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© 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M.

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1 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made The Hottest Issues in Stock Compensation Today National Association of Stock Plan Professionals Austin Chapter 1 Barbara Baksa, NASPP June Anne Burke, Baker & McKenzie LLP Denise Glagau, Baker & McKenzie LLP May 13, 2014 Baker & McKenzie LLP is a member firm of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an "office" means an office of any such law firm.

2 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made Presenters Barbara Baksa | NASPP (510) June Anne Burke | Baker & McKenzie LLP (212) Denise Glagau | Baker & McKenzie LLP (415)

3 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made 3 Agenda ‒ Performance Awards ‒ Tax Developments  Mobile Employee Taxation  Tax Reform in the US  Increase in Tax Reporting Obligations ‒ Clawbacks / Forfeitures ‒ Data Privacy ‒ Grant Acceptance ‒ CEO Pay Ratio Disclosure

4 Performance Awards 4

5 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made The Rise of Performance Awards  Performance award usage began increasing in the mid 2000s as a result of market volatility and changes in accounting practices, and has accelerated in prevalence as a result of ISS, say on pay, and shareholder expectations for pay and performance Source: NASPP Stock Plan Design Survey (2004 – 2013, co-sponsored by Deloitte Consulting LLP)

6 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made Performance Awards – Here to Stay Summary of Key Findings on Performance Plans (units, cash and shares)*  Prevalence: usage of performance awards outpaces stock options and rivals time-based awards for senior management and above  Eligibility: median minimum salary for eligibility for performance awards is $139,200 (up from $120,000 in 2010)  Grant frequency: annual grants used by majority of companies  Vesting schedule: 69% of companies who grant performance awards paid out in stock and 72% of companies who grant performance awards paid out in cash have a three-year performance period  Dividends: For performance awards paid out in stock, 62% pay dividends on the awards. The majority (80%) pay out the dividends only when the underlying award is paid out (half of these respondents pay the dividends in cash and half reinvest them in additional shares) Source: NASPP 2013 Domestic Stock Plan Design Survey (co-sponsored by Deloitte Consulting LLP)

7 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made Performance Awards – Here to Stay Number of Metrics Used Types of Metrics Prevalence of Specified Metrics Source: NASPP 2013 Domestic Stock Plan Design Survey (co-sponsored by Deloitte Consulting LLP)

8 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made Why is This Such an Important Trend?  Performance plans have been rising each year, and are now passing the tipping point of 50% of a CEO’s LTI  As performance plans take up more of the pay program, it is increasingly important to design them carefully 8

9 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made 9 Performance Award Checklist / Best Practices 1.Establishing Plan / Program -Board/Compensation Committee adoption -Shareholder approval (Code Section 162(m) considerations) 2.Determining Grantees -If executive subject to Code Section 162(m) (or could be), then ensure satisfaction of requirements -VPs and above? All employees? In the US vs. outside? 3.Determining Award Type / Shares - Most common vehicles are RSUs and cash, but RSA and options are possibilities

10 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made 10 Performance Award Checklist / Best Practices 4.Performance Targets / Performance Periods When established? -Before grant -Before or after performance period begins -Code Section 162(m) requirements Number of shares per award -Fixed (easier to administer/better outside US) -Varies based on level of performance targets attained (more difficult to administer but motivates performance?) Target considerations -Objective vs. Subjective (Code Section 162(m) requirements) -Market vs. Performance conditions (both?) -Reference Measure (external (peer group, indexes) vs. internal) -Single Measure vs. Multiple Measures (weighted/matrix)

11 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made 11 Performance Award Checklist / Best Practices 4.Performance Targets / Performance Periods Performance Period -Single period vs. Overlapping -Calendar/Fiscal vs. Event Driven -Start date/duration -ISS considerations -Typically a minimum 1 year performance period Attainment of target -Who decides? Certification under Code Section 162(m) -Adjustments (What circumstances? Only downward?) Result if obtained-Vest (no longer subject to risk of forfeiture) -Immediate Pay Out -Additional service period requirements

