By far the largest potential components of executive pay is long term-incentives. The purpose of long-term incentives is to reward executives for achievement of the company's strategic objectives that will maximize shareholder value over a longer period time. Typically these have been provided in the form of equity compensation.
By definition the performance period for a long-term incentive typically runs between three and five years, with the executive not receiving any pay from the incentive until the end of the performance period. Long-term incentive goals vary by company but the most prevalent are focused on total return to shareholders, earnings per share and other return measures, such as return on assets. Like annual incentives, long-term incentives typically have a target and a stretch component to encourage executives to achieve superior performance.