LONG-TERM INCENTIVES 2016 Your Restricted Stock Unit (RSU) … · 2016. 3. 31. · LONG-TERM INCENTIVES 2016 | RSUs Long-term incentive plans reward participants for attaining results

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LONG-TERM INCENTIVES 2016 | RSUs AND PSUs

LONG-TERM INCENTIVES 2016

Your Restricted Stock Unit (RSU) and Performance Stock Unit (PSU) Grant

Realize. Recognize. Reward.

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LONG-TERM INCENTIVES 2016 | RSUs

CONTENTS

/PERFORMANCE CONDITIONS

CONTENTS LONG-TERM INCENTIVES

REWARD AT ACTELION

ILLUSTRATIVE EXAMPLE 2 3

BEFORE AND AFTER 2016

FREQUENTLY ASKED QUESTIONS

GLOSSARY

04 Reward at Actelion

08 Long-Term Incentives

16 Illustrative Example

20 Before and After 2016

24 Glossary

22 Frequently Asked Questions

14 Performance Conditions


As a company we strive to treat more patients with groundbreaking therapies and to ensure that you are rewarded for your contribution to these achievements.

This brochure is designed to give you a clear understanding of our long-term incentive award of RSUs and PSUs and the reward principles supporting it.

At a glance: What are RSUs and PSUs?

Restricted Stock Units and Performance Stock Units are equity-based awards allowing you to own Actelion’s shares upon meeting defined conditions. It is a a key part of our reward framework as a long-term incentive. The ultimate value of the units depends on how Actelion performs.

The better we perform as a company, the better our stock performs.

REWARD AT ACTELION

Actelion aims to recognize your contribution to the company’s innovation, development and performance objectives by offering an attractive reward and benefits package.



REWARD AT ACTELION




GLOSSARY


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REALIZE. RECOGNIZE. REWARD.

Our company’s success rests upon our desire to be innovative in the long term. In line with this, we want to encourage the opportunity of ownership in the company’s growth through long-term rewards in the form of grants of Restricted Stock Units (RSUs) and Performance Stock Units (PSUs).

Our Reward Principles

Performance-driven Competitive

Company success shared with employees

Fair and transparent

Our Reward program is made up of three key parts.

BASE SALARY

The fixed amount of money paid in return of the work performed in your role at Actelion.

SHORT-TERM INCENTIVES

Rewards that allow you to receive an amount of money according to the achievement of defined annual performance targets.

LONG-TERM INCENTIVES

Equity-based rewards that allow you to own shares of the company upon meeting defined conditions over a long time period (more than one year).



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GLOSSARY


Long-term incentive plans reward participants for attaining results over a long measurement period, usually more than one year. These types of reward are generally equity-based.

Receiving an equity-based reward allows participants to own part of the company and as the company grows, equities can increase in value. As a result, participants are rewarded for their commitment to the company and its success. Generally, equity plans allocate company stock to an employee after a certain period of time or for achieving certain performance conditions.

Here’s how this type of plan typically works:

The participant is granted a number of stock ‘units’ which could be Performance Stock Units (PSUs) and/or Restricted Stock Unit (RSUs). These are a promise to receive company stock once conditions have been fulfilled.

The stock units are converted into company stock once the required performance milestones have been achieved and/or once the participant has been with the employer for a required length of time called vesting period.

After the vesting period the participants receive the actual stock and become shareholders, with the same voting rights and dividends as other shareholders. The participants may then choose to either keep or sell, all or part of these shares. Please note that shares are subject to tax and social security contributions (more details on page 20).

ABOUT LONG-TERM INCENTIVES

1

3

2

ACTELION’S LONG-TERM INCENTIVE (LTI)

1 In certain jurisdictions where the Group operates, cash-based Phantom Units and / or Phantom Performance Units may be granted.

When you have been nominated to receive a Long-Term Incentive (LTI) award, it is to reward you for your contribution to Actelion’s long-term growth and success. This means you are eligible to receive an award made up of Restricted Stock Units (RSUs) and Performance Stock Units (PSUs).

