Global Incentive Plans Breakfast Seminar March 2016...Industry Consumer Goods Healthcare Industrials Oil and Gas Consumer ad Business Services Media Property Other Finance Technology

Global Incentive Plans Breakfast SeminarMarch 2016

Agenda

Introduction and welcome

Mitul Shah

2015 Global Share Plan Survey Highlights

Laura Spurr

A look at China

Mitul Shah and David Luo

Global Reward Updates

Katie Stephens

Closing

Mitul Shah

2

Introduction and welcome Mitul Shah

3

2015 Global Share Plan SurveyHighlights Laura Spurr

2015 ParticipantsDemographics

• 177 companies operating a total of 436 equity plans, consisting of:

• 274 executive plans

• 162 broad-based plans

• Companies are headquartered in the following locations:

GSP Seminar – Spring update5

• Australia• Belgium• Bermuda• Brazil• Canada• Denmark• Finland• Germany• Hong Kong

• Hungary• Iceland• Ireland• Luxembourg• Malaysia• Netherlands• Papua New

Guinea• Russia

• Singapore• South Africa• Spain• Sweden• Switzerland• UK• US

[PERCENTAGE]

[PERCENTAGE]

[PERCENTAGE]

[PERCENTAGE][PERCENTAGE]

[PERCENTAGE]

[PERCENTAGE]

[PERCENTAGE]

1%

[PERCENTAGE]

Industry

Consumer Goods

IndustrialsHealthcare

Oil and Gas

Consumer ad Business Services

Media

Property

Other

Finance

Technology and Communications

2015 ParticipantsRespondent profile

GSP Seminar – Spring update6

23%

34%

25%

8%

10%

Number of employees

Less than 5,000

5,000 – 20,000

20,001 – 50,000

50,001 – 100,000

More than 100,000

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Other

Expand the culture of ownership in the group

Be competitive in the market

Provide corporate / group identity

Drive performance

Key trends around operation of share plansThe main drivers for operating global share plans

7 GSP Seminar – Spring update

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Other

Expand the culture of ownership in the group

Be competitive in the market

Provide corporate / group identity

Drive performance20142015

Executive plans

Broad-based plans

Key trends around operation of share plansThe positive impact of global share plans


0%

5%

10%

15%

20%

25%

30%

35%

40%

Drivingperformance

Providingcorporate/group

identity

Being competitivein the market

Expandingemployee share

ownership

Very much so Quite a lot Somewhat Very little Not at all Don't know

0%

5%

10%

15%

20%

25%

30%

35%

40%

Drivingperformance

Providingcorporate/group

identity

Being competitivein the market

Expandingemployee share

ownership

Executive plans

Broad-based plans

Key trends around types of share plansWhat type of plans are companies operating?


36%

17%

25%

6%

42%

16%

21%

4%

Share purchase plans

Share option plans

Share award plans

Bonus deferral plans

8%

32%

64%

26%

4%

38%

72%

24%

0% 10% 20% 30% 40% 50% 60% 70% 80%


Share option plans

Share award plans

Bonus deferral plans

2014

2015

Executive plans

Broad-based plans

Key features of share plansShare purchase plans


100%

32%25%

36%

64%

68% 45%

100%

5% 7%

18%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

United States United Kingdom Europe (excl. UK) Asia Pacific Rest of world

Share purchase plan at a discount Share purchase plan with a match Combination of both

Key features of share plansShare option plans – are they structured as Stock Appreciation Rights?


24%

13%

76%

87%

Yes No

Executive plans

Broad-based plans

Key features of share plansDo you net settle awards under global share plans?


38%

48%

29%

25%

33%

26%

Never Sometimes Always

Executive plans

Broad-based plans

Key features of share plansBonus deferral


6%5%

42%

6%

26%

2%

5%

8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Voluntary deferral Mandatory deferral

<20% 20-40% 41-60% 61-80% >80%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Non-executive directors/ Board members

Executive directors/ Executive committee

Senior management

Selected key personnel

Other

Share purchase plans Share option plans Share award plans Bonus deferral plans

Key trends around features of the plansParticipation in executive plans


Key trends around features of the plansMalus and clawback – executive plans


80%

85%

66%

56%

40%

20%

15%

34%

44%

60%

0% 20% 40% 60% 80% 100%

Voluntary bonus deferral plans

Mandatory bonus deferral plans

Share award plans

Share option plans

Share purchase plansYes No

50%

62%

56%

37%

27%

50%

38%

44%

63%

73%

Voluntary bonus deferral plans

Mandatory bonus deferral plans

Share award plans

Share option plans


Malus

Clawback

Key features of share plansChange the design or operation to get tax breaks


6% 3%

16%10%

29%

41%

31%

24%

15%

71%

53%

66%61%

75%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

United States United Kingdom Europe (excl. UK) Asia Pacific Rest of world

All countries (where tax breaks available) Some countries No

Operation of global share plansTax approach taken for mobile employees


59%

55%

19%

19%

23%

26%

Apportion income between countries based on relevant legislation applicable for eachcountry

Apportion income between countries using a generic approach (e.g. grant to vest in allcountries)

Tax in full in the country in which they are at the tax point

Executive plans

Broad-based plans

Operation of global share plansRecharging costs

61% of respondents recharge the costs of their share plan to the local entities.

Of the 39% of companies not recharging, complexity of operating recharges is cited as the main reason.


