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“GEo wil Fortis Bank Nederlandbedanken voor de hartelijke gastvrijheid tijdens de 2009 Netherlands Regional Meeting.” “GEo wishes to thank
Fortis Bank Nederlandfor hosting the 2009 Netherlands
Regional Meeting.”
Agenda1 December 2009
13.00 ® Registration & coffee
13.30 ® Welcome by the Dutch chapter coordinators Don Jol and Martijn bedaux
13.40 ® GEo Update Michael bendorf, Executive Director, GEo
13.55 ® Remuneration: Finding the Right balance Robert Watts, Sr. Manager compensation & benefits, Royal Ahold
14:40 ® Trends in Equity Incentives in These Turbulent Markets Gerald Zaalberg, Sr. consultant Executive Remuneration, Hay Group
15.25 ® coffee break
15.40 ® Stock option Grants in a Declining Stock Market Tijmen Kos, Managing Director, Sun Microsystems International b.V.
16.20 ® Identifying Dutch ESo companies; Where are they? Pascale Nieuwland, consultant, SNPI
HoST SPoNSoR:
REGIoNAL SPoNSoR: LocAL SPoNSoR:
HUMAN CAPITAL GROUP
Fortis Bank Nederland
Fortis Bank Nederland
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
SPoNSoRS
HUMAN CAPITAL GROUP
13.40
® GEo Update
Welcome to the Global Equity Organization
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
About GEO
• The Global Equity Organization is an internationalnot-for profit membership organization, established in1999 to support corporate executives and stock planprofessionals who deal with the challenges of creatingand managing global equity-based compensationplans and programs.
– Members in 59 countries– 2800 individual members– 1000+ organizations– 20% membership growth in FY2009
Member Benefits
• Join– Access to a broad international member community of share
plan professionals
• Learn– Fifteen active local chapters on four continents– Annual Conference, supplemented by local, regional, and
OneDay events– Monthly webinars, weekly newsletters, and periodic podcasts
• Share– New member website to be unveiled in the coming months– Follow us online
• LinkedIn – Global Equity Organization group• Twitter – globalequityorg
Fortis Bank Nederland
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
SPoNSoRS
HUMAN CAPITAL GROUP
GEO’s Global Chapter Network
Upcoming Events
• 11th Annual Conference– Single largest annual gathering of
global equity compensation professionals– Dedicated to exploring the use, application, and design of stock
plans in multiple countries
• Local Chapter Meetings– Boston, 1 December– DACH , 1 December
• Regional Meetings– Rotterdam , 1 December– Sydney, Melbourne (TBA)
• Webinars– Information Overload? Filtering What is Meaningful for You – 15
December
For completeinformation and to
register, visitwww.globalequity.org
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
GEOnomics 2009
• Inaugural book under GEO’s newpublishing imprint
• Individual chapters represent the bestthinking of key contributors
– Baker & McKenzie– Buck Consultants– Cuatrecasas– Deloitte– Fidelity Investments– Global Shares– Intel– Seyfarth Shaw
• Available for purchase on Amazon.com
Thank you for joining us today
• For more information, please contact
– GEO Netherlands Chapter Leaders• GEOnl@globalequity.org
– Pam Stetson• Senior Director, Global Development• +1 813-792-7913; pam.stetson@globalequity.org
– Michael Bendorf• Executive Director• +1 415-418-8112; michael.bendorf@globalequity.org
Fortis Bank Nederland
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
SPoNSoRS
HUMAN CAPITAL GROUP
13.55
® Remuneration: Finding the Right balance Robert Watts, Sr. Manager compensation & benefits, Royal Ahold
Ahold
an overview
December 2009
Robert Watts
Sr. Mngr Compensation & Benefits
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
A brief history1887 Albert Heijn opens first store1955 First supermarket opens1977 Expansion into U.S.1995 Expansion into Asia1996 Expansion into Latin America2000 Acquisition of U.S. Foodservice2003 US$ 1bn accounting scandal2003 Launch of Road to Recovery program2004 Restructuring and divestments2005 US Class Action Settlement agreed2006 Launch of Strategy for Sustainable Profitable Growth2007 Divestment of U.S. Foodservice, Poland, and Tops2008 Dividend payment, targets reached, investment grade
reinstated, best performing stock on AEX
3
Our core valuesThink customer, Act customer!
