Today’s Discussion

1. National Association Of Stock Plan ProfessionalsLessons Learned From The Current Proxy SeasonLarry SchumerPrincipal, BostonMay 6,2009

2. Today’s Discussion • Topics and Trends in the Headlines • Our Research • Overview: Compliance, Concession, and Innovation • Findings • Implications for Evaluation and Design

3. Topics and Trends in the Headlines • Trends • Say on Pay • Clawbacks • Option exchanges • Executive pay cuts • Performance plans • Topics • Pay limits • Incentives and risk • Pay for failure • Repayment of bonuses • Misalignment with shareholders • Caveats • Focused on troubled industries – financial, auto • Focused on largest companies • Actions driven by compliance and concession • Little focus on innovation

4. Our Objectives • Provide a mid-season glimpse of emerging pay trends and practices through a review of recent proxy statements • Explore whether pay programs are reflecting recent years’ executive and equity compensation debates • Analyze whether two key industry sectors reflect the topics and trends in the media headlines • Investigate the differences between larger firms and smaller firms in each sector • Consider the implications of our findings for compensation professionals faced with a high degree of scrutiny of executive compensation practices

5. Our Research • Two industry sectors that are a continuing source of US economic competitiveness: technology and biopharma • Two sectors known for innovation in products, business processes…and pay • Currently under less scrutiny than the troubled industries: financial services, auto, retail • The research questions: • Are those sector specific practices making the headlines spilling over to other sectors? • Are the pay issues in the headlines common to companies of all sizes or just the larger ones? • Are the nontraditional pay practices of the tech and biopharma sectors immune to the current pay governance pressures?

6. Our Research • Explored differences between the “big companies” and the “next tier” in each sector • Considered both revenue and market capitalization • Revenue generally stable (except in semiconductors), though down in Q4, in technology sector • Market cap important for capturing high-potential biopharma companies • Reviewed both revenue and market cap rankings for both sectors with final list based on • Technology companies ranked by revenue • Biopharma companies ranked by market capitalization • Compared Top 25 and Next 25 • Divided in technology at $4 billion revenue • Divided in biopharma at $3 billion market cap

7. Our Research Companies: Technology Top 25 Next 25

8. Our Research Companies: Technology

9. JOHNSON & JOHNSON PFIZER INC ABBOTT LABORATORIES MERCK CO INC AMGEN INC BRISTOL-MYERS SQUIBB CO GILEAD SCIENCES INC LILLY (ELI) & CO CELGENE CORP THERMO FISHER SCIENTIFIC INC ALLERGAN INC GENZYME CORP BIOGEN IDEC INC. FOREST LABORATORIES -CL A LIFE TECHNOLOGIES CORP CEPHALON INC ILLUMINA INC MYLAN INC VERTEX PHARMACEUTICALS INC MYRIAD GENETICS INC WATERS CORP MGI PHARMA INC MILLIPORE CORP WATSON PHARMACEUTICALS INC VENTANA MEDICAL SYSTEM INC Our Research Companies: Biopharma Top 25 Next 25

10. Our Research Companies: Biopharma

11. Our Analysis • We first classified our findings into two general areas: • Disclosure • Design • We categorized our findings into those that, from our daily experience working with clients and understanding of marketplace dynamics, seem to be the basis for change • Compliance – changes implemented to meet specific requirements such as proxy disclosure rules or changes in government regulations • Concession – changes implemented in response to external pressures from shareholders, proxy advisors, regulators, or the overall political climate • Innovation – changes implemented for specific strategic, financial or other business reasons for the purpose of optimizing compensation design to support business strategy and value creation

12. Overview of Findings Across Sectors and Size Compliance Concession Innovation Disclosure Peer groups/process Performance metrics Post-FY end actions Advisor independence Performance targets Risk assessment Tally sheets Wealth accumulation Executive summary Supplemental tables Alternative tablesFV vs. current value Design 409A 457A Shareholder approval Say on Pay Salary freeze/cut Perk cutbacks Clawbacks Ownership guidelines EA/GP elimination Share requests Fungible share ratios Performance plans Peer groups Option exchanges One-time LTI grants Perf-based retention Changes in ST/LT mix Retention grants

13. Our Analysis • We discuss our findings based on our two criteria of industry and size, with disclosure and design practices that: • Are common across all four categories • Differ between the two industry sectors (sector-specific) • Different between the two size categories (size-specific) • Are of extremely low prevalence in all four sector/size categories

14. Few Pay Practices are Specific to Both Sector and Size Technology Biopharma Top 25 Retention grants ?? Next 25 ?? ??

15. Findings – Not Sector or Size-Specific • Equity plans: Plan amendments, primarily additional share requests • Some changing option:share ratios • Peer groups: More than half of companies (56%) made changes to their peer group due to: • Acquisitions and mergers of peer companies • Change in business strategy or lines of business • Change in company size due to growth or acquisition/merger • Peer groups: One-fourth of the companies use more than one peer group for pay comparison purposes • STI performance measures: Continuing use of revenue and profit-based measures for short-term incentive programs with little use of cash- or return-based measures • Many of the profit-based measures are “adjusted” versions of GAAP measures (e.g., “adjusted earnings per share” rather than pure EPS)