12 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made 12 Performance Award Checklist / Best Practices 5.Termination of service -Payout at target vs. Maximum number of shares -Pro-rate based on service during period -Triggers…. -Death/Disability/Lay Offs or Redundancy -Retirement -Termination/Change of Status -Change In Control 6.Dividends / Dividend equivalents 7.Tax consequences / withholdings 8.Disclosure requirements

13 Tax Developments 13

14 Mobile Employee Taxation

15 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made Mobile Employee Dilemma ‒ Employee typically taxed on worldwide income in state and country of “tax residence”  e.g., entire gain at RSU vesting ‒ Also taxed on “source” basis where income was earned  e.g., all states/countries of employment during RSU vesting period ‒ Extra complexity for US transferees – citizens and greencard-holders subject to US federal tax on worldwide income  Tax residency in most countries based on time spent in country, intent to reside indefinitely, ownership of real estate, etc. ‒ Social insurance rules often do not mirror tax rules  May depend upon recharges, role of local employer, whether employee remains on home country social system, etc. 15

16 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made Mobile Employee Dilemma Country A Grant Country B Vesting Period Country C Vest Date Source Taxation? 100% as grant location? Any tax withholding or reporting? Source Taxation? Any Exemptions –how long in Country B? Any tax withholding or reporting? 100% Resident Tax? Any tax withholding or reporting? Any double withholding relief? US citizen or green card? Social taxes? Transfer RSU Gain

17 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made Mobile Employee Dilemma ‒ Income taxes and social insurance may be due in multiple countries on different amounts and at different times ‒ Double taxation of same income may occur ‒ Tax treaties/totalization agreements/foreign tax credits may apply to avoid or reduce double taxation – but can be tricky to apply ‒ Special exemptions should be considered to potentially avoid tax ‒ Timing of employee movement or grant of award may increase or decrease tax amounts due ‒ Employee movement can be difficult to control and track ** Heightened attention to mobile employees from tax authorities around the world as countries looking for tax revenue ** 17

18 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made Recent Developments in Mobile Employee Taxation -- Ireland ‒ Ireland taxes RSUs on an “all in/all out” basis  If resident in Ireland at vesting, all gain is taxed without apportionment  If not resident in Ireland at vesting, no gain is taxed in Ireland ‒ Tax credit available if a double tax treaty is in effect ‒ For tax years beginning January 1, 2013 and after, “real time” tax credit where credit for foreign tax paid through PAYE  The employer must satisfy certain reporting requirements 18

19 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made Recent Developments in Mobile Employee Taxation -- Switzerland ‒ The Swiss Social Security Administration issued guidance in November 2013 on new rules regarding Swiss social security taxation in mobile employee situations ‒ The new rules align Swiss social security with Swiss income tax in mobile employee situations ‒ Effective for taxable events occurring on or after January 1, 2013  Because guidance was late and not well publicized, the authorities may be willing to permit companies to implement for 2014 forward 19

20 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made Recent Developments in Mobile Employee Taxation -- Switzerland Some exceptions apply: ‒ If employee subject to social taxes in home country under a social security treaty, e.g., social security totalization agreement, Swiss social security will not apply ‒ If employee subject to tax in another country that imposes social taxes without proration, Swiss social security will be determined on a case-by-case basis RECOMMENDED ACTION: ‒ Review method used for transfer situations involving Switzerland 20

21 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made Recent Developments in Mobile Employee Taxation -- United Kingdom ‒ Finance Act 2014 harmonizes tax rules for mobile employees  Options and RSUs taxed in the same way, generally based on portion of vesting period worked in UK  Eliminates exception to UK tax for options granted outside UK without link to UK employment  Effective for grants from September 1, 2014 ̶ New statutory residence test  Considers number of days spent physically in the UK and "connecting factors".  If less than 16 days in the UK in the tax year, not resident, and one who spends 183 days or more in the UK in a tax year will always be resident  Sliding scale for presence more than 16 days and less than 183 days 21

22 Tax Reform in the US 22

23 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made Proposed Tax Reform in the US ‒ Proposal for broad tax reform released by Chairman of the House Ways and Means Committee Dave Camp  Income tax brackets reduced from seven to three  What would happen to the supplemental flat rate?  Preferential tax rates for long-term capital gains and qualified dividends would be replaced with 40% income deduction  AMT eliminated ‒ Likelihood of full enactment seems remote, but parts of the legislation may become law 23 Listen to the NASPP’s podcast interview with Bill Dunn. Search for “NASPP” in iTunes and download episode 5.