44%

23%

15%

18%

Complexities of operating recharges Potential saving not considered sufficientHave not had time to consider yet Other

Operation of global share plansChallenging aspects


60%

48%

62%

16%

46%

12%

0% 20% 40% 60% 80% 100%

Effective communication with employees

Tax compliance for internationally mobile participants

Legal/regulatory compliance

Somewhat challenging

Very challenging

54%

42%

61%

21%

46%

17%

Effective communication with employees

Tax compliance for internationally mobile participants

Legal/regulatory compliance

Somewhat challenging

Very challenging

Executive plans

Broad-based plans

CommunicationQuotes


Communication is really the key to the success

of a plan

Effective communication is

critical but challenging

Education and communication

is critical

The industry as a whole is not very good at

communicating with employees, we need to

do a better job

Communication is the key element

Communicate, communicate, communicate!

Do not underestimate the

communication

Keep it simple with clear concise

communications in plain English

Invest heavily in communication

CommunicationInvestment in innovative methods


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Better engagementwith employees

To reduce costs andadministration in the

communicationprocess

Be seen to beinnovative/different

Demand/expectationfrom employees

Other

Executive

Broad-based

Generational trendsWhich generations value participation in share plans?


2%

4%

13%

18%

14%

27%

39%

33%

14%

7%

2%

1%

68%

62%

49%

49%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Generation Z

Generation Y

Generation X

Employees born before 1960

Strongly Agree Agree Disagree Strongly disagree Don't know

(born 1961 – 1980)

(born 1981 – 1995)

(born from 1995)

24%

55%

22%

16%

57%

13%

18%

69%

21%

33%

54%

10%

Implement new plan

Focus on communications

Look into recharging

Roll-out plan into new markets

Focus on compliance for mobile employees

Get tax breaks in some countries

Executive Broad-based

Moving forwardFocus of attention in the next 12 to 18 months


Moving forwardWould companies do it all again?


Executive plans

Broad-based plans

88%1%

89%2%

?11%

?9%

A look at ChinaMitul Shah and David Luo

ChinaEconomic environment and prevalence of share plans

After 2007

The legislation environment has been improved by a series of regulations:

Circular 35 and 461 (relating to tax regulations)

Circular 7 (relating to foreign exchange controls)

Before 2007

Very few MNCs implementing equity-based awards to the employees working in China mainly due to:

Foreign exchange control

Lack of relevant registration in China


Mandatory compliance requirements

Tax Registration – (share-settled and cash-settled plans )

• Multiple registrations for different entities

• Preferential tax treatment

• Regular tax reporting

SAFE Registration – (generally for share-settled plans only)

• Centralized application process

• Setup of a special SAFE account

• Quarterly SAFE filings and annual quota application

China


Example – tax saving opportunity

Annual share incentiveincome (GBP)

Tax payable without Preferential Tax Treatment

(GBP)

Tax payable with Preferential Tax Treatment

(GBP)

1,000 More than 250 30

2,000 More than 500 74

5,000 More than 1,500 374

10,000 4,500 1,334

20,000 9,000 3,794

50,000 22,500 11,694

1 RMB : 0.10 GBP

China


Practical considerations of operating share plans in China

Local competency Local practice & requirement

Internationally mobile employees

China


Looking forward

1

2

3

Stricter foreign exchange administration?

Greater desire to participate in plan?

Any impacts on the current procedure?

China


Global Reward UpdatesKatie Stephens

1. Changes in reporting

2009-2015

TIMING CHANGE

Two new alternatives:1. New “Online ESS” webpage based portal (for reporting

20 or fewer individuals); or2. Online filing in accordance with the ATO’s updated

software specs (version 2.0.0).

2015/2016 Onwards

ESS annual reports historically been accepted by ATO as:1. A paper based form; or2. A report created using the ATO’s “bulk load excel

spreadsheet”; or3. An online report in compliance with the ATO’s official

software specs (version 1.0.1).

AustraliaChanges to ESS annual reporting requirements


Company’s annual wages return (“DADS-U”)

Companies must report information relating to their equity plans through the DADS-U, before 31 January 2016.

Declaration Sociale Nominative (“DSN”)

New monthly electronic return effective from 1 February 2016.

Pre 2016 Tax year

2016 Tax year

TIMING CHANGE

Note: The structure of the reporting information has not changed.

FranceChange in reporting process


No specific legislative rulings in Luxembourg

Historically

TIMING REPORTING REQUIREMENT

The circular defined the tax treatment to apply to options.No real guidance on reporting.

2012 Circular

2015 CircularEmployers have to notify the authorities (Bureau RTS) at least two months before the implementation date of a share option plan.

Note: The recent circular does not modify existing principles but merely introduces a new requirement.

LuxembourgNew reporting requirements for share option plans


2. Changes in taxation

Consideration:Should share awards and stock options continue to be taxable in full for EU citizens in Sweden at the tax point when some of the benefits were earned during a period of non-residence in Sweden?

Ruling:Sweden has the right to tax the full benefit under Swedish law however this is contrary to EU legislation on the freedom of movement of workers.

New position:EU citizens resident in Sweden at the tax point taxed on Swedish portion of the award only.

SwedenChanges to the taxation of share awards and stock options for EU citizens


�UK domestics Internationally mobile �

For which employees could this cause an issue?

Key question: Is the award a “right to acquire secu rities”?

United KingdomIncome tax and social security treatment of RSUs from 6 April 2016


Income Tax

The income tax position is the same .

What is the impact for employees and employers?

Capital Gains

CGT base cost is different .

NIC

NIC due on a apportioned basis for

“securities options”.

Remittance

Impacts on RB calculation .

CT