples template →
🧠 Need help with your long-term incentive compensation model? Let’s chat →

Explore more

• Incentive Compensation
• Annual Incentive Plan
  
• Employee Incentive Plan
• Sales Incentive Plan: Structuring Commission for High Performance
• Types of Incentive Pay: Which One Is Right for Your Business?
• Performance Metrics for Incentive Compensation: What to Measure
• Common Mistakes in Incentive-Based Compensation and How to Avoid Them
  

Bentega helps modern companies build high-performance incentive plans - from short-term bonuses to structured LTIPs. Design, automate, and manage your incentive compensation programs with ease at Bentega.io.