24 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made Proposed Tax Reform in the US ‒ Proposals related to equity compensation  No more deferred comp, everything would be taxed when no longer subject to substantial risk of forfeiture  Could apply to stock options as well as full value awards  Would accelerated/continued vesting upon retirement become a thing of the past?  Currently approximately 50% of companies provide some sort of automatic payout to retirees  Or would this further push companies towards performance-based awards?  Overhaul of Section 162(m)  CFO once again a covered employee  No exemption for performance-based compensation  Would IRS take this opportunity to align treatment of equity awards with the proposed requirements for health insurance providers? 24

25 Increase in Tax Reporting Obligations 25

26 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made Increased Tax Reporting Obligations ‒ Many countries have implemented foreign asset / foreign account tax reporting requirements  Belgium  Canada  France  India  Japan  Korea  Spain  U.S. ‒ Varying thresholds apply ‒ May impact awards, shares and/or sale proceeds 26

27 Clawbacks / Forfeitures 27

28 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made 28 Clawbacks ‒ A clawback requires an award recipient to re-pay benefits received pursuant to an award (e.g., shares or sale proceeds) ‒ The purpose of clawbacks include:  Promoting good behavior  Punishing bad behavior  Protecting the company’s business and trade secrets  Complying with applicable laws o U.S. Sarbanes-Oxley Act of 2002 (“SOX”) o U.S. Dodd–Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) - July 2010 o Outside the U.S., most statutory clawbacks apply only to financial institutions (e.g., EU Capital Requirements Directive or CRD-IV, Hong Kong Guidelines on Sound Remuneration System, Singapore FSB Principles for Sound Compensation Practices)

29 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made 29 Forfeitures ‒ A forfeiture requires an award recipient to forfeit an award, vested and/or unvested, that has not yet been paid ‒ Serves similar purpose as a clawback, but there may be differences in enforceability

30 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made 30 Clawbacks on the Rise ‒ 60% of companies indicate their grants are subject to a clawback provision (an 88% increase since 2010) Employees that are most frequently subject to clawback provisions: Top three most common triggers: Source: NASPP 2013 Domestic Stock Plan Design Survey (co-sponsored by Deloitte Consulting LLP)

31 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made 31 Effective Clawback / Forfeiture Provisions ‒ Clearly define scope ‒ Distinguish between vested and unvested awards ‒ Provide for ability to waive or modify discretionary clawback / forfeiture if necessary to comply with local laws ‒ Even if unenforceable, may decide to leave clawback / forfeiture provision in award agreement as deterrent (generally fine, but some exceptions, e.g., California in the case of a clawback based on a non-compete) ‒ Select US law as governing law, if possible ‒ Require employees to affirmatively accept terms; consider translations ‒ Include appropriate labor law disclaimers in award agreements

32 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made 32 Final Word on Clawbacks / Forfeitures ‒ Obtain legal advice prior to any enforcement attempt  Civil and/or criminal penalties may apply for such attempt, e.g., France  Clawback applied to current employees may provide basis for constructive termination claim ‒ Consult with auditors before implementing forfeiture/clawback provisions ‒ Consider a separate, designated brokerage account for holding shares subject to forfeiture/clawback provisions ‒ Designing clawback/forfeiture provisions should not be a stand- alone exercise  Evaluate what your peer group companies are doing/considering and incorporate the clawback/forfeiture provisions in the overall executive compensation program design