1. Act customer - Customers are our lifeblood. We makeevery day easier for them, bringing innovative andinteresting shopping experiences
2. Engaged associates - We value our diversity andare committed to developing our people and giving themopportunities to grow
3. Integrity always - We act openly and honestly. Wesay what we mean and we do what we say.
4. One team - We are greater than the sum of our parts.We cooperate to leverage our capabilities, scale, strengthsand knowledge.
5. Innovative mindset - We constantly challengeourselves to find better ways and better results.
6. Passion for our business - We love being in thefood business. We set high standards and are neversatisfied in our search for excellence.
Fortis Bank Nederland
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
SPoNSoRS
HUMAN CAPITAL GROUP
Highlights 2008
Sales / Revenues € 25.7 Billion
Market Cap € 12 Billion
Operating Income € 1.2 Billion
Employee Benefits € 3.3 Billion
Retail Locations 2.897
Employees 200.000
Remuneration:
Finding the RightBalance
December 2009
Robert Watts
Sr. Mngr Compensation & Benefits
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
Forces Driving Change in Remuneration PracticesExternal Factors• Changing market practices
- Decreased use of options, increased use of shares
• New corporate governance regulations (Tabaksblat)
• Increasing investor demands for clarity and performance linkage
• Changing accounting rules- Option costs must be reflected in the P&L according to the fair value
method
Forces Driving Change in Remuneration PracticesFactors Internal to Ahold• Reinforce Ahold strategy
- Organic growth- Leverage Ahold’s scale- Improve return on assets
• Address diminished value of existing program elements- “Underwater” stock options perceived as having little or no value- Retention- Attraction / recruitment
• Improve the balance between short-term (annual) and long-termincentive programs
• Reinforce alignment with shareholder interests
• Use simple, easy to report performance measures
Fortis Bank Nederland
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
SPoNSoRS
HUMAN CAPITAL GROUP
Ahold share price 2001 – 2009share price in euros
2001 2003 2009
0
5
10
15
20
25
30
35
40
Basic Framework (through 2005)
PolicyTotal Target
CashCompensation
Three components:
• Base Salary
• Annual Incentive- Based on EVA
• Stock Options
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
Basic Framework (from 2006)
Total Target
CashCompensation
PolicyTotal Target
DirectCompensation
Three components:
• Base Salary
• Annual Incentive- Based on measures
important to the business
• Long-term Incentive- 3 year conditional shares
(employment condition)
- 5 year conditional shares(Total Shareholder Return &
employment condition)
2006 Changes in the Annual Incentive Plan Design
• Design Criteria:- Fair- Transparent- Line of sight
• Selection Criteria (performance measures):- Simple to understand – measures aligned with internal and external reporting- Alignment to the strategy of Ahold- Easy to report
• Changed the measures (from EVA):- EVA was too complex / difficult to understand- EVA was not used internally for management purposes- EVA results were not reported externally (e.g. annual report)
Fortis Bank Nederland
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
SPoNSoRS
HUMAN CAPITAL GROUP
Annual Incentive Performance Measures
12,5%
12,5%
25,0%25,0%
25,0%
(12.5%) Sales
(12.5%) Identical Sales
(25.0%) Cost Efficiency
(25.0%) Operating Margin
(25.0%) Working Capital
STI Improvements & Achievements 2005 - today
• Targets supportive to the strategy and defined goals of Ahold;
• Performance measures simple and easy to understand;
• Performance measures fit with Ahold’s accounting and reportingsystems;
• Transparency and openness of the target setting process has improved;
• Targets set, approved and communicated before the year begins;
• Progress on performance reported frequently and consistently;
• Consistency and continuity in the performance measures used;
• Treatment of “unusuals” better streamlined and managed;
• Bonus payout pulled forward to March and paid out timely;
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
Basic Framework (from 2006)
Total Target
CashCompensation
PolicyTotal Target
DirectCompensation
Three components:
• Base Salary
• Annual Incentive- Based on measures
important to the business
• Long-term Incentive- 3 year conditional shares
(employment condition)
- 5 year conditional shares(Total Shareholder Return &
employment condition)
GRO Design Criteria:• Motivate / retain participants
• Reinforce alignment with shareholder interests
• Reinforce identification with Ahold (corporate glue)
• Simple / easy to understand / administer
• Defendable publicly / align with new Corporate Governance Code (Tabaksblat)
