What characteristic typically defines long-term incentives versus short-term incentives?

Long-term incentives are typically characterized by their alignment with the behavior and goals that support the company’s long-term value. These incentives are designed to encourage employees to focus on sustained performance and the overall health of the organization over an extended period. By linking reward structures to long-term performance metrics—such as stock options, restricted stock, or deferred compensation plans—companies aim to promote behaviors and decision-making that contribute to long-term success rather than short-term gains.

While other factors, such as the duration of service, do contribute to distinguishing between incentive types, what fundamentally sets long-term incentives apart is their role in driving behaviors that align with the company's strategic objectives over time. Short-term incentives, on the other hand, tend to focus more on immediate performance results and are often linked to annual goals, which does not foster the same commitment to the organization’s enduring success.