It’s time to redefine the terminology for incentives. Short-Term Incentives (STI) are designed to motivate and compensate for a year or less. How is it that any period longer than a year qualifies as a “Long-Term Incentive?” Shouldn’t we consider creating a new class of compensation? We can call it something spiffy like “Mid-Term Incentives.”

It wasn’t that long ago that HR, Compensation and Benefits professionals regularly dealt with pension plans that intended to pay people when they stopped working. Heck, some still do. These plans were truly long-term, often reaching more than 40 years into the future. Until the late 1980’s it was common for stock options to have expiration dates set 25 years into the future. Again, these easily meet the definition of long-term.

As event horizons have become more unpredictable and markets have moved at ever increasing speeds, Long-Term Incentives have moved away from historic norms. We seldom see plans looking out more than three or four years. I know that stock options often have 10 year terms, but most industry professionals correctly expect them to exercised or cancelled long before that. When these programs do exist they are usually meant only for retirement and are often restricted to the highest levels of the company.

I don’t have an issue with people in our industry being more pragmatic about our inability to predict the future. Terms of 25 or 40 years would create such a level of uncertainty in today’s world as to be blatant guesses and potentially useless.  Shorter Long-Term Incentives may make more sense right, but I don’t think anyone can convince me that 3 years qualifies for this terminology.

Some cheeses are aged longer than three years. Most red wine still isn’t drinkable after three years. Heck, my super smart and cute nephew can dance and count, but at three years old he isn’t ready for a leadership position. Let’s face it, 3 years is, at most, a Mid-Term Incentive.

Imagine if we redefined long-term as a period at least as long as the average tenure of an employee in the US (most recently reported at 4.4 years.) Maybe we can even go so far as defining Long-Term Incentives as having a minimum of five years. This allows us to create an entirely new class of incentives that focus on mid-term impact, while refocusing our Long-Term Incentives on careers, rather than jobs.

I am always looking for better ways to communicate the equity, executive and performance-based programs that are the main focus of my practice. I am often struck by how colloquial our “compensation language” is. We know what “our” terms mean because we use them every day. But, if you consider those same words from the perspective of an average executive or employee, they mean something else entirely. We can improve our plan design and communication by reimagining our language.

What term would you add or change in our industry and why?