• No particularly negative tax consequences (company or participant)
• More in line with market practice
Changed the instrument (from Stock Options):
• Almost all historical option grants were underwater and had no (perceived) value
• The consequences, for Dutch participants, were even more dramatic as most paidtax upfront so the option program represented an unrecoverable personal loss
New Long-term Incentive programGlobal Reward Opportunity (GRO)
Fortis Bank Nederland
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
SPoNSoRS
HUMAN CAPITAL GROUP
Key Features GRO - Mechanics
Grant Date
MTI Vesting period of 3 years
T=3
If associate is still employed by Ahold,all granted shares (2,875) vest
1. Target LTI Value of
€ 50,000
2. Prior Year Bonusmultiplier of:
example multiple = 1.15
3. Actual Grant Value:
1.15 x € 50,000 =
€ 57,500
4. Assumed Share Price
of € 10.00
5. Number of Shares to beGranted:
€ 57,500 / € 10.00 =
5,750 shares. Splitequally between 3-year(MTI shares) and 5-year(LTI shares)
T=5
Shares still inpossession of associateat T = 5 are matched 1extra share for each 5
LTI Performance period of 5 years
The number of performance shares that willvest is determined by a TSR performance-ranking (between 0 and 1.5x). The number ofshares that will vest at T = 5 years will be2,875 multiplied by that performance factor.
5-year component: Number of SharesGranted = 5,750 / 2 = 2,875
3-year component: Number of SharesGranted = 5,750 / 2 = 2,875
Total Shareholder Return (illustrative)
Dec.2005
Return Index December 2010based on average share price
1 July 2010 – 31 December 2010
July 2010 Dec. 2010
In the TSR calculationdividends are taken intoaccount, assuming theyare re-invested.
Share Price developmentAhold (illustrative)
Return Index December 2005based on average share price
1 July 2005 – 31 December 2005
July 2005
• Five year TSR is the total return to investors holding on to shares of the companyfor five years, taking into account both share price appreciation and dividend pay-outs;
• For each company in the peer group the return is expressed in a percentage(increase at end date compared to the start);
• Companies are ranked from best to worst performer (e.g relative performance isthe measure);
• Peer Group:
WAL-MART STORES INCSUPERVALU INC.METRO AGCOSTCO WHOLESALE
TESCO PLCSTAPLES INCKROGER CO. (THE)CARREFOUR S.A.
TARGET CORPSAFEWAY INCDELHAIZEAHOLD NV
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
GRO Performance Incentive Zone GraphPerformance Incentive Zones
LTI component (relative TSR related)
50%
75%
0%
20%
40%
60%
80%
100%
120%
140%
160%
123456789101112
Rank
Pay
-out
as
perc
enta
ge o
f ori
gina
l num
ber
of
perf
orm
ance
sha
res
gran
ted
Approved curve CEB
Approved curve below CEB
Median Performance
Gro – Design Summary• Delivery mechanism is restricted stock
- Reinforce identification with Ahold, alignment with shareholders
• The targeted number of shares to be granted each year is established based on thetargeted value of the GRO grant divided by the 6-month average share pricepreceding the grant date
- Annual market calibration
• The value actually granted to the participant is determined by the level ofperformance measured through the Annual Incentive Program
- Performance driven
• 50% of the shares earned vest 3 years from grant date and 50% of the shares vest 5years from grant date
- The 3-year grant includes a “matching” feature where shares held for 2 additionalyears qualify the participant for a “one share for five” additional grant of shares -Encourages share ownership
- The 5-year grant is contingent on performance on a relative Total Shareholder Return(TSR) basis against peer group companies. The TSR ranking will reduce or increasethe actual number of shares vested - Requires sustainability of results
Fortis Bank Nederland
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
SPoNSoRS
HUMAN CAPITAL GROUP
LTI: GRO Achievements 2006 – Today• All five of our original key corporate objectives for the redesign were met;• Participants favorably received the program and the results of the first
vesting;• The first GRO shares have vested (March 2009) and payout was achieved;• An effective and easy-to-understand communication program / set to
inform participants from the granting moment until and including thevesting of shares;
• By December 31, 2008 a watertight procedure was implemented that:- supported the 1st vesting of GRO shares,- was designed with input from the relevant partners, and- was communicated thoroughly to all stakeholders;
• With the vesting of the first portion of the share grant, the credibility andthe perceived value of the long-term incentive vehicle as a meaningfuland valuable component of an individual’s compensation package wasregained.