33 Data Privacy 33

34 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made Australia – New Data Privacy Legislation –New data privacy law, Australian Privacy Principles (“APP”), took effect on March 12, 2014  APP regulate the handling of personal information by both businesses and Australian government agencies  Replaces existing data protection principles to strengthen compliance  Penalties of up to $A1.7 million for corporations RECOMMENDED ACTION:  Stay tuned for further developments 34

35 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made Malaysia – New Data Privacy Legislation –New data privacy legislation into force on November, 15, 2013  Participant consent required for use and transfer of data  Notification must comply with certain minimum disclosure requirements  The notice must be provided in both the national language of Malaysia and in English RECOMMENDED ACTION: –Obtain separate consent –Modify country addendum language and include consent award agreement language in addendum 35

36 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made South Africa– New Data Privacy Legislation –The Protection of Personal Information Bill ("POPI") signed into law November 26, 2013  The Act sets out requirements for processing of personal data, including eight "core information-processing" principles and the founding of an independent information-protection Regulator  Will significantly impact the way in which organizations collect, store, process and disseminate information  Impact on incentive awards is not yet clear RECOMMENDED ACTION:  Stay tuned! 36

37 Grant Acceptance 37

38 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made Grant Acceptance — Particular Relevance for RSUs ‒ For options, acceptance of award can be built into the exercise process; participants must take affirmative action to exercise options ‒ No participant action is required when RSUs vest ‒ Therefore, there is no built-in mechanism in an RSU award that forces the participant to accept the award prior to the vesting date ‒ This same issue also impacts restricted stock awards and performance units/shares 38

39 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made Grant Acceptance -- Why is it Important? ‒ Award agreement contains terms and conditions that protect the company in case of disputes  e.g., tax withholding consent, vested rights disclaimer, data privacy consent, governing law/venue provision ‒ Award Agreement may also include other provisions that are beneficial to the company  e.g., restrictive covenants such as non-competes and non- solicits ‒ Important that plan participants affirmatively agree to those terms and conditions so they are more likely to be enforceable 39

40 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made Possible Solution #1 Cancel the award if not accepted by first vesting date ‒ Accounting Issues  Expense and share counts would be disclosed from grant date through the first vest date until the award is forfeited ‒ Non-US tax issues  If tax due at grant, may not be able to recoup despite cancellation (e.g., France) ‒ Consider communications/employee relations issues 40

41 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made Possible Solution #2 No new grants to participant if he/she fails to accept award within timeframe or at all ‒ Hybrid of Solution #1  Does not rectify the original grant issues ‒ Accounting Issues? ‒ No tax issues –Communications/employee relations issues 41

42 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made Possible Solution #3 Don’t issue shares until plan participant accepts the award  US tax issues / Code Section 409A  Code Section 409A requires document and operational compliance; failure to comply results in excise tax imposed on service providers/employees  Short-term deferral exception – RSU award must be paid within 2 ½ months following the end of the year in which the award vests  Late payment exception – later of the last day of the calendar year in which the payment is scheduled or 2 ½ months following the originally scheduled payment date  Other exceptions; no legally binding right  FICA due on vesting even if shares not issued 42

43 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made Possible Solution #3 (cont’d) ‒ No accounting issues ‒ Non-US tax issues  In several countries, tax due at vesting even if shares not issued (e.g., Australia)  Problem: how to cover tax if shares not issued?  Issue sufficient number of shares to cover tax  Withhold from salary  Administratively cumbersome 43

44 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made Possible Solution #4 Include award in income at vesting but delay release of shares until acceptance ‒ No accounting issues ‒ US tax issues  Code Section 409A requires compliance with the short- term deferral rule or payment date must be determined at time of grant – to avoid Code Section 409A violation, withhold and report income (and social insurance tax) on vesting date ‒ Global tax issues  How to cover tax if shares not issued?  May not be acceptable to accelerate taxable event without issuing shares 44

