1. Carrots, Handcuffs, & Parachutes Compensation Best Practices in Times of Change Chris Crawford (281) 378-1353 crawfordc@longnecker.com

2. The Evolution of Rewards Components Hourly Salary Benefits Salary Variable pay Equity Benefits Salary Variable pay Equity Retirement Benefits Employment Agreements The work experience Perquisites 1930-50s 1950s-1970s 2000s1980s-1990s

3. Unparalleled Compensation Landscape Sarbanes Oxley - 2002 Sarbanes Oxley - 2002 409A 409A IRS Audits IRS Audits FAS 123R FAS 123R SEC Proxy Disclosure SEC Proxy Disclosure Unfunded/Underfunded Pension Liabilities Unfunded/Underfunded Pension Liabilities Media attention on Executive Compensation Media attention on Executive Compensation 70 Million Retiring Baby Boomers 70 Million Retiring Baby Boomers Tremendous growth in Texas Energy & Banking markets Tremendous growth in Texas Energy & Banking markets

4. Objectives of Employee Rewards

5. Business Life Cycle Changes

6. Compensation Best Practices: Start-up Amount of Pay Target Compensation 3-4 years out Target Compensation 3-4 years out Mix of Pay Low emphasis on Base Salary, High emphasis on short term incentive, Highest emphasis on long-term incentive Low emphasis on Base Salary, High emphasis on short term incentive, Highest emphasis on long-term incentive Utilize actual stock (restricted stock, stock options) when possible Utilize actual stock (restricted stock, stock options) when possible Multiple year, long-term incentive awards Multiple year, long-term incentive awards Short-term incentives: formula + discretion Short-term incentives: formula + discretion Employment Agreements: Non-solicitation Employment Agreements: Non-solicitation Emphasize Work Experience, Being able to affect change Emphasize Work Experience, Being able to affect change

7. Compensation Best Practices: Growth Amount of Pay Target Compensation 1-3 years out Target Compensation 1-3 years out Mix of Pay Market Base Salary, Market Benefits, High emphasis on short-term and long-term incentive Market Base Salary, Market Benefits, High emphasis on short-term and long-term incentive Utilize actual stock (restricted stock, stock options) when possible Utilize actual stock (restricted stock, stock options) when possible Deferred compensation: Restricted Stock and/or Company Match Deferred compensation: Restricted Stock and/or Company Match Employment Agreements Employment Agreements

8. Compensation Best Practices: M&A Retain, Retain, Retain Acceleration of stock vesting – Be Wise! Acceleration of stock vesting – Be Wise! Transition/Transaction Bonuses Transition/Transaction Bonuses Change of Control/Termination Payouts: Multiple of Base + Bonus Change of Control/Termination Payouts: Multiple of Base + Bonus Employment Agreements Employment Agreements Non-Solicitation Agreements Non-Solicitation Agreements

9. Compensation Best Practices: Tight Labor Market Attract & Retain Sign on Awards Sign on Awards 1 Time Retention Awards: Stock & Cash 1 Time Retention Awards: Stock & Cash Deferred Compensation + Company Match Deferred Compensation + Company Match Recognition, Recognition Recognition, Recognition Diversify the long-term incentive awards Diversify the long-term incentive awards Tailor compensation programs Tailor compensation programs

10. Questions