The LTI is designed to benefit you and Actelion because:

• It is granted based on your personal performance and gives you the opportunity to become a shareholder of Actelion – at no cost to you.

• It encourages, you and your colleagues, to focus on continued company development and growth.

• It gives you and your colleagues the opportunity to benefit from Actelion’s share price growth, and the potential of further gain when Actelion’s long-term share performance surpasses that of its peers and competitors.

When you have been granted Restricted Stock Units (RSUs) and Performance Stock Units (PSU)1, it means that you are eligible to receive Actelion stock in the future – as long as you meet the following conditions:

For RSUs:

• You are still employed by Actelion at the vesting date, three years after the grant date.

For PSUs:

• You are still employed by Actelion at the vesting date, three years after the grant date.

• Actelion meets its performance conditions over a three-year performance period. These conditions are set by the Compensation Committee prior to the grant.

• For 2016 the performance measures will be based on achieving targets for Total Shareholder Return (TSR) and targets for Core Earnings Per Share (Core EPS).Restricted Stock Units or Performance Stock Units?

Participants getting Restricted Stock Units means that their right to receive shares in the future have been conditioned by their employment within the company. Participants getting Performance Stock Units means that this right to receive shares in the future has been set with additional company performance conditions.



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GLOSSARY


HOW ACTELION’S LTI WORKS Timeline for 2016 – 2019

After three years you will get your LTI award as a number of shares of Actelion adjusted for

performance

You are now a shareholder of Actelion with voting rights and dividends

You can keep or sell all or part of your shares

You get an LTI award for your contribution to Actelion’s success (RSUs and PSUs are

granted to you)

Grant Date Year One Year Two Year ThreeVesting Date

APRIL

2016APRIL

2017APRIL

2018APRIL

2019

< PERFORMANCE CONDITIONS ARE MEASURED OVER A THREE-YEAR PERIOD AS DEFINED IN THE NOTICE OF GRANT >



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GLOSSARY


APRIL

2016

=÷

You will get an annual Swiss Franc grant value based on your function and level. The value of this grant is proposed by your line manager and requires the approval of the Chief Executive Officer (CEO) and the Board of Directors. The value granted will vary according to your performance in the year preceding the grant.

You will receive an allocation letter with the number of RSUs and PSUs granted and will be asked to accept your grant in a defined timeline.

1 You get one share for each single RSU granted if you have been continuously employed by Actelion during the three-year vesting period.

2 0% to 200% of PSUs will vest according to Actelion’s performance previously set by the Compensation Committee and under the condition of continued employment.

Three years later, your RSUs and PSUs will vest as follows: all RSUs will convert into shares of Actelion at a 1:1 ratio as long as you have been in continuous employment with Actelion during the vesting period.

HOW ACTELION’S LTI IS CALCULATED

NUMBER OF RSUs & PSUs GRANTED

SHARE PRICE

LTI GRANT VALUE IN CHF

=

=

= =

=RSUs

PSUs

6

6

6

0 - 12

3 x TSR (0 to 200%)

+3 x Core EPS (0 to 200%)

=

Once the grant’s value is set, you will be given 50% of the value in RSUs and 50% of the value in PSUs. The number of RSUs and PSUs depends on the closing share price on the trading day before the grant:

PSUs will convert into shares of Actelion but the amount of shares will depend on the actual TSR and Core EPS achieved. Half of PSUs will convert into shares of Actelion depending on TSR performance and the other half depending on Core EPS performance. As with RSUs, to receive stock you will have to have been in continuous employment with Actelion during the vesting period. The following pages set out how PSUs vest and explain how we assess our performance against these two measures (TSR and Core EPS). Summary of the RSUs and PSUs vesting conditions if you were granted six RSUs and six PSUs:

50% RSUs

50% PSUs

Number of Units at Grant

Number of Shares at Vesting

1

2

Shares can be sold and become freely transferable in addition to providing you with shareholder voting and dividend rights.

