Sinch's 2025 Long-Term Incentive Program: A Strategic Alignment of Executive Pay and Shareholder Value

In the high-stakes arena of the communications technology sector, aligning executive compensation with long-term growth and performance is critical. Sinch AB (XSTO:SINCH), a leader in cloud-based communication platforms, has unveiled its 2025 Long-Term Incentive Program (LTI 2025), a meticulously designed framework that ties executive and key employee rewards to both financial and environmental, social, and governance (ESG) outcomes. This program, coupled with a strategic pivot in capital management, offers a compelling case study for investors evaluating how corporate governance and incentive structures can drive sustainable value creation.

LTI 2025: A Dual-Track Approach to Performance and Time-Based Vesting

Sinch's LTI 2025 program splits participants into two series—Series 1 for non-Swedish employees and Series 2 for Swedish employees—each with distinct vesting schedules. For Series 1, 25% of stock options vest after one year, followed by incremental 6.25% vesting every quarter over four years. Series 2 adopts a slower cadence, with 50% vesting at three years and the remaining 50% at four years. This staggered approach ensures executives remain incentivized over the long term, reducing the risk of short-termism.

The performance-based vesting criteria are equally rigorous. Financial metrics such as Gross Profit and Adjusted EBITDA each account for 40% of the vesting weight, with full vesting triggered at a 10% year-over-year increase. For ESG, greenhouse gas emissions reduction and employee engagement scores each contribute 10%, with targets set at a 6% annual reduction in emissions and a 2% annual increase in engagement. These metrics not only align with global sustainability trends but also signal Sinch's commitment to balancing profit with purpose—a growing priority for institutional investors.

The inclusion of catch-up vesting adds flexibility. If a financial KPI is not met at a scheduled vesting date, executives can still earn additional shares if the target is achieved later. This mechanism encourages resilience during volatile periods, such as macroeconomic downturns or sector-specific disruptions. For investors, this structure suggests a company that rewards perseverance and long-term strategic execution, traits essential in a competitive tech landscape.

Missed Buyback Authorization and the Hedging Pivot: Risk Mitigation in Action

A notable twist in Sinch's 2025 strategy is the missed authorization for a direct share buyback. Initially, the board proposed repurchasing up to 10% of shares to offset dilution from the LTI program and enhance shareholder value. However, the proposal failed to pass at an extraordinary general meeting. In response, Sinch pivoted to a share swap agreement with a third party to hedge the financial exposure of the LTI program. This alternative strategy, while unconventional, mitigates the risk of share price volatility impacting the cost of unvested options.

The hedging approach is a calculated move. By locking in a swap, Sinch reduces the potential drag on earnings per share (EPS) from future option exercises, preserving capital for reinvestment or future buybacks. However, the missed buyback authorization raises questions about shareholder alignment. While the hedging strategy addresses dilution risk, it lacks the direct EPS boost of a buyback. Investors must weigh whether the board's focus on risk mitigation justifies the delay in returning capital to shareholders.

That said, Sinch's subsequent 10% share repurchase program, authorized in July 2025, demonstrates a renewed commitment to shareholder value. By August 8, 2025, the company had already repurchased 15.28 million shares, signaling confidence in its stock's intrinsic value. This dual approach—hedging the LTI program while executing a buyback—highlights Sinch's balanced capital management strategy.

Investment Implications: Balancing Risk and Reward

For investors, Sinch's 2025 initiatives present a nuanced risk/reward profile. The LTI program's performance-based structure aligns executive interests with long-term growth, a critical factor in a sector where innovation and scalability are paramount. The ESG components further enhance appeal to ESG-focused funds, potentially broadening Sinch's investor base.

However, the hedging strategy introduces complexity. While it reduces dilution risk, it also ties up capital that could otherwise be used for dividends or strategic acquisitions. The buyback program, now underway, mitigates this concern by directly reducing shares outstanding. Investors should monitor adjusted EBITDA growth and ESG progress as key indicators of the program's success.

Conclusion: A Strategic Framework for Long-Term Value

Sinch's 2025 LTI program exemplifies how a tech company can structure incentives to drive both financial and ESG performance. By tying compensation to measurable outcomes and adopting a flexible hedging strategy, Sinch balances risk with growth potential. The subsequent buyback program reinforces this balance, offering a tangible return to shareholders.

For investors, the key takeaway is clear: Sinch's approach prioritizes long-term value creation over short-term gains. While the missed buyback authorization initially raised concerns, the company's pivot to hedging and subsequent buyback demonstrates adaptability and strategic foresight. In a sector where execution and innovation are king, Sinch's governance model provides a blueprint for sustainable success.

Investment Advice: Investors aligned with Sinch's long-term vision should consider the stock a “Buy,” particularly as the company progresses toward its EBITDA and ESG targets. However, those prioritizing immediate shareholder returns may need to monitor the buyback's impact on EPS and the hedging strategy's effectiveness in preserving capital. The combination of disciplined capital management and performance-driven incentives positions Sinch to navigate the competitive tech landscape with resilience.