Trends in International Stock Plans NASPP Phoenix Chapter Meeting November 13, 2007 Carine Schneider CEO Global Shares.

Trends in International

Stock PlansNASPP Phoenix Chapter Meeting

November 13, 2007

Carine SchneiderCEOGlobal Shares

2

General

Trends

• Participation rates continue to decline• Increased mix of equity vehicles in play

• Decreased use of stock options • Increased use of restricted stock and other share grants

• Overall value delivered to employees is down, especially below the executive levels

• Geographic use of equity has increased• Equity programs in general are gaining flexibility as

companies are preparing to better meet stakeholder needs• Expensing has had a tremendous affect on plan design and

backdating has had a tremendous affect on corporate America

• The sub-prime mortgage mess will impact stock plan administration

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Results from

Buck Global

Equity Survey

• Roots of survey date back to 1995

• New survey format in 2004

• Detailed look at actual LTI award practices in 35 countries

• Current database includes data from 147 companies

• Primarily U.S.-based multinationals

• Primarily technology corporations

• 8 of 10 largest tech firms

• 72% of Fortune 500 technology companies

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All Equity Participation Rates - 2004-2006

82%

90% 91%

81%

59%

24%

78%

85% 86%

75%

56%

26%

76%

85% 83%

70%

51%

24%

0%

25%

50%

75%

100%

CEO Vice President Director Manager Indirect LaborDirect Labor

2004

2005

2006

• 8.6% fewer employees overall received any form of equity in 2006 vs. 2004

• Greatest impact seen at Manager level

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Use of Equity

is Expanding

• Despite trends to deliver less value to employees, companies expanding use of equity compensation on a global basis

• Companies increased geographic coverage of equity programs by 25.4% between 2004 and 2006

• Greatest gains in use of full value shares (restricted stock)

• Modest increases in appreciation vehicles also occurred• Ongoing Full Value Shares - 102%• New Hire Full Value Shares - 99%• Ongoing Stock Options - 8%• New Hire Stock Options - 7%

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Use of Equity

is Expanding

• Greatest gains seen in key Asian markets• India

• Use of appreciation vehicles up by ~35%• Use of full value awards up by ~140%

• South Korea• Appreciation vehicles up by ~20%• Full value awards up by ~210%

• China• Appreciation vehicles up by ~12%• Full value awards up by ~110%

• Some decline in use of appreciation vehicles, primarily in smaller European countries (e.g., Belgium, Finland) and New Zealand

7

LTI Program

Prevalence

2006 LTI Vehicle Prevalence

94%

33%30%

64%

57%

42%

35%

17%

0%

25%

50%

75%

100%

StockOptions

S-SARS C-SARS RestrictedStock

RSU/DSU PRS PARS UnrestrictedStock

Com

pan

ies w

ith

Veh

icle

s

Appreciation VehiclesFull Value Awards

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2004 2005 2006

Equity Vehicle Usage - 2004-2006

95% 90% 77%

5% 10% 23%

0%

25%

50%

75%

100%

Full Value AwardsAppreciation Vehicles

Equity Vehicle

Mix

• While options are still king, restricted stock awards are coming on strong

• Not just in reaction to IASB/FAS

• Lower stock price appreciation in recent years reduces perceived value of options

• Greater retention value for key employees

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Ongoing Awards - Average LTI Pay Mix

0%

25%

50%

75%

100%

20

04

20

06

20

04

20

06

20

04

20

06

20

04

20

06

20

04

20

06

20

04

20

06

20

04

20

06

CEO VP DIR MGR ICIL ICDL All

Cash LTI Full Value Shares Appreciation Vehicles

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• Although equity delivery remains concentrated at the higher levels, restricted stock and other full value awards are also moving down in the organization

Distribution of Awards - 2004-2006

2004 2006 2004 2006CEO 6% 10% 6% 12%Vice Presidents 29% 34% 63% 48%Directors/Senior Managers 21% 20% 17% 15%Managers/Supervisors 17% 14% 6% 11%Indirect Labor 27% 22% 8% 13%Direct Labor 1% 1% 0% 0%

Options/SARs Full-Value Shares

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• 63 cornerstone companies in the survey granted approximately $6.6 billion in equity awards in 2006, an average of $107 million per company