The Right Balance for Ahold• Our strategy for profitable growth is centered around working together to build
powerful brands – and Ahold’s future is dependent on how well we execute thisstrategy. It is important that the way we reward employee performance is alignedwith our strategy, so that employees can participate in Ahold’s future success.
• The objective of the 2006 complete redesign of the pay package was to betterbalance the individual remuneration components. As a result:
- STI performance measures were made simple and easy to understand; and- Options were abandoned and (conditional) shares were introduced;
• Four years later, the first shares have vested under GRO and the plan has beenestablished as an important component of remuneration for key employees.
• Effectiveness, was the result of several factors:- 1 – The programs were designed in line with the “Einstein law”;- 2 – It was the right change at the right time;- 3 – A comprehensive communications and awareness program through multiple
communication channels educated employees on the benefits of the new plans.
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
2009 GEO Award for Best Plan Effectiveness• Awarded to companies with highly effective equity compensation
programs that contributed to the strategic success of the organizationwhile also delivering considerable value to plan participants.
• The Winner is… AHOLD!
Fortis Bank Nederland
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
SPoNSoRS
HUMAN CAPITAL GROUP
14:40
® Trends in Equity Incentives in These Turbulent Markets Gerald Zaalberg, Sr. consultant Executive Remuneration, Hay Group
1
LTI in These Turbulent TimesShare Plans offer pay flexibility in uncertain business environment
Gerard ZaalbergGEO Regional Meeting, December 1, 2009
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
1
2© 2009 Hay Group. All Rights Reserved
Agenda – LTI in these Turbulent Times
!"Brief Historic Overview of LTI
#"Brief Historic Overview of Economic Times
$"Uncertain Times for Companies
%"Ways Forward and LTI Usage
&"Issues with Executive Pay
'"Ways Forward with Executive Pay
("Getting Prepared for the New Reality
Gerard Zaalberg
3© 2009 Hay Group. All Rights Reserved
1. Brief Historic Overview of LTI
LTI started as ‘cheap compensation component’; mainly stock options− No P/L charges for fixed -at the money- options
− Ideal instrument for start-ups with little cash to pay salaries
− Direct ‘company value – personal gain level’ connection
− Often favorable tax treatment (low taxation of awards and tax holidays)
Corporate scandals led towards controlling hidden shareholders costs− Changes in accounting treatment; option value to be expensed
− Retention through time-vesting changed towards performance-based LTI vesting
− Reduction of tax advantages in many countries
Alternative LTI models were designed and implemented− Restricted Stock, Performance Shares, SAR, Phantom Shares
− Different valuations decreased comparability of awards in compensation statistics
Gerard Zaalberg
Fortis Bank Nederland
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
SPoNSoRS
HUMAN CAPITAL GROUP
2
4© 2009 Hay Group. All Rights Reserved
2. Brief Historic Overview of Economic Times
Bull market 1995 – 2001 (‘New Economy’)
Economic stability promoted confident business attitude
2003 – 2007: Increased debt leverage pumped up equity value
Property Value and Card Credit fuelled Consumption and debt
2008 - ?: Global Crisis
− Property Value fall, Credit Crunch, ‘Consumers Strike’
− This crisis is different and deep
− Indicators point at very uncertain recovery scenarios
Gerard Zaalberg
5© 2009 Hay Group. All Rights Reserved
3. Uncertain Times for Companies
Governments debts against GNP increasing− Saving of financial sector at enormous costs
− Other capital injections to recover economy
− Will have monetary effect on the future
European social systems result in slower decline and recovery− Slower unemployment, slower employment
Consumer confidence strongly reduced
− Reduced lending capacity and confidence in financial products
− Costs of energy
− Healthcare
− Pension costs (to recover from incurred losses)
− Tax policy (cars, mortgage, municipal taxes)
Gerard Zaalberg
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
3
6© 2009 Hay Group. All Rights Reserved
3. Uncertain Times for Companies (2)Potential scenarios of recovery economy and company prospects Gerard Zaalberg
7© 2009 Hay Group. All Rights Reserved
3. Uncertain Times for Companies (3)
Reduce leverage
Reduce cash costs of employment
Increase flexibility of organization
Increase commitment of management and employees
Promote strategic focus, team spirit and entrepreneurial acumen
Needs to survive in the New Reality Gerard Zaalberg
Fortis Bank Nederland
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
SPoNSoRS
HUMAN CAPITAL GROUP
4
8© 2009 Hay Group. All Rights Reserved
4. Ways Forward and LTI Usage
Salary freezes and bonus reductions are not sustainable in the long run
Variable income prevails over base salary, to increase flexibility
Annual bonus schemes have disadvantages− High impact on cash-flow
− Disputed mental effects
− Short term oriented (?)
