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.
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.
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:
Quarterly team incentives
📥 Download Short-Term Incentive Plan Examples →
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
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.
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
While LTIPs are sometimes associated with stock options or equity, many companies implement financial LTIPs with deferred cash payouts or multi-year performance bonuses.
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 →
| Category | Short-Term Incentives (STIPs) | Long-Term Incentives (LTIPs) |
|---|---|---|
| Timeframe | ≤ 1 year | 3–5 years |
| Focus | Tactical execution | Strategic growth |
| Examples | Quarterly bonus, commission | 3-year EBITDA bonus, deferred cash |
| Motivation | Immediate performance | Retention and long-term alignment |
| Risk to employee | Lower | Higher (deferred or conditional payout) |
| Common recipients | Sales, Customer Success, Ops | Senior leaders, key talent |
You want to reward immediate results
You're targeting operational KPIs
You need to drive motivation quarter-over-quarter
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.
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 →
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 →
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.