NECC Executive Compensation Forum Trends in Long-Term Incentives March 6, 2008

1. NECC Executive Compensation ForumTrends in Long-Term IncentivesMarch 6, 2008 Melissa Means Vice President Pearl Meyer & Partners (508) 630-1487 Melissa.means@pearlmeyer.com www.pearlmeyer.com

2. Agenda Trends in Long-Term Incentives: Changing Landscape Long-Term Incentive (LTI) Usage Total Overhang Burn Rates New Share Requests Mix and Instruments Usage Mix Stock Options Stock Performance-Based Awards Other Exchange Ratios Ownership Guidelines RiskMetrics Group (formerly ISS)

3. The Changing Landscape External influences significantly changing the use of LTI Perceived abuses Option backdating and other scandals SEC disclosure rules (CD&A) Increased transparency Mandated quantification Tax and accounting rules SFAS 123R 162(m) Unprecedented investor scrutiny Greater visibility and power More stringent requirements RiskMetrics (formerly ISS) As a result: LTI remains in the forefront of public interest for the coming years Companies continue to re-evaluate the efficacy of their existing LTI programs

4. Usage � Total Overhang Headline � Another consecutive year of reduced overhang levels Reality of expensing and shareholder pressures continue to drive companies to reduce total equity usage The following outlines current total overhang levels for companies in the high technology industry (by industry and revenue):

5. Usage � Burn Rates Headline � Another consecutive year of reduced burn rate levels To reduce total equity usage on an annual basis companies are: Reducing participation levels Reducing grant values Changing use of LTI instruments to deliver more value using fewer shares The following outlines current total burn rate levels for companies in the high technology industry (by industry and revenue):

6. Usage � New Share Requests Headline � companies seeking more frequent authorization of smaller pools of available shares The following outlines the percent of companies in the high technology industry seeking share approval in the past 3 years (by industry and revenue):

7. Mix & LTI Instrument � Mix Headline - Companies continuing to evaluate and rebalance the mix of LTI instruments Companies are also using multiple instruments to deliver LTI awards

8. Mix & LTI Instrument � Stock Options Headline - Stock options are on the decline for another straight year Companies are continuing to use other LTI instruments in lieu of options to address: Mandatory accounting issues (SFAS 123R) Constraints on dilution and burn rates (vs. competitors who shifted to restricted stock) Incentivize the proper behaviors The following outlines option usage levels in the high technology industry (by industry and revenue) over the past 3 years:

9. Headline - Use of restricted stock (RS) continues to increase ~20% Restricted stock can deliver the same value as options using fewer shares Continued investor pressure when using restricted stock Time-based awards minimum vesting over 3 years Performance-based awards must have at least 1 year of vesting The following outlines restricted stock usage levels in the high technology industry (by industry and revenue) over the past 3 years: Mix & LTI Instrument - Restricted Stock

10. Headline - Many companies are implementing or investigating the use of performance metrics in an LTI plan Stronger link between pay and performance More in line with shareholder and institutional expectations 44% of the Fortune 1000 and 62% of the S&P 500 have implemented a performance-based LTI plan Typically a 3 year plan that pays out in stock However, performance-based plans can be challenging to design and administer. The following outlines key deign considerations for a performance-based plan: Single vs. multiple measures Shorter vs. longer time periods Absolute vs. relative measures Cumulative vs. point-in-time measures Performance/payout leverage and scaling Consecutive vs. overlapping cycles Mix & LTI Instrument � Performance-Based LTI

11. The key to performance-based plans: Keep them as simple as possible Limit the plan initially to the top executives, consider expansion once plan is successful Consider shorter measurement periods for companies of high growth or acquisitive industries Selection of an appropriate performance metric Develop an appropriate performance/payout scale Discuss how to address unexpected financial circumstances Start slowly � consider consecutive cycles Mix & LTI Instrument � Performance-Based LTI

12. Headline - 3 ways to think about LTI exchange ratios: Cost Neutral Ratio Assume SFAS 123R option cost is 33% of FMV and RS cost is 100% FMV Cost neutral ratio is 3 options : 1 restricted share 1 RS more valuable than 3 options until FMV increases 50% Premium Ratio Whatever cost neutral ratio is �+1� Risk Adjusted � looking forward Mix & LTI Instrument �Exchange Ratios