Payout of variable income in shares as an alternative to cash− Low impact on cash-flow, long-term oriented and retention effect
− KPI’s for award of shares, links objectives to share value
− Shares appear better instrument than stock options (volatility, under water risk)
Gerard Zaalberg
9© 2009 Hay Group. All Rights Reserved
5. Issues with Executive Pay
Excessive Executive Pay regarded as a Moral Hazard− Executives have role model for entire organization
− Tone at the top determines company culture
− Greed culture among executives breaches trust from shareholders and others
Areas of concern regarding Executive Pay− Pay for failure (excessive severance pay and pay of undeserved bonuses)
− Windfall profits when selling company (change-in-control clauses)
− Short-termism as result of bonus- and stock option schemes
− Detachment from organization as result of flawed internal consistency
− Lack of visibility of alignment between value creation and executive pay
Gerard Zaalberg
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
5
10© 2009 Hay Group. All Rights Reserved
5. Issues with Executive Pay (2)
“The concern today is that many executives have done very well with theircompensation, but their shareholders have done very poorly. So how couldit happen that a compensation arrangement whose whole motivation is toincrease shareholder value (and to align compensation with it), has donequite the opposite?”
Sanjai Bhagat, finance professor Leeds School of Business, September 30,2009
Gerard Zaalberg
11© 2009 Hay Group. All Rights Reserved
5. Issues with Executive Pay (3)
Fixed number, Fixed Benefit Value or Net Value Transfer?
Fixed number aligns with development shareholders value, but not withcompensation data (statistics)
Fixed Benefit Value aligns with compensation data, but not withdevelopment of shareholders value
Net Value Transfer aims at providing a stake in the market cap, at samelevel as (e.g.) median in a defined peer group
Award Volume Dilemma Gerard Zaalberg
Fortis Bank Nederland
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
SPoNSoRS
HUMAN CAPITAL GROUP
6
12© 2009 Hay Group. All Rights Reserved
5. Issues with Executive Pay (4)
15.000---Yr. 4 1000
15.0005.000--Yr. 31000
15.0005.0003.000-Yr. 21000
15.0005.0003.00010.000Yr. 11000
Yr. 4€ 15
Yr. 3€ 5
Yr. 2€ 3
Yr. 1€ 10
policy # 1000
10.000---Yr. 4667
30.00010.000--Yr. 32000
49.99516.66510.000-Yr. 23.333
15.0005.0003.00010.000Yr. 11000
Yr. 4€ 15
Yr. 3€ 5
Yr. 2€ 3
Yr. 1€ 10
Policy€ 10.000
Fixed Number Fixed Benefit ValueFixed Number versus Fixed Benefit Value Gerard Zaalberg
13© 2009 Hay Group. All Rights Reserved
6. Ways Forward with Executive Pay
Limit severance pay (one year base salary)
Freeze up stock options and share plans in case of take-over bids
Review the essence of the Executive LTI plan against the objectives− Take a critical look at the award policy regarding volume
− Share plans offer better alignment with shareholders than stock options
Choose performance conditions that better reflect managementinvolvement in value creation process:
− Relative TSR no longer the single metric? Vesting below median position?
− ROE over WACC as alternative?
− Long-term value indicators?
− EPS?
