Strategies for Executive Compensation: Design and Tax Issues for a ...

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Stock Option Rollover – Maintaining Economic Value Assumptions Pre-Transaction Price [P1] $50.00 Post-Transaction Price $20.00 Exchange Ratio [P1 / P2] 2.5000 OPTIONS Pre Exchange Exchange Adjustment After Exchange Exercise Price $30.000 / 2.5 $12.000 Options 10,000 x 2.5 25,000 Exercise Cost $300,000 $300,000 Underlying Market Value $500,000 $500,000 In-the-Money $200,000 $200,000 Combined Exercise Price Adjustment x 0.4 Combined Number of Shares Adjustment x 2.5 towerswatson.com 9 No Reason to Accelerate RSU/PSU Payment (Vesting) Share Price NewCo RSUs RSU Grant Transaction RSU $ Value No Share Price $ Payment Withheld Grant Year 3 towerswatson.com 10 5
Dollar Amount Converted to RSUs/DSUs Company in black-out, or Company anticipating IPO Grant Year 3 Remain Cash Settle $ Denominated Retention Convert to RSUs Settle Convert to DSUs Continue towerswatson.com 11 Key Points Ensure a complete review of all contracts and plan terms Understand the financial obligations triggered as a result of the transaction Understand specific program treatment Immediate vesting is not always a requirement Pay particular attention to retaining key talent towerswatson.com 12 6
Page 1 and 2: Strategies for Executive Compensati
Page 3 and 4: April 10, 2012 Strategies for Execu
Page 5 and 6: Incentive And Stock Compensation Ar
Page 7 and 8: Types of Private Equity Transaction
Page 9 and 10: Participation of Target/Portfolio C
Page 11 and 12: Exit Strategies and Investment Hori
Page 13 and 14: Key Design Considerations and Commo
Page 15 and 16: Stock Options - Rules for Canadian-
Page 17 and 18: Stock Options - Rules for Canadian-
Page 19 and 20: Share Purchase Loans • Management
Page 21 and 22: Cash-Based Long-Term Incentive Plan
Page 23 and 24: Cash-Based Long-Term Incentive Plan
Page 25 and 26: Non-Portfolio Company Incentives (c
Page 27 and 28: Acquirer (Buyer) Priorities in a Co
Page 29: Program Treatment - Equity Compensa
Page 33 and 34: U.S. Statutory Clawbacks (cont’d)
Page 35 and 36: Type and Relative Prevalence of Cla
Page 37 and 38: Potential Tax Relief for Later Year
Page 39 and 40: Conclusion • Clawbacks in Canada
Page 41 and 42: Long Term Incentive Plan Clawbacks:
Page 43 and 44: - 3 - are subject to recoupment. It
Page 45 and 46: - 5 - U.S., a wide range of incenti
Page 47 and 48: - 7 - review our policy to assure t
Page 49 and 50: - 9 - Cash and Earnings Bonus Unit
Page 51 and 52: - 11 - underway or contemplated at
Page 53 and 54: - 13 - operate, the terminated part
Page 55 and 56: - 15 - use of the provision where a
Page 57 and 58: - 17 - interest paid or payable the
Page 59 and 60: - 19 - right is to postpone tax pay
Page 61 and 62: - 21 - taxpayer under subsection 7(
Page 63 and 64: Bill Sutherland Bill is a Senior Co

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