13. Stock Ownership Guidelines Headline � Continued movement towards stock ownership guidelines Ownership guidelines � mandate number of shares to be owned at all times Best for firms using full value instruments (e.g., restricted stock) Often serves as quid pro quo for implementing time-based restricted stock Disposition guidelines � mandate number of shares to be retained on post-exercise basis Best for firms using appreciation only instruments (e.g., options) Programs are encouraged and well received by institutional shareholders Actual guidelines and compliance periods vary by position With the shift in the use of LTI instruments, we are seeing an increase in the use of stock ownership and/or disposition guidelines. Ownership guidelines are best for firms that use restricted stock and have essentially become a �quid pro quo� for firms implementing time-based restricted stock. Disposition guidelines are best for firms using stock options and require executives to retain a certain percentage of shares on a post-exercise basis (i.e., 50% of shares exercised net of taxes) Such programs are well received and encouraged by institutional shareholders. With the shift in the use of LTI instruments, we are seeing an increase in the use of stock ownership and/or disposition guidelines. Ownership guidelines are best for firms that use restricted stock and have essentially become a �quid pro quo� for firms implementing time-based restricted stock. Disposition guidelines are best for firms using stock options and require executives to retain a certain percentage of shares on a post-exercise basis (i.e., 50% of shares exercised net of taxes) Such programs are well received and encouraged by institutional shareholders.

14. RiskMetrics Group (formerly ISS) Average Burn Rates continue to trend downwards Shareholder Value Transfer (SVT) increased in many segments due to changes in methodology in 2007 Full value awards valued at full 200-day average share price Option cancellations/forfeitures and warrants/convertible debt not considered SVT and Burn Rate allowable caps remain about the same as in 2007 Poor Pay Practices Could result in a �Withhold� vote for a Director up for re-election Pay for Performance Policy in 2008 ~1/3 of the Russell 3000 had negative 1 and 3-year TSR as of 12/31/07 With the shift in the use of LTI instruments, we are seeing an increase in the use of stock ownership and/or disposition guidelines. Ownership guidelines are best for firms that use restricted stock and have essentially become a �quid pro quo� for firms implementing time-based restricted stock. Disposition guidelines are best for firms using stock options and require executives to retain a certain percentage of shares on a post-exercise basis (i.e., 50% of shares exercised net of taxes) Such programs are well received and encouraged by institutional shareholders. With the shift in the use of LTI instruments, we are seeing an increase in the use of stock ownership and/or disposition guidelines. Ownership guidelines are best for firms that use restricted stock and have essentially become a �quid pro quo� for firms implementing time-based restricted stock. Disposition guidelines are best for firms using stock options and require executives to retain a certain percentage of shares on a post-exercise basis (i.e., 50% of shares exercised net of taxes) Such programs are well received and encouraged by institutional shareholders.

15. Looking Forward More long-term plans driven by non-market measures Continuing shift from options to restricted stock Desire to link executives with financial performance Recent trend of higher option concentration at top executive level Time-based restricted stock for mid-to-lower level employees Continuing evolution of linking pay and performance Going forward we anticipate that: Continued focus on long-term incentive plans by various stakeholders (i.e., institutional shareholders, regulators, press, etc.) More executive LTI plans will be driven by financial metrics; using metrics that are not market-based. We will continue to see a shift from options to restricted stock or a mix. Companies will continue to develop �customized� long-term incentive plans, plans that are best for the company which may not reflect what others in the market are doing. There may be more use of time-based restricted stock for lower level employees. There will be more focus on the understanding how plan targets were set and there resulting actual performance achievement, and A continuing evolution of linking pay and performance. Introduce Virginia - At this point, I would like to turn over the presentation to Virginia Leonard. Virginia is the Director of HR Shared Services for Cabot Corporation and will share with you a little bit about Cabot, their unique and interesting long-term incentive program, the evaluation process used in determining the program, and the challenges they encountered along the way.Going forward we anticipate that: Continued focus on long-term incentive plans by various stakeholders (i.e., institutional shareholders, regulators, press, etc.) More executive LTI plans will be driven by financial metrics; using metrics that are not market-based. We will continue to see a shift from options to restricted stock or a mix. Companies will continue to develop �customized� long-term incentive plans, plans that are best for the company which may not reflect what others in the market are doing. There may be more use of time-based restricted stock for lower level employees. There will be more focus on the understanding how plan targets were set and there resulting actual performance achievement, and A continuing evolution of linking pay and performance. Introduce Virginia - At this point, I would like to turn over the presentation to Virginia Leonard. Virginia is the Director of HR Shared Services for Cabot Corporation and will share with you a little bit about Cabot, their unique and interesting long-term incentive program, the evaluation process used in determining the program, and the challenges they encountered along the way.

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