Gerard Zaalberg
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
7
14© 2009 Hay Group. All Rights Reserved
6. Ways Forward with Executive Pay (2)
Profits
Shar
ehol
ders
Valu
e Strategic Choices
Short Term
Long Term
Balancing the company objectives in LTI Performance Metrics Gerard Zaalberg
15© 2009 Hay Group. All Rights Reserved
6. Ways Forward with Executive Pay (3)
Profits
Shar
ehol
ders
Valu
e Strategic Objectives
Short Term
Long Term
Balancing the company objectives in LTI Performance Metrics Gerard Zaalberg
Fortis Bank Nederland
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
SPoNSoRS
HUMAN CAPITAL GROUP
8
16© 2009 Hay Group. All Rights Reserved
6. Ways Forward with Executive Pay (4)
Examples of Strategic Objectives− Vertical integration of value chains
− Horizontal integration
− M&A and Alliances
− New Products
− Channel structures
ALSO USEFUL: BALANCED SCORE CARD METHOD DELIVERING 4 PERSPECTIVES
CUSTOMER / MARKET
FINANCIAL
ORGANISATIONAL
INNOVATION AND GROWTH
Strategic Objectives in Performance Metrics Gerard Zaalberg
17© 2009 Hay Group. All Rights Reserved
7. Getting Prepared for the New Reality
Wrap-up of thoughts− Companies will face a longer period of uncertainty, requiring flexibility
− Minimize cash-out: also impacting on cash costs of employment
− Salary freezes and bonus reductions cannot sustain: offer perspective
Share plans dominant instrument: broad based implementation− Get ready for approval of your remuneration strategy at your next AGM!
KPIs for award, depending on role in company− Now is the time to develop longer-term performance indicators for all ranks
Executive pay requires a fresh approach− Visible link between company strategy, values and executive reward practice
− KPIs for LTI need update, but continue to apply to vesting
− Change-in-Control and Clawback provisions to be updated / implemented
Gerard Zaalberg
Fortis Bank Nederland
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
SPoNSoRS
HUMAN CAPITAL GROUP
15.40
® Stock option Grants in a Declining Stock Market Tijmen Kos, Managing Director, Sun Microsystems International b.V.
Tijmen KosManaging Director Sun Microsystems International B.V.
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
Sun Microsysems International BV
Agenda
AGENDA
About Sun Microsystems Inc.Stock options @ SunMotivator??Restricted Stock UnitsClosing remarks
Sun Microsysems International BV
About Sun Microsystems Inc.
Sun – founded in 1982 and since then one vision:
The NetworkIs The Computer.
Fortis Bank Nederland
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
SPoNSoRS
HUMAN CAPITAL GROUP
Sun Microsysems International BV
About Sun Microsystems Inc.
Sun People and Products Connect Our World
Sun Microsysems International BV
About Sun Microsystems Inc.
Sun worldwide
Active in more than 100 countries worldwideHeadoffice Santa Clara, California, U.S.A.Approximately 29.000 employeesTurnover financial year 2009 (till 30 June 2009): U.S. $11,449 billion#187 on the Fortune 500 (2009)NASDAQ: JAVA19 April 2009: Announcement intended takeover by Oracle16 July 2009: Approval shareholdersAwaiting “regulatory approvals”
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
Sun Microsysems International BV
Stock options@Sun
Always aimed to give options across functions and Business Units.Normally granted twice a year.Always conditional and with at least 5 years vesting scheme.First vesting 1 year after grand date.Option price equal to market price at grant date.Whole process outsourced to third party in US.Local Sun entities responsible to ensure compliance with local tax rules.
Sun Microsysems International BV
Motivator??
Depends on timing:Very much appreciated at the time of grant but.......Sun's stock price declined since the Internet bubble in 2000/2001.Result:- In a worst case scenario, employees had to pay taxes without a chance to recover these.- Daily publication of the (declining) stock price on the Internal website did not help to improve motivation.
What could have been done?- Repricing of the grants. That would give people at least the feeling that their options would come 'in the money'.
Fortis Bank Nederland
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
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HUMAN CAPITAL GROUP
Sun Microsysems International BV
Restricted Stock Units
Back in 2006, Sun moved to provide RSU's in stead of stock optionsSame distribution schemesDifferent vesting schemes e.g. first vesting of 50% after 2.5 years)Wage tax taken from payroll on vesting date
VERY good motivator because now people are ALWAYS in the moneyat vesting date!
Sun Microsysems International BV
Closing remarks
Thinks twice about giving stock options when stock price declines year after year
When you give them, ensure flexibility (e.g. re-pricing)Ensure that employees know about their tax compliance
Don't take it for granted they know!Ensure that employees understand fx rate changes in USDEnsure that the third party knows how to deal with Europe
(funds transfer etc.)