Grant you would get for the LTI grant value in CHF

Previously determined

Number of RSUs granted

Number of PSUs granted

On the last trading day prior to the grant date

APRIL

2019

If you have previously received Performance Stock Units, please note that the changes below have been introduced for 2016:

• Actelion will grant at target rather than at the maximum as in previous years. This change has no impact on potential gain (please refer to the example provided on pages 18 and 19).

• There is a new performance condition targeting Core Earnings Per Share (Core EPS) (explained on page 13).



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GLOSSARY


PERFORMANCE CONDITIONS FOR PSUs VESTINGTo set performance targets for measuring Actelion’s success, two financial indicators are used: Total Shareholder Return (TSR) and Core Earnings Per Share (Core EPS).

Total Shareholder Return (TSR)TSR is the percentage by which a company’s return to shareholders based on share price increases or decreases over a defined period of time. To ensure that this percentage reflects ‘total return’ from a shareholder’s point of view, share prices are adjusted to account for any dividends a company pays during that time period.

Actelion’s TSR is compared to the TSR of 40 other companies. It is a relative performance measure. Actelion’s TSR is ranked against these companies’ TSR using the left-hand side of the chart below. This ranking determines the percentage of your PSUs that will vest (as shown on the right-hand side).

The vesting curve according to TSR percentile ranking is shown in the chart below.

Core Earnings Per Share (Core EPS)As of 2016, a target based on Core EPS has been introduced to the performance conditions. Actelion uses Core EPS to define profitability. Core EPS is disclosed on a quarterly basis and is calculated as follows:

The three-year cumulative (i.e. the sum of the Core EPS of each individual year) Core EPS targets vesting schedule have been set as follows:

41 companies in peer group including Actelion - TSR ranking over three years

4th/UPPER

2nd

MEDIAN

QUARTILES

1st/LOWER

3rd

25% highest performing companies in terms of TSR

Companies whose TSR is at or above peer group median to upper quartile

50% companies with the lowest performing TSR

Por

tion

of P

SU A

war

d Ve

stin

g

TSR Percentile Ranking

200%

150%

100%

50%

0 10025 75Median

Threshold Award

Maximum Vesting

TSR Performance Ranking

If Actelion’s TSR performance is comparable to these companies, 200% PSUs will vest

If Actelion’s TSR performance is comparable to these companies, between 50% and 200% PSUs will vest according to Actelion’s percentile ranking

If Actelion’s TSR performance is comparable to these companies, 0% PSUs will vest

PSU Vesting Outcome

=Core EPS Core net income* Diluted number of shares ÷*See the financial report for more details

2016-2018 Cumulative Core EPS Target

Core EPS as a Percentage of Target

Percentage of the Award Vesting*

Maximum CHF 24 120% 200%

Target CHF 20 100% 100%

Threshold CHF 18 90% 50%

>90% 0%

*With straight line vesting between threshold and target and between target and maximum



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GLOSSARY


ILLUSTRATIVE EXAMPLE

117 SHARES CHF 12,870

Number of shares resulting from vesting

Final award value

On April 1st, 2019, John has worked full-time for the past three years and Actelion’s performance was assessed as:

• TSR ranked on 65th percentile• Core EPS reached 105% target

50 RSUs will convert to 50 shares of Actelion.

Based on TSR performance condition, 25 PSUs will convert to 35 shares of Actelion (140% x 25). Based on Core EPS performance condition, 25 PSUs will convert to 32 shares of Actelion (125% x 25).

John will now own 117 shares of Actelion.

After three years, the share price is CHF 110, at vesting date the value of John’s award is CHF 12,870.

John can now keep or sell all or part of his shares. Social security contributions and taxes will normally apply at the vesting date on the full value of the 117 shares at that time (CHF 12,870).

APRIL

2019

CHF 10,000

50 RSUs & 50 PSUs

Target award valueJohn Smith

Number of RSUs & PSUs granted

On April 1st, 2016, he will be granted CHF 10,000 at the share price of CHF 100, CHF 10,000 ÷ CHF 100 = 100 RSUs and PSUs = 50 RSUs and 50 PSUs.

