Compensia SILICON VALLEY 1731 TECHNOLOGY DRIVE SUITE 810 SAN JOSE CALIFORNIA What Compensation Consultants Are Telling Compensation Committees NASPP Webcast March 18, 2004 Tim Sparks President Compensia, LLC NASPP Webcast March 18, 2004 Tim Sparks President Compensia, LLC

©2004 Compensia Compensia SILICON VALLEY 2 Parachuting into the Compensation Committee Environment – Assessing the Executive Pay Process from the Perspective of the Compensation Committee

©2004 Compensia Compensia SILICON VALLEY 3 It’s a new game – players are learning their new roles real time Compensation Committee – a more active, thoughtful role CEO/Senior Management – relinquishing some power over the process HR Professionals – in the middle Consultants – accountable to the Compensation Committee Compensation Committee – a more active, thoughtful role CEO/Senior Management – relinquishing some power over the process HR Professionals – in the middle Consultants – accountable to the Compensation Committee

©2004 Compensia Compensia SILICON VALLEY 4 The Executive Pay Strategy – What are the “guiding principles”? Overall Objectives Comparative Framework Competitive Positioning Individual vs. Team Performance Executive Stock Ownership/Retention Overall Objectives Comparative Framework Competitive Positioning Individual vs. Team Performance Executive Stock Ownership/Retention

©2004 Compensia Compensia SILICON VALLEY 5 Assessing the Executive Pay Process – general areas of focus Committee Composition Duties, Authority and Operations Compensation Philosophy Quality of Data CEO Performance and Compensation Equity Compensation Strategy Disclosure/Shareholder Relations Committee Composition Duties, Authority and Operations Compensation Philosophy Quality of Data CEO Performance and Compensation Equity Compensation Strategy Disclosure/Shareholder Relations

©2004 Compensia Compensia SILICON VALLEY 6 Committee Composition Independence Diversity Expertise Independence Diversity Expertise

©2004 Compensia Compensia SILICON VALLEY 7 Duties, Authority and Operations Frequency and Duration of Meetings Calendar and Agenda-setting Periodic, Detailed Review of Executive Pay Charter Education and Evaluation Frequency and Duration of Meetings Calendar and Agenda-setting Periodic, Detailed Review of Executive Pay Charter Education and Evaluation

©2004 Compensia Compensia SILICON VALLEY 8 Compensation Philosophy Overarching Executive Compensation Guiding Principles – Program structure and mix of compensation elements – Overall plan effectiveness, fairness and transparency Executive Contracts – Prevalence – Features – Cost – Fairness (internal/external), compatibility with guiding principles Stock Ownership and Retention Overarching Executive Compensation Guiding Principles – Program structure and mix of compensation elements – Overall plan effectiveness, fairness and transparency Executive Contracts – Prevalence – Features – Cost – Fairness (internal/external), compatibility with guiding principles Stock Ownership and Retention

©2004 Compensia Compensia SILICON VALLEY 9 Quality of Data Alignment of Data with Compensation Guiding Principles Clarity of Data Presented to the Committee Data Integrity and Accuracy Alignment of Data with Compensation Guiding Principles Clarity of Data Presented to the Committee Data Integrity and Accuracy

©2004 Compensia Compensia SILICON VALLEY 10 CEO Performance and Compensation Goals/Performance Objectives – Determine what is the process for CEO evaluation (goal setting, compatibility with guiding principles, etc.) Linkage to Pay – Verify/confirm periodic assessment of effectiveness of CEO compensation (total cost analysis vs. company performance) Goals/Performance Objectives – Determine what is the process for CEO evaluation (goal setting, compatibility with guiding principles, etc.) Linkage to Pay – Verify/confirm periodic assessment of effectiveness of CEO compensation (total cost analysis vs. company performance)

©2004 Compensia Compensia SILICON VALLEY 11 Equity Compensation Strategy Relationship to Other Elements of Compensation Distribution and Cost of Equity – How is equity distributed within the company? Value based? Dilution based? – How is dilution (the cost of equity) managed? Anticipating FAS123 – Performance-based – Full value shares vs. options – Broad-based plans Shareholder Issues Relationship to Other Elements of Compensation Distribution and Cost of Equity – How is equity distributed within the company? Value based? Dilution based? – How is dilution (the cost of equity) managed? Anticipating FAS123 – Performance-based – Full value shares vs. options – Broad-based plans Shareholder Issues

©2004 Compensia Compensia SILICON VALLEY 12 Disclosure/Shareholder Relations Accuracy, Clarity and Thoroughness of Executive Compensation Programs Quality and Nature of Relations with Stockholders – Recent stockholder votes – Stockholder proposals – Communications Accuracy, Clarity and Thoroughness of Executive Compensation Programs Quality and Nature of Relations with Stockholders – Recent stockholder votes – Stockholder proposals – Communications

©2004 Compensia Compensia SILICON VALLEY 13 Compensia Compensia provides thoughtful pay advice to Boards, Compensation Committees and senior management on matters of Board and Executive pay strategies and program design Technology Drive Suite 810 San Jose California