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
Sun Microsysems International BV
Questions?
Tijmen Kostijmen.kos@sun.com
Fortis Bank Nederland
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
SPoNSoRS
HUMAN CAPITAL GROUP
16.20 ® Identifying Dutch ESo companies;
Where are they? Pascale Nieuwland, consultant, SNPI
11/24/09
Identifying Dutch ESO companies;where are they?
Pascale Nieuwland-Jansen, ConsultantNetherlands Participation Institute (SNPI)
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
11/24/09
SNPI?
SNPI is a non-governamental and independentorganisation, founded in 1994.
SNPI promotes financial participation (FP) and focuseson employee share ownership.
SNPI has 4 main activities:1. Consultancy2. Lobby3. Information Centre4. Research
Presentation GEO about…
Statistics Radboud University:
Database of listed companies of Erik Poutsma andGeert Braam from Radboud University Nijmegenconsists:
- All listed companies;- Period 1992 – 2006;- Data from annual company reports and databases like AMADEUS and Company.info;- In total 1878 observations over a period of 15 years;- Information about types of FP plans;- Financial and non-financial data.
Fortis Bank Nederland
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
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HUMAN CAPITAL GROUP
11/24/09
Database results on FP:
Options 1992 1999 2006Top Management 8,9 % 7,8 % 7,3 %Management 15,3 % 44,3 % 35,5 %Broad-based 12,9 % 26,1 % 10,9 %Total 37,1 % 78,2 % 53,7 %
Profit sharing 1992 1999 2006Top Management 0,8 % 0,0 % 3,6 %
Management 0,0 % 0,0 % 0,0 %
Broad-based 0,8 % 15,7 % 13,6 %
Total 1,6 % 15,7 % 17,2 %
Database results (continued)
Shares 1992 1999 2006Top Management 0,0 % 1,7 % 14,5 %Management 0,8 % 6,1 % 20,0 %Broad-based 4,8 % 7,8 % 10,9 %Total 5,6 % 15,6 % 45,4 %
FinancialParticipationtotal
1992 1999 2006
Top Management 8,9 % 8,7 % 9,1 %Management 16,1% 40,0 % 39,1 %Broad-based 17,7% 40,0 % 30,0 %Total 42,7% 88,7 % 78,2 %
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
11/24/09
First observations on the basis ofFP statistics 1992-2006
More companies apply profit sharing schemes; Option plans less popular in 2006 compared to 1999
(change in tax law); Share plans become more popular, especially for top
management and management; Popularity broad-based share plans is lacking
compared to the increase of share plans fortop(management)
Financial participation in total is slightly declining.
More variables in database Radboud:
Other variables in database are:type of industry/net income/ EBIT/ earnings per share/turnover per employee/ personnel costs per employee/profit per employee.
Variables used for 4 types of performance indicators:1. Accounting2. Accounting & Market Based3. Market based4. Operational
Fortis Bank Nederland
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
SPoNSoRS
HUMAN CAPITAL GROUP
11/24/09
What can we conclude from these data?
Results Radboud University:
1. Profit sharing only for (top)management has asignificant negative result on financial performanceindicators like: return on equity and dividend yield;
2. Broad based profit sharing schemes have significantpositive effect on financial performance indicatorslike: net income, EBIT(DA) and earnings per share;
What can we conclude from these data?
3. Share plans only for (top)management have asignificant negative effect on the financialperformance indicators like: dividend yield and changeexchange rate per AEX-points;
4. Broad-based share plans have a positive effect onthe financial performance indicators like: earnings pershare and shareholders equity per share;
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
11/24/09
What can we conclude from these data?
5. Broad-based option plans have significant negativeeffects on financial performance indicators like:earnings per share and dividend yield.And significant negative effects on non-financialperformance indicators like: turnover per employee.
Conclusions Radboud
Listed companies with broad-based financialparticipation in the form of profit sharing andshare plans perform betterthancompanies without these forms of participation orcompanies with only financial participation for(top)management.
Broad-based option plans have negative effects.
Fortis Bank Nederland
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
SPoNSoRS
HUMAN CAPITAL GROUP
11/24/09
Research Kaarsemaker, 2009
Data collection via a telephone survey to 2.500companies. Companies with >10 employees, listed andnon-listed. The response was 27%, 669 companies.