APRIL

2016

John is nominated to receive an LTI award in 2016.

His target award is CHF 10,000 as set by the Board for his function and performance.

For this illustrative example, we have used a fictional employee called ‘John Smith’ to help explain how RSUs and PSUs work.

Target LTI = CHF 10,000

Actelion share price = CHF 100(on March 31st, 2016)



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GLOSSARY


Grant Date Year One Year Two Year Three Vesting Date

ILLUSTRATIVE EXAMPLE TIMELINETimeline for 2016 - 2019

APRIL

2017APRIL

2018APRIL

2019APRIL

2016

After three years, 50 RSUs and 50 PSUs will convert to 117 shares as Actelion’s TSR

ranked on 65th percentile and its Core EPS exceeded targets

by 5%

John receives 117 shares of Actelion worth CHF 12,870

John gets an LTI award for his contribution to

Actelion’s success

The amount of his award is CHF 10,000 (50 RSUs

and 50 PSUs are granted)

CHF 10,000(50 RSUs & 50 PSUs)

CHF 12,870(117 SHARES)

< PERFORMANCE CONDITIONS ARE MEASURED OVER A THREE-YEAR PERIOD AS DEFINED IN THE NOTICE OF GRANT >



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GLOSSARY

LONG-TERM INCENTIVES 2016 | RSUs LONG TERM INCENTIVES | RSU’S AND PSU’S

As shown above, at Grant, you will receive half of the PSUs you would normally receive under the former plan. But at the vesting time, the final number of shares you may receive will be the same. This means that this change has no impact on the potential gains.

= =

RSUsRSUs

PSUsPSUs

66

612

66

0 - 120 - 12

3 x TSR (0 to 200%)

+3 x Core EPS (0 to 200%)

12 x TSR(0 - 100%)

=x


Number of Units at Vesting

As noted on page 10 the PSU award calculation is now based on a target award rather than awarding by the maximum PSU amount possible.

Starting with the 2016 grant PSU award will be calculated as follows:

Before the 2016 grant, the amount of PSUs received at grant corresponded to maximum possible vesting, which was measured on a 0-100% scale. This meant that employees would forfeit PSUs, even for over-performance, unless the maximum performance was achieved.

=

= =

=

• Achievement will be measured on a scale of 0 to 200% maximum, as opposed to 100%, to better indicate when there has been over or under performance

• PSUs will be granted as if TSR & Core EPS were at 100% payout (out of 200%), based on performance

In a target system the beneficiary is granted the same number of RSUs and PSUs and this grant represents what is awarded if all conditions are met. If performance exceeds targets, PSUs are converted into more shares.

ACTELION’S LTI BEFORE 2016 ACTELION’S LTI FROM 2016

Previous Grant and Vest Formula New Grant and Vest Formula


Number of Units at Vesting



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GLOSSARY


What are the tax and social security consequences of having participated in the LTI?

The RSUs and PSUs granted under our LTI are, in most countries, taxed and subject to social security contributions at the time of vesting, i.e. when the RSUs and PSUs are converted into shares of Actelion.

Any further capital gains tax is due depending on the laws of your country (or U.S. State) for tax residence purposes at the time of the sale of shares. This is particularly important if you had multiple countries of tax residency during the vesting period; you may wish to seek help from a tax advisor – please talk to your local HR contact.

Depending on local regulations, tax and social security may be withheld at the taxable moment of the RSUs and PSUs. In certain countries, Actelion operates a ‘sell-to-cover’ policy where any tax liabilities will be covered by selling part of your shares after vesting.

For example:

• The amount of shares sold is calculated based on a pre-determined tax rate defined on a country level;

• For cases where there is only social security withholding on the vesting, no sell-to-cover will occur, but liabilities of more than a certain threshold (one month’s salary) will need to be repaid immediately.

What happens if you leave Actelion?