• This represents a decrease of 10.8% in value delivered over 2004

• During same period, value delivered in the U.S. decreased by 12.5%

Losers

Philippines -60%

Ireland -47%

Israel -45%

Winners

Austria +47%

China +14%

Finland +13%

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• When looking at the data from a pay band perspective, a more predictable result appears — lower level staff is disproportionately affected

• From 2004-2006 there has been a significant drop in the overall value for employees with salaries

below $200,000. Change in All Equity Value - 2004-2006

Pay Band CEO VP DI R MGR I CI L Percentage Change>= 550,000 0.2% 7.6%350,000 - 549,999 -9.8% -25.3%275,000 - 349,999 -12.7% 36.6% 13.5% 5.5%225,000 - 274,999 -27.1% -14.9% -34.8% 18.7%200,000 - 224,999 -28.3% -10.9% 7.3% 16.4%175,000 - 199,999 -30.5% -28.5% -27.8% -31.2%150,000 - 174,999 -46.9% -8.4% -31.7% -22.6%100,000 - 149,999 2.7% 0.5% -25.7% -28.7%75,000 - 99,999 -24.9% -21.9% -15.4%50,000 - 74,999 -10.6% -24.9%25,000 - 49,999 28.9% -35.7%< 24,999 15.8%Employee Group Total 0.2% 7.6% -17.5% -9.3% 0.3%

-18.4%

-3.6%

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• Although U.S.-based employees still receive highest overall levels of equity, differences between countries are closing

Grant Values as a % of Headquarters Country - 2004-2006

0%

20%

40%

60%

80%

100%

Aust

ralia

Chin

a

Hong

Kong

Ind

ia

Jap

an

Kore

a

Mala

ysi

a

New

Zeala

nd

Phili

pp

ines

Sin

gap

ore

Taiw

an

Aust

ria

Belg

ium

Denm

ark

Fin

land

Fra

nce

Germ

any

Irela

nd

Isra

el

Italy

Neth

erl

and

s

Pola

nd

Sp

ain

Sw

ed

en

Sw

itze

rland

Unit

ed

Kin

gd

om

Bra

zil

Canad

a

Mexic

o

Unit

ed

Sta

tes

Asia-Pacific Europe/Middle East Americas

20042006

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Building

Flexibility into

Equity

Programs

Companies increasingly are preparing to offer more customized equity compensation solutions in the future

• More companies are establishing award guidelines at local or regional levels

• Companies continue to adjust equity vehicle mix

• Use of single equity vehicle is declining

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Building

Flexibility into

Equity

Programs

From a design perspective, more companies are building in a performance equity option

• 46% of companies now have ability to make awards

• Use of full value awards with performance attachments more than doubled between 2004 and 2006 – from 12% to 26%

• 10% of companies also granted options with performance attachments in 2006, up from 4% in 2004

• Overall, 2% of all awards made in 2006 incorporated performance measures, up from 1% in 2004

16

Building

Flexibility into

Equity

Programs

New attitudes appear to be developing around Employee Stock Purchase Plans• 87% of companies continued to use a 15%

discount, despite the accounting charge associated under FAS 123R

• Lookback features have fallen off due to FAS 123R, but not as much as some may have feared• In 2006 74% still had some form of

lookback feature, vs. 83% in 2005• The predominant practice is still a 6 month

offering/purchase periods• Predicted shorter periods have not yet

become reality

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Other Findings

• Equity awards are typically made on an annual basis

• 38.2% of all awards are made during the first quarter (Jan-Mar)

• 12.5% made in Q2 (Apr-Jun)

• 22.7% made in Q3 (Jul-Sep)

• 26.6% made in Q4 (Oct-Dec)

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Other Findings

• Average vesting period for stock options has declined from 4.0 to 3.73 years between 2004 and 2006

• During the same period, option term dropped from 9.1 to 8.5 years

• Number of new employees receiving awards upon hire is also declining, especially below the Director level

• ~8% decline at Manager level; ~12% at individual contributor level

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Creative Plan

Designs

Playing with vesting

Creating a “sub company”

Stock ----- Cash (Phantom)

Using stock in a sales comp program

Stock units (psychological plans)

Net share ESPP plans

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Thank you

Carine Schneider

[email protected]

1-650-326-7991