Results: 3,6 % broad-based share plan; 1,0 % broad-based option plan; 3,7 % plans/interested in implementing broad-based
share(option)plans; 5,8 % share and/or option plan for (top)management.
Research Kaarsemaker (continued)
80.000 employee shareholders; 2.460 (3,6%) companies with broad-based share
plans; 680 (1,0%) companies with broad-based option plans; Almost 4.000 (5,8%) companies with share and/or
option plans for (top)management only; Another 2.500 (3,7%) companies is interested in
implementing financial participation plans.
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
11/24/09
What needs to be done?
Identifying the ESO companies in the Netherlands!Database Financial Participation needs to be filled;
Update of database Radboud in 2010; Promotion of broad-based financial participation and its
benefits; Lobby to create fiscal incentives in NL.
Database Financial Participation SNPI?
Fortis Bank Nederland
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
SPoNSoRS
HUMAN CAPITAL GROUP
11/24/09
What happens with database SNPI?
Database will be used for research; Independent index; Information confidential; SNPI offers platform and companies can decide how
and when to be involved:- Index;- Promoting financial participation;- Lobby activities;- Events and meetings (like branch meetings).
Identifying Dutch ESO companies?
Where are they?Help to complete the database!Thank you!
Fortis Bank Nederland
www.globalequity.orgAs a non-profit organization, GEo is dedicated to providing the global equity compensation community with an opportunity to learn from one another. Your support of GEo allows us to provide quality programs throughout the year for our members worldwide. We hope you consider your participation in GEo an invaluable opportunity.
SPoNSoRS
HUMAN CAPITAL GROUP
® biographiesTijmen Kos, Sun Microsystems International B.V., (NL)
Tijmen Kos is Managing Director of Sun Microsystems International b.V. in Amersfoort, The Netherlands. Next to this role, he is Director EMEA Global Accounting. With the assistance of the local HR Manager in the Netherlands, he is in charge as ‘bestuurder’ for all workers council activities as well as to ensure compliance with local statutory requirements with regards to stock based compensation throughout EMEA: Tijmen joined Sun in July 2001, after a nine years career as European controller at Apple computer, 6 years as Financial controller at Digital Equipment and 13 years in numerous Finance Management positions at Rank Xerox Netherlands.
Pascale Nieuwland-Jansen, Netherlands Participation Institute [SNPI], (NL)Mrs. Pascale Nieuwland-Jansen, consultant at the Netherlands Participation Institute (SNPI) is 35 years old, married and mother of two daughters. Pascale studied International Economics and languages at the University of Leiden (1992-1997) and HRM. She has worked for the chamber of commerce in Amsterdam and VNo-NcW. From 2004 till 2007 she had her own company and worked in the field of HR, training and assessments.
Since December 2005 she works as a consultant for the Netherlands Participation Institute (SNPI). In 2006 she replaced Director Kool at the SNPI and is now forming the management of SNPI together with her colleague Mrs. Marjon Westerhof-Van Gelder. The secretariat of SNPI is formed by two consultants (Pascale and Marjon) and an office manager. SNPI is a non-governmental and independent organization and promotes financial participation/ Employee share ownership. SNPI has four main activities: lobby, research, information sharing and consultancy.
Robert Watts, Royal Ahold (NL)Robert is Senior Manager compensation & benefits (c&b) at Ahold. He is responsible for leading and supporting c&b projects for the Ahold group in areas such as short and long-term incentive plans, benchmarking, and for supporting and advising line and HR management on their c&b policies, procedures and practices.
He received his b.A. in Finance from Towson University and his M.b.A. from Loyola college; he is a qualified Accountant and holds the Global Remuneration Professional designation (GRP).
Gerard Zaalberg, Hay Group (NL)Gerard Zaalberg is service line leader for Executive Remuneration and Expert at Long Term Incentives at Hay Group in The Netherlands.
With the Executive Remuneration team, he advises remuneration committees, executive boards and HR-management on the design, implementation and execution of executive compensation packages for executive- and non-executive board members, as well as higher-ranked management.
Gerard joined Hay Group in January 2005, after a thirteen years career as a tax lawyer, working with baker & McKenzie, Arthur Andersen and Deloitte. At Hay Group, Gerard focuses on variable remuneration principles, performance management and corporate governance aspects of executive pay. Gerard graduated as Master in Tax Law at the Leiden University, in 1990.
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