If you leave Actelion before the vesting date, and for any reason other than those detailed below, your RSUs and your PSUs will lapse without any right to compensation. This means you will no longer be entitled to the RSUs and the PSUs that make up your award.

However, if your employment ends because of disability or retirement, the RSUs and the PSUs will vest on the date they would have normally vested, subject to adjustments for actual time worked and company performance between grant and the date of disability or retirement.

In the event of your death while employed by Actelion, the RSUs and the PSUs will fully vest on the date they would have normally vested (subject to the performance condition as set in the allocation letter) and will be assigned to the estate.


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GLOSSARY


Compensation CommitteeThe Compensation Committee supports the Board of Directors in reviewing and establishing the Company’s compensation strategy and policy. The Committee is responsible for the compensation strategy of the Actelion Group, the design of the compensation plans, the compensation of the members of the Board and the Executive Management, and for the Compensation Report, and takes related decisions or submits related proposals to the Board for approval.

Core Earnings Per Share (Core EPS)Core EPS is a financial metric where the Core Earnings of the Company is divided by the diluted number of shares.

DividendA dividend is the distribution of a portion of a company’s earnings to its shareholders as decided by the Board of Directors on a yearly basis. The dividend is usually expressed as CHF amount per share.

Performance Stock Unit (PSU)Amount valued as company stocks and given to an employee with certain stipulations that limit the employee’s

rights regarding the shares until he or she has been employed by the company for a certain amount of time and some company performance criteria.

Restricted Stock Unit (RSU)Each RSU represents a contingent right to receive one Actelion share at the end of a vesting period, subject to continued employment.

ShareShare, Stock or Equity represent a part of ownership of the Company’s capital.

Shareholder or StockholderAn individual or group that owns one or more shares in a company.

Vesting periodA period of time following the grant of a RSU or a PSU that needs to last before the employee has the irrevocable right on the underlying shares. The vesting period is typically three to five years for long-term incentives.

Voting rightsThe right of a shareholder to vote, in person or by proxy, at the company’s shareholder meetings.

Finding out more

If you have any questions about your Restricted Stock Units (RSUs) and Performance Stock Units (PSUs), please contact your local HR or Global Compensation and Benefits.

All information regarding your personal accesses and links to plan regulations are available on InSite under Work>Being employed>Compensation & benefits

DISCLAIMERThis guide explains the main features of the LTI, but it is not a legal document and does not give you any right to benefits. The LTI rules (Performance Stock Plan 2016, Restricted Stock Plan 2016, Performance Conditions in the annex of the grant notice) contain the full terms and conditions that govern the way the LTI works. If there is any difference between this guide and the LTI rules, the LTI rules will always apply.

The Compensation Committee of the Board of Directors has responsibility for setting and approving the performance conditions and has discretion to amend performance conditions under certain situations, and to set different conditions for future awards. Participation in the plan is subject to the rules of the plan. You can ask for a copy of the rules to the plan from Global Compensation and Benefits in Human Resources. Participation in, and the operation of, the plan will not form part of your employment relationship, nor will they give you the right to continued employment. Participation in one grant of award under the plan does not indicate that you will participate, or be considered for participation, in any later grants. Specific provisions are included in the rules of the plan under which you waive any claims to any compensation or other benefit in respect of the plan when you leave employment. You should remember that the value of shares can go down as well as up and past performance of the Company’s shares is no indication of actual future performance.

GLOSSARY ?



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GLOSSARY

Actelion Pharmaceuticals Ltd Gewerbestrasse 16CH-4123 Allschwil Switzerland

Phone +41 61 565 65 65 Fax +41 61 565 65 [email protected]

All trademarks are legally protectedCopyright ©2016 Actelion Pharmaceuticals Ltd

Details of Actelion Worldwide can be found onwww.actelion.com

March 201626

LONG-TERM INCENTIVES 2016 Your Restricted Stock Unit (RSU) … · 2016. 3. 31. · LONG-TERM INCENTIVES 2016 | RSUs Long-term incentive plans reward participants for attaining results

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