Are long-term incentives still effective for Gen Z employees?

31 January 2025

The workforce continues to evolve, with members of Gen Z (born between 1997 and 2012) now beginning to make up a significant portion of the employment market. For decades, long-term incentives (LTIs) like share options and deferred bonuses have been a cornerstone of compensation packages, designed to align employee interests with company goals and foster loyalty. However, the shifting dynamics of the workforce have raised doubts about their relevance, particularly to younger employees. With a tendency towards increased career mobility and a supposed appetite for immediate rewards, do younger employees care about LTIs? Or are we witnessing a generational shift that demands a different approach?

Why have long-term incentives been used to date?

Long-term incentives have traditionally served two primary purposes:

1. Aligning interests: by linking a portion of compensation to company, team and individual performance over several years, LTIs encourage employees to think and act like owners, driving sustainable growth and profitability.

2. Retention: vesting schedules and deferred payouts are designed to reduce attrition by rewarding employees who stay with the company.

For senior executives and employees with a long-term perspective, these incentives have been viewed as highly attractive. They provide an opportunity to share in the success of the organisation and build substantial wealth over time. But does this long-term model resonate with younger employees, particularly those just entering the workforce?

The Gen Z perspective on employment and rewards

Gen Z is often described as tech-savvy, values-driven, and pragmatic. Their approach to work and compensation may therefore reflect these traits:

  • Short-term focus: Gen Z employees are entering the workforce during a time of economic uncertainty and rising living costs. As a result, some may prioritise immediate financial stability over long-term rewards.
  • Job mobility: some research suggests that Gen Z employees are more likely than older employees to be seeking a new job within the next six months and see frequent job changes as desirable. This trend raises questions about whether LTIs, which often require multi-year commitments, are an effective tool for retention.
  • Value alignment: Gen Z places a premium on purpose and alignment with organisational values. They may therefore be more likely to stay with employers who offer meaningful work, flexibility, and opportunities for growth, rather than just financial incentives.

Are LTIs out of step with modern workforce dynamics?

Given these traits, it’s easy to see why some employers might consider scaling back LTIs in favour of short-term cash incentives or benefits like flexible work arrangements. However, this approach could overlook several critical factors:

  • Long-term thinking isn’t dead: while Gen Z may often be associated with a preference for immediate rewards, many are highly motivated by wealth-building. A recent MetLife study found that 65% of Gen Z employees are interested in benefits that contribute to long-term financial security, including equity-based compensation. LTIs, particularly those with a clear and transparent value proposition, can appeal to their desire for stability and future planning.
  • Retention through differentiation: in what remains a competitive talent market in many sectors, offering LTIs can set a company apart. Even if younger employees don’t expect to stay with one employer for decades, the promise of significant rewards over a 3-5 year period can influence their decision to stick around.
  • A desire for ownership: research from Gallup shows that Gen Z employees often seek roles where they feel a sense of ownership and purpose. Equity-based compensation aligns well with this mindset, offering employees a tangible stake in the organisation. Feeling like "owners" of the company can foster deeper engagement and commitment, even for those who may not plan to stay indefinitely.

Making long-term incentives work for younger employees

To ensure LTIs remain effective in attracting and retaining talent across generations, companies must rethink their design and communication strategies. Here are some changes to consider:

Simplify and educate

One of the biggest challenges with LTIs is that they’re often complex and poorly understood. Any employees, but particularly younger employees who may not have received similar awards previously, may not grasp the potential value of these. Companies should invest in clear, engaging education initiatives that explain how LTIs work, their benefits, and how they fit into an employee’s overall financial picture.

Offer flexibility

Rigid, one-size-fits-all LTIs may fail to excite younger employees. Instead, some employers offer a menu of options that allow employees to choose between short-term and long-term rewards. For example, an employee could opt for a mix of cash bonuses and equity grants, tailoring their compensation to their personal financial goals and bridging the gap between generational preferences. 

Where possible, offering LTI participation at no cost or through salary sacrifice, rather than requiring employees to pay out-of-pocket, may be more appealing to Gen Z. 

Shorten vesting periods

Traditional vesting schedules may seem unattainable to employees who don’t plan to stay with one company for the long haul. Shorter vesting periods, or vesting schedules that allow employees to retain a portion of their equity even if they leave before the full vesting period is completed, can make LTIs more appealing while still serving as a retention tool. 

Highlight purpose and impact

For Gen Z, compensation is not just about money – it’s also about meaning. Explaining how your LTI is a way to contribute to the company’s long-term success and thereby its societal impact can resonate with Gen Z’s values. 

Leverage technology

Digital platforms can make it easier for employees to track and understand their LTIs. Real-time dashboards that show the current and projected value of awards can help demystify these rewards and keep employees engaged.

The business case for long-term incentives remains

Abandoning LTIs in favour of short-term rewards might seem tempting, but it risks undermining key business objectives. Well-designed LTIs align employees’ financial interests with the company’s success, creating a powerful incentive to go above and beyond.

While no incentive can guarantee retention, LTIs encourage employees to think twice before jumping ship. They also create a sense of ownership that fosters emotional loyalty, not just financial ties.

Additionally, companies known for offering competitive, forward-thinking compensation packages are better positioned to attract top talent.

In a fast-paced business environment, LTIs can help counteract the pressure for short-term results by encouraging employees to focus on sustainable growth and innovation.

Conclusion: a balanced approach to long-term incentives

The workplace is evolving, and so too must our approach to compensation. While it’s true that some Gen Z employees may have different priorities than previous generations, dismissing long-term incentives outright would be a mistake. Instead, companies should adapt their LTI programmes to better meet the needs of a diverse workforce.

By simplifying the structure, offering flexibility, and communicating the value of LTIs effectively, organisations can ensure these incentives remain a powerful tool for attracting, retaining, and motivating employees. In an era where purpose, alignment, and impact are increasingly important, LTIs can serve as a bridge between individual aspirations and organisational success. The key is to design them thoughtfully and position them as a meaningful part of a holistic compensation strategy.

So, are LTIs still effective for Gen Z employees? Absolutely. When done right, they’re not just a financial tool – they’re a strategic investment in your workforce and your company’s future.

For a conversation on long-term incentives for your younger employees, please reach out to Martin Cooper.