45 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made Possible Solution #5 Issue shares at vesting but restrict sale/transfer of shares until acceptance ‒ Accounting issues  No issues (if communicated in Plan or Grant Agreement) – share & sale restrictions for other reasons typically result in a discounted fair value  Non-US tax issues  Tax only due when restrictions lapse (e.g., Australia)  Reduced taxable amount to reflect restrictions (e.g., Switzerland)  Dual tax events: tax at vesting/issuance and upon lapse of restrictions (e.g., United Kingdom) 45

46 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made Possible Solution #6 Try to obtain acceptance but issue shares on the vesting date even if not obtained ‒ Administratively cumbersome to chase employees ‒ No accounting issues ‒ Enforceability of award provisions may be limited  For example, restrictive covenants and entitlement provisions ‒ Less protection in case of disputes ‒ Authority to withhold shares (or sell to cover) for income and social insurance tax withholding may be questionable ‒ No authority to transfer employee personal data from certain countries, unless consent obtained separately (e.g., in equity side/offer letter) 46

47 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made Possible Solution #7 Implied or negative acceptance ‒ No accounting issues ‒ Enforceability of award provisions may be limited  For example, restrictive covenants and entitlement provisions ‒ Less protection in case of disputes ‒ Authority to withhold shares (or sell to cover) for income and social insurance tax withholding may be questionable ‒ No authority to transfer employee personal data from certain countries, unless consent obtained separately (e.g., in equity side/offer letter) 47

48 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made Possible Solution #8 Require acceptance of standard terms prior to making grant ‒ No accounting issues ‒ Administratively cumbersome (especially if broad-based grants) ‒ Non-US issue:  May lead to entitlement issues if grant not made 48

49 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made Recap ‒ One-size fits all approach may not be the best option ‒ Consider using different solutions in different jurisdictions or for different groups of participants ‒ When considering any solution consider: tax, accounting, labor law and data privacy issues – as well as company profile 49

50 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made 50 Common Practices Do you require employees to accept awards? If yes, what action do you take if awards aren’t accepted before vesting? Source: May 2011 NASPP Quick Survey on Restricted Stock and Units

51 CEO Pay Ratio Disclosure 51

52 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made CEO Pay Ratio Disclosure ‒ Requires public companies to disclose ratio of CEO pay to median employee pay ‒ Proposed regs issued last year, final regs expected this year ‒ Unclear what, if any, value investors will place on the disclosure  Media, however, is likely to be all over it  Legislation already proposed in CA to impose an additional corporate tax based on the ratio (using a different calculation than the SEC’s calculation, however) 52

53 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made CEO Pay Ratio Disclosure ‒ Simple in theory, difficult in practice  Select median employee of all individuals employed as of last day of fiscal year, including:  Both US and non-US employees, part-time employees, seasonal employees, if employed at end of fiscal year  No cost of living or other adjustments to pay, except that pay may be annualized for newly hired employees  Median employee based on consistent definition of pay  Median employee’s pay the computed based on definition of compensation for SCT to calculate the ratio  Statistical sampling permissible to determine median employee 53

54 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made CEO Pay Ratio Disclosure ‒ Action to take now  Start looking at how your company will perform this calculation  How to identify employees  Definition of compensation that is consistent for both US and non-US employees  Statistical sampling  Get on the team  Stock is a big component of compensation; make sure stock plan admin is part of the team looking at this issue for your company 54

55 © 2014 Baker & McKenzie LLP INSTRUCTIONS How to apply a Slide Layout Go to the Home tab and select New Slide to choose from a variety of formatted B&M slide layouts Tip: choose Layout to reapply a layout to a selected slide(s) How to apply slide text styles Use the Decrease List Level and Increase List Level icons on the Home tab to apply the required text style Tip: use the Reset option from the Home tab to restore template text styles to a slide How to update footer and slide numbers Go to the Insert tab and select Header & Footer. Select Apply to All once update has been made Global Equity Matrix App Information on the key compliance issues for equity awards. It covers tax and securities, exchange control, labor and data privacy issues in 50 countries. Available for free on your iPhone, iPad or Android smartphone More at 55

56 Questions? 56


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