A Deep Dive into Performance-Based Equity Compensation: Design & Accounting

• 1. Ask, Share, Learn Within the Largest Community of Corporate Finance ProfessionalsA Deep Dive into Performance-Based Equity Compensation:Design & Accounting

2. Learning ObjectivesAfter attending this event you will be able to: Understand how to properly account for equity awardswith performance or market based conditions uponvesting Learn to assess the different performance metrics andchoose the right metrics for your company Educate your team how to handle accounting andadministrative hazards common to performance plans 3. Welcome to ProformativeProformative is the leading educational resource forcorporate finance professionals.A resource where corporate finance and relatedprofessionals advance in their careers through: Uniquely valuable, online peer network On demand courses taught by peers and SMEs Valuable Features and ResourcesCheck it out at www.proformative.com 4. Ask, Share, Learn Within the Largest Community of Corporate Finance ProfessionalsA Deep Dive into Performance-Based EquityCompensation: Design & AccountingDaniel D. Coleman, CPA, Associate Partner, Aon HewittValuation ServicesNicole Dmitruchina, CEP, Financial ReportingSpecialist, EASi 5. Performance a priori a priori - being without examination or analysis Performance award accounting and administration can getcomplicated Sometimes comp committees and consultants drive thewhole process Its what you dont know that can really hurt so make surethere is adequate examination and analysis 6. Administration considerations If you hear performance be sure to get a seat at the table andbring friends The idea may be driven by the Comp Committee, HR, orexecutive comp, but . The accounting is tricky as well see, but administration can bedifficult too So be sure that the whole team is involved and that you have thetechnology in place to manage the plans 7. Key Questions for Everyone Involved Is the performance metric readily and objectivelymeasurable? Does the performance metric align with the goals of thecorporation? Will employees/executives be able to understand the metricand relate it to how they function? Does our current accounting technology support all thenecessary calculations for these awards? Do we fully understand the accounting impact of thisperformance metric? 8. Classifications of Performance GoalsClassification Definition ExamplesPerformance Based on the internal operations orConditionactivities of the company orrelative companies Requires the employee to provideservices for a specified period oftime May relate to the performance ofthe entire company, a division, oran individual employee EPS Revenue Target Market Share A Change-In-ControlDrug ApprovalMarketCondition Tied to a stock price Absolute basis or relative basisagainst comparable companies Relative TSR Stock Price Absolute TSR Market Stock Units Internal Rate of Return(private companies) 9. Categories of Performance Goals Three categories of performance goals that change the: Number of Awards that Vest - (Most common) Timing of Vesting (Common) The Value of Awards (Least Common) 10. Defining the Grant Date Mutual understanding of terms and goals Performance targets must be defined Sometimes hurdles for future vesting tranches arent defined untillater (i.e. 2012 revenue goals are defined at the end of 2011) Board approval Grant date cant occur until Board approval (unless Board approval isa foregone conclusion) 11. A Deep Dive into Performance-Based EquityCompensation: Design & AccountingThank you for your interest in this presentation.View the on-demand webinar or download the fullpresentation at:www.Proformative.com