16. Findings – Not Sector or Size-Specific, cont’d • 2009 STI performance measures: More than half of the companies discussed their plan • Approximately half of those disclosed specific performance measures but few disclosed specific performance targets • Performance share measures: While 60% of the companies have a performance-based full-value share plan, there is great variation among the companies in number and type of performance measures used • The smaller companies tend to use traditional revenue and earnings measures • LTI metrics: just under half discussed the metrics for 2009 • Half disclosed performance measures • Very few disclosed targets

17. Findings – Sector-Specific • Pay freezes: Freezes are much more common for one or more executives in the technology sector (just over 50%) than the biopharma sector (just over 25%) • Four technology companies reduced executive salaries but only one biopharma firm did so • CEO bonus: The average CEO bonus was well above the target level for 2008 • Biopharma CEOs averaged 140% of target vs. 125% of target for technology CEOs • 30% of the technology CEO’s received no bonus (zeroes not included in above percentage calculations) • Tally sheets: One-third of companies report the use of tally sheets in the compensation decision process but this varies greatly by industry sector • Half of biopharma companies but only one quarter of technology companies are using tally sheets

18. Findings – Sector-Specific, cont’d • Approximately one-third of companies in each sector requested shareholder approval of additional shares for their equity compensation plan but there are marked differences between them (% of shares outstanding) • Technology = 2.8% • Biopharma = 4.8% • Note: • 3-year average gross run rate among the 50 technology companies is 2.2% • 3-year average gross run rate among the 50 biopharma companies is 2.1%

19. Findings – Size-Specific • Difficulty of goals: Though the SEC is encouraging companies to discuss the relative difficulty of achieving performance targets for incentive compensation, only 30% of these companies did so • A greater proportion of smaller companies provided this disclosure, with just under 40% of the smaller companies versus 20%of the larger companies • Clawbacks: Only one-third of the companies have clawbacks for short-term and/or long-term incentive plans • Much lower prevalence among the small biopharma companies • Effect of downturn: Changes in how the market downturn affected equity compensation awards • 30% addressed the issue • Least prevalent among the smaller technology companies

20. Findings – Size-Specific, cont’d • Risk-assessment: Only 25% of the companies disclosed an assessment of the degree to how the executive compensation program encourages or discourages taking risk • The prevalence of this disclosure was much lower among the Next 25 companies • Ownership guidelines: These are prevalent across the groups with 3/4 of the larger companies and 2/3 of the smaller companies having adopted stock ownership guidelines • Only 4 companies introduced guidelines for the first time this year • No companies reported modifying their guidelines this year despite the severe market downturn that resulted in changes in dollar-denominated ownership levels

21. Findings – Size-Specific, cont’d • Retention grants: Retention grants were made to one or more NEOs in 30% of the Top 25 technology companies (prevalence of approximately 10% among smaller companies, and also large biopharma) • Grants reflected the diversity of LTI vehicles in use in these sectors: options, time-based restricted stock, and performance-based stock grants

22. Findings - Very Low Prevalence • Less than 10% of the 100 companies report actions that are receiving • much attention in other industry sectors • Peer groups: Few companies have created a separate peer group for performance comparisons vs. pay comparisons • Payment in stock: Only two companies reported paying a portion of STI awards paid in stock • Option exchanges: Only 4 of the 50 companies are pursuing an exchange of underwater stock options – 3 Top 25 and 1 Next 25 technology companies • Agreements and severance: Elimination or reduction of employment agreements, severance arrangements, and change in control provisions

23. Implications for Evaluation and Design • Companies must understand the market and business dynamics of their industry sector and look beyond both broad headlines and narrowly-defined peer groups to understand executive pay practices and trends • Midsized and smaller companies must ensure that the perception of trends and norms is not driven by large-company news • Companies subject to an increasingly diverse set of requirements and expectations must understand those of their peer companies before using those benchmarks as a guide to decision making • Increasingly, the information from proxy analysis is of greater value than the data – and the information gathering is a manual process • Data – pay levels, forms, mix – must be put in the context of the increasingly voluminous and complex information to serve as a sound benchmark • The prevalence of non-calendar year fiscal years in the technology sector results in many of the proxies during spring “proxy season” having been issued before many of the recent developments

24. Closing Thoughts • The “latest news” in executive pay may or may not be the latest and may not be news • Media and regulatory pressures will continue to draw attention to executive pay and often be slanted by sociopolitical agendas • Understanding complex executive pay structures, practices, and trends can no longer be accomplished by data downloads • Especially in 2009 (and 2010?) • The interaction of complex pay, extensive disclosures, and information overriding data creates a challenge for compensation practitioners analyzing and communicating pay issues and answers • Narrowly defined peer groups of 15 to 20 companies may have outlived their usefulness as the sole, appropriate benchmark reference point

25. Contact Information Larry Schumer Principal, Boston Office Buck Consultants 617.275.8048 larry.schumer@buckconsultants.com www.buckconsultants.com www.bucksurveys.com