Executive Compensation Reporting in Proxy Statements Piecing Together All The Parts of the Puzzle

Executive Compensation Reporting in Proxy Statements Another sponsored training program 12/21/06 Another sponsored training program 12/21/06 U.S. SEC August 11, 2006 Final Ruling Executive Incentives Stock Options Perks: Flowers, Jewelry, Cars, Apartments Retirement Plans Piecing Together All The Parts of the Puzzle WHY? WHEN? WHAT? WHO?

Executive Compensation in Proxy Statements Why The Change? Shareholders demanding more accountability from corporate executives. Why The Change? Shareholders demanding more accountability from corporate executives. Pay-For-Performance measurements Transparency in reporting to prevent abuse Better information for shareholders to consider when voting on issues at annual meeting Pay-For-Performance measurements Transparency in reporting to prevent abuse Better information for shareholders to consider when voting on issues at annual meeting

Executive Compensation in Proxy Statements SEC’s growing irritation with companies’ failure to provide “full and fair” disclosure regarding executive compensation arrangements. “Item 402 always required disclosures of all compensation even if not specifically mentioned in the rules.” - -Allen Beller, SEC Director of Corporation Finance - -October 2004 “Item 402 always required disclosures of all compensation even if not specifically mentioned in the rules.” - -Allen Beller, SEC Director of Corporation Finance - -October 2004 Why The Change?

Executive Compensation in Proxy Statements 2006 final rule makes a major statement to corporate executives that the games must STOP! Requires disclosure for ALL compensation; Includes a new Compensation Disclosure & Analysis (CD&A) which becomes part of the CEO’s and CFO’s Sarbox Certification stating that there are no material misstatements or material omissions in the disclosures. Requires disclosure for ALL compensation; Includes a new Compensation Disclosure & Analysis (CD&A) which becomes part of the CEO’s and CFO’s Sarbox Certification stating that there are no material misstatements or material omissions in the disclosures. Why The Change?

Executive Compensation in Proxy Statements “You know what we mean by executive compensation… so don’t play games anymore…” The new requirements are “principles-based” rather than “rules-based”… “You know what we mean by executive compensation… so don’t play games anymore…” The new requirements are “principles-based” rather than “rules-based”… “Principles matter.” – John White, SEC Director of Corporation Finance, September final rule makes a major statement to corporate executives that the games must STOP! Why The Change?

Executive Compensation in Proxy Statements When Will You See The Changes? 2006 final rule is effective for all companies with fiscal years ending on or after 12/15/06. When Will You See The Changes? 2006 final rule is effective for all companies with fiscal years ending on or after 12/15/06. Proxy statements issued in 2007 will reflect the new format. Since most companies will not modify prior periods reported, it will take three years to get all the information to be on a comparable basis. Proxy statements issued in 2007 will reflect the new format. Since most companies will not modify prior periods reported, it will take three years to get all the information to be on a comparable basis.

Executive Compensation in Proxy Statements What Changes Will You See? Compensation Discussion & Analysis “CD&A” Expanded Tabular Format What Changes Will You See? Compensation Discussion & Analysis “CD&A” Expanded Tabular Format

Executive Compensation in Proxy Statements What Changes Will You See? Compensation Discussion & Analysis “CD&A” Replaces the Compensation Committee Report Details the objectives of the company’s compensation programs; What the programs are designed to reward; Explains each element of compensation; Why the company chooses to pay each element; Discloses how the company determines the amount (ie., the formula) for each element to pay; and Discusses how each compensation element and the company’s decisions regarding that element fit the overall compensation objectives and affect decisions regarding other elements. Details the objectives of the company’s compensation programs; What the programs are designed to reward; Explains each element of compensation; Why the company chooses to pay each element; Discloses how the company determines the amount (ie., the formula) for each element to pay; and Discusses how each compensation element and the company’s decisions regarding that element fit the overall compensation objectives and affect decisions regarding other elements.

Executive Compensation in Proxy Statements What Changes Will You See? Compensation Discussion & Analysis “CD&A” Replaces the Compensation Committee Report Details the objectives of the company’s compensation programs; What the programs are designed to reward; Explains each element of compensation; Why the company chooses to pay each element; Discloses how the company determines the amount (ie., the formula) for each element to pay; and Discusses how each compensation element and the company’s decisions regarding that element fit the overall compensation objectives and affect decisions regarding other elements. Details the objectives of the company’s compensation programs; What the programs are designed to reward; Explains each element of compensation; Why the company chooses to pay each element; Discloses how the company determines the amount (ie., the formula) for each element to pay; and Discusses how each compensation element and the company’s decisions regarding that element fit the overall compensation objectives and affect decisions regarding other elements. Which narrative document was the CD&A modeled after? The MD&A in the 10-K The MD&A in the 10-K “If it is material, it must be discussed.” The MD&A in the 10-K The MD&A in the 10-K “If it is material, it must be discussed.”..

Executive Compensation in Proxy Statements What Changes Will You See? Expanded Tabular Format What Changes Will You See? Expanded Tabular Format Disclosure of Compensation over the last three years: Summary Compensation Table Disclosure of Outstanding Equity Interests: Grants of Plan-Based Awards Table Outstanding Equity Awards at FYE Table Option Exercises and Stock Vested Table Disclosure of Retirement Benefits: Pension Benefits Table Non-Qualified Deferred Compensation Table Disclosure of Director Compensation and Related Party Transactions Director Compensation Table Related Party Transaction Narrative

Name and Principal Position (a) Year (b) Salary ($) (c) Bonus ($) (d) Stock Awards ($) (e) Non- Equity Incentive Plan Compen- sation ($) (g) Change in Pension Value and Nonquali- fied Deferred Compen- sation Earnings ($) (h) All other Compensa- tion ($) (i) Total ($) (j) Principal Executive Officer Principal Financial Officer Executive A Executive B Executive C Named Executive Officers (NEOs): Two persons who served as PFO and PEO during the last fiscal year Three most highly compensated executive officers (other than PEO or PFO) who were serving as executives at the end of the last fiscal year; and Up to two additional executives who served during, but not at the end of, the fiscal year, with total comp higher than those executive officers described above. SUMMARY COMPENSATION TABLE Executive Compensation in Proxy Statements

Name and Principal Position (a) Year (b) Salary ($) (c) Bonus ($) (d) Stock Awards ($) (e) Non- Equity Incentive Plan Compen- sation ($) (g) Change in Pension Value and Nonquali- fied Deferred Compen- sation Earnings ($) (h) All other Compensa- tion ($) (i) Total ($) (j) Principal Executive Officer Principal Financial Officer Executive A Executive B Executive C Effective for fiscal years ending after 12/15/06, but restatement of prior years is not required; ‘05 and ‘04 values may not be comparable SUMMARY COMPENSATION TABLE Executive Compensation in Proxy Statements

Name and Principal Position (a) Year (b) Salary ($) (c) Bonus ($) (d) Stock Awards ($) (e) Non- Equity Incentive Plan Compen- sation ($) (g) Change in Pension Value and Nonquali- fied Deferred Compen- sation Earnings ($) (h) All other Compensa- tion ($) (i) Total ($) (j) Principal Executive Officer Principal Financial Officer Executive A Executive B Executive C All compensation and bonuses (valued in $), paid and deferred. Deferred compensation detail disclosed in notes SUMMARY COMPENSATION TABLE Executive Compensation in Proxy Statements

Name and Principal Position (a) Year (b) Salary ($) (c) Bonus ($) (d) Stock Awards ($) (e) Non- Equity Incentive Plan Compen- sation ($) (g) Change in Pension Value and Nonquali- fied Deferred Compen- sation Earnings ($) (h) All other Compensa- tion ($) (i) Total ($) (j) Principal Executive Officer Principal Financial Officer Executive A Executive B Executive C Contrary to prior years, 2006 awards must include all dividends earned; whether paid or not. Look for material disclosures in notes. SUMMARY COMPENSATION TABLE Executive Compensation in Proxy Statements

Name and Principal Position (a) Year (b) Salary ($) (c) Bonus ($) (d) Stock Awards ($) (e) Non- Equity Incentive Plan Compen- sation ($) (g) Change in Pension Value and Nonquali- fied Deferred Compen- sation Earnings ($) (h) All other Compensa- tion ($) (i) Total ($) (j) Principal Executive Officer Principal Financial Officer Executive A Executive B Executive C All awards (including restricted stock, phantom stock, etc) valued at grant date fair value; cross-referenced to 10-K and FAS 123(R) discussion SUMMARY COMPENSATION TABLE Executive Compensation in Proxy Statements Caution!   Full Grant Date Fair Value for stock awards is inconsistent with the value reported in the co.’s financial statements   YTD Compensation may seem overstated;   Not consistent with the presentation of non-equity incentive plan compensation

Name and Principal Position (a) Year (b) Salary ($) (c) Bonus ($) (d) Stock Awards ($) (e) Non- Equity Incentive Plan Compen- sation ($) (g) Change in Pension Value and Nonquali- fied Deferred Compen- sation Earnings ($) (h) All other Compensa- tion ($) (i) Total ($) (j) Principal Executive Officer Principal Financial Officer Executive A Executive B Executive C Look for explanatory disclosures by companies that think these inconsistencies may mislead the users of the financial statements. SUMMARY COMPENSATION TABLE Executive Compensation in Proxy Statements Caution!   Full Grant Date Fair Value for stock awards is inconsistent with the value reported in the co.’s financial statements   YTD Compensation may seem overstated;   Not consistent with the presentation of non-equity incentive plan compensation

Name and Principal Position (a) Year (b) Salary ($) (c) Bonus ($) (d) Stock Awards ($) (e) Non- Equity Incentive Plan Compen- sation ($) (g) Change in Pension Value and Nonquali- fied Deferred Compen- sation Earnings ($) (h) All other Compensa- tion ($) (i) Total ($) (j) Principal Executive Officer Principal Financial Officer Executive A Executive B Executive C The dollar value of all amounts earned during the fiscal year from non- equity incentive plans. SUMMARY COMPENSATION TABLE Executive Compensation in Proxy Statements

Name and Principal Position (a) Year (b) Salary ($) (c) Bonus ($) (d) Stock Awards ($) (e) Non- Equity Incentive Plan Compen- sation ($) (g) Change in Pension Value and Nonquali- fied Deferred Compen- sation Earnings ($) (h) All other Compensa- tion ($) (i) Total ($) (j) Principal Executive Officer Principal Financial Officer Executive A Executive B Executive C Includes all awards from incentive plans except those that are equity- based (stock awards, option awards, etc) whether or not cash payment is actually made in that year. Reporting is based on the year that the executive was awarded the compensation – not when it was actually received SUMMARY COMPENSATION TABLE Executive Compensation in Proxy Statements

Also includes earnings on nonqualified deferred compensation. The rate at which obligation grows annually must also be disclosed in the notes. SUMMARY COMPENSATION TABLE Executive Compensation in Proxy Statements Name and Principal Position (a) Year (b) Salary ($) (c) Bonus ($) (d) Stock Awards ($) (e) Non- Equity Incentive Plan Compen- sation ($) (g) Change in Pension Value and Nonquali- fied Deferred Compen- sation Earnings ($) (h) All other Compensa- tion ($) (i) Total ($) (j) Principal Executive Officer Principal Financial Officer Executive A Executive B Executive C

Name and Principal Position (a) Year (b) Salary ($) (c) Bonus ($) (d) Stock Awards ($) (e) Non- Equity Incentive Plan Compen- sation ($) (g) Change in Pension Value and Nonquali- fied Deferred Compen- sation Earnings ($) (h) All other Compensa- tion ($) (i) Total ($) (j) Principal Executive Officer Principal Financial Officer Executive A Executive B Executive C Aggregate increase in actuarial value of all defined benefit and actuarial plans accrued during the year. Using same measurement dates for financial reporting purposes. SUMMARY COMPENSATION TABLE Executive Compensation in Proxy Statements Caution!   Negative changes in actuarial value should be disclosed and discussed in the notes, but not included in the table.

Name and Principal Position (a) Year (b) Salary ($) (c) Bonu s ($) (d) Stock Awards ($) (e) Non- Equity Incentive Plan Compen- sation ($) (g) Change in Pension Value and Nonquali- fied Deferred Compen- sation Earnings ($) (h) All other Compensa- tion ($) (i) Total ($) (j) Principal Executive Officer Principal Financial Officer Executive A Executive B Executive C Each item included in All Other Compensation that exceeds $10,000 must be disclosed and quantified in a footnote. SUMMARY COMPENSATION TABLE Executive Compensation in Proxy Statements Perquisites (Perks) and Other Personal Benefits   Not directly and integrally related to the job.   Conveys a benefit not generally available to all employees of the company. Includes amounts paid or accrued per termination agreement Includes company contributions to defined benefit contribution plans Includes the dollar value of any dividends paid on stock or option awards not factored into the reported grant date fair value.

Name and Principal Position (a) Year (b) Salary ($) (c) Bonus ($) (d) Stock Awards ($) (e) Non- Equity Incentiv e Plan Compen sation ($) (g) Change in Pension Value and Nonqualifie d Deferred Compensa tion Earnings ($) (h) All other Compensati on ($) (i) Total ($) (j) Principal Executive Officer Principal Financial Officer Executive A Executive B Executive C The sum of all values reported in columns (a) through (i). SUMMARY COMPENSATION TABLE Executive Compensation in Proxy Statements

Other Tabular Presentations and Disclosures Disclosure of Outstanding Equity Interests: Grants of Plan-Based Awards Table Outstanding Equity Awards at FYE Table Option Exercises and Stock Vested Table Disclosure of Retirement Benefits: Pension Benefits Table Non-Qualified Deferred Compensation Table Disclosure of Director Compensation and Related Party Transactions Director Compensation Table Related Party Transaction Narrative Which of these tables are completely new? All are “essentially new”... Some names are All are “essentially new”... Some names are similar but definitions are new. All are “essentially new”... Some names are All are “essentially new”... Some names are similar but definitions are new...

Executive Compensation in Proxy Statements Disclosure of Outstanding Equity Interests Grants of Plan-Based Awards Table Classifies awards as (1) an equity or non-equity award, and (2) performance incentive plan or non-incentive based (ie, tenure status). A supplemental column next to Grant Date column is required if the FAS 123R grant date is different from the grant date (the date on which the compensation committee took action). Add’l column and footnote needed if the exercise price is less than closing market price of the underlying stock on the FAS 123(R) grant date.

Executive Compensation in Proxy Statements Disclosure of Outstanding Equity Interests Outstanding Equity Awards at Fiscal Year-End mmm Instead of disclosing awards on an aggregate basis, all awards held by NEOs must be reported. Multiple awards are aggregated only when the expiration date and the exercise price are identical. Options must be presented on a grant-by-grant basis. The aggregate value and the number of shares subject to outstanding stock awards and Equity Incentive Plan Awards may be reported on a single line.

Outstanding Equity Awards at Fiscal Year-End mmm Specific footnote disclosure is required: (1) Explain the vesting dates for options, other stock awards (such as restricted stock) and awards under incentive plans; (2) Explain the nature of a transfer when an award is transferred by the NEO other than “for value”. Executive Compensation in Proxy Statements Disclosure of Outstanding Equity Interests

Option Exercises and Stock Vested Table Discloses each NEO’s options exercised and other types of equity awards that vested during the year (restricted stock, or restricted stock units). Footnotes to this table must include the values and the terms of any amount deferred upon exercise of an option or vesting of a stock award. Discloses each NEO’s options exercised and other types of equity awards that vested during the year (restricted stock, or restricted stock units). Footnotes to this table must include the values and the terms of any amount deferred upon exercise of an option or vesting of a stock award. Shows amounts realized on equity compensation during the last fiscal year. Executive Compensation in Proxy Statements Disclosure of Outstanding Equity Interests

Pension Benefits Table Pension Benefits includes Supplemental Executive Retirement Plans (SERPS) in addition to traditional pension plans, but does not require disclosure of defined contribution plans, such as 401(k) plans. The values are computed as of the pension plan measurement date, for financial statement reporting purposes, of the company’s last completed fiscal year. A separate row must be included in the table for each different plan in which the NEO participates. Executive Compensation in Proxy Statements Disclosure of Retirement Benefits

Non-Qualified Deferred Compensation In some cases, portions of “contributions” and “earnings” may also be reported on the same year’s Summary Compensation Table. In these cases, a footnote is required. Similarly, a footnote is required for portions of the “aggregate balance” entry that had been reported on the Summary Compensation Table for the NEO in prior years. Additional footnotes are required to explain the nature of certain deferred compensation arrangements. Executive Compensation in Proxy Statements Disclosure of Retirement Benefits

Executive Compensation in Proxy Statements Executive Compensation in Proxy Statements Disclosure of Director Compensation and Related Party Transactions Director Compensation Table Director Name Fees Earned or Paid in Cash ($) Stock Awards ($) Option Awards ($) Non-Equity Incentive Plan Compensation ($) Change in Pension Value and Non- Qualified Deferred Compensation Earnings ($) All Other Compensation ($) Total ($) A B C D E Only compensation for last fiscal year is required Directors may be listed in single row if all elements of compensation are identical Footnote for each director required showing aggregate number of stock awards and aggregate number of option awards outstanding at FYE “All Other Compensation” example: Perks and personal benefits (for aggregate greater than $10,000) Consulting fees Director legacy programs and charitable awards

Executive Compensation in Proxy Statements Executive Compensation in Proxy Statements Disclosure of Director Compensation and Related Party Transactions Related Party Definition and Disclosure A “related party” includes the immediate family including children, stepchildren, spouse, parents, stepparents, brother-in-law, sister-in-law, and any person (other than a tenant or employee) sharing the household of a director, nominee for director, executive officer, or significant shareholder of the company. Companies must disclose: the person’s name and relationship to the company; the person’s interest in the transaction with the company, including the related person’s position or relationship with, or ownership in, a firm, corporation, or other entity that is a party to or has an interest in the transaction; and the approximate dollar value of the amount involved in the transaction and of the related person’s interest in the transaction. Any other information regarding the related person and the transaction that is material to investors. Threshold for disclosure: increased from $60,000 to $120,000

Performance Graph The following graph compares (i) the yearly change in the cumulative total stockholder return on Wachovia common stock with (ii) the cumulative return of the Standard & Poor’s 500 Stock Index (“S&P 500”), and the Keefe, Bruyette & Woods, Inc. Bank Stock Index (“BKX”). The graph assumes that the value of an investment in Wachovia common stock and in each index was $100 on December 31, 2000, and that all dividends were reinvested. The performance shown in the graph represents past performance and should not be considered an indication of future performance. The S&P 500 and the BKX are market- capitalization-weighted indices, meaning that companies with a higher market value count for more in the indices. The BKX includes the 24 bank holding companies with the largest market capitalizations in the U.S. Executive Compensation in Proxy Statements Company Performance Graphs Where did they go? They are now included in the annual report – not the proxy statement They are now included in the annual report – not the proxy statement.. No substantive narrative or tabular changes required – just a change in location No substantive narrative or tabular changes required – just a change in location

What do these two men have in common? Both are wearing red ties Both are wearing white shirts and black jackets Both have high foreheads and strong chins Both have great looking hair... Both are wearing red ties Both are wearing white shirts and black jackets Both have high foreheads and strong chins Both have great looking hair... Both have brought “music to the ears” of analysts who are wrestling with the puzzle of executive compensation A different look to the proxies... A reason for investors to celebrate... So many new parts of the puzzle to study...

Executive Incentives Stock Options Perks: Flowers, Jewelry, Cars, Apartments Retirement Plans Executive Compensation Reporting in Proxy Statements U.S. SEC August 11, 2006 Final Ruling “Celebrating the harmony and melodies of financial reporting” Christopher Cox US SEC Chairman Christopher Cox US SEC Chairman Ludwig van Beethoven German Composer Ludwig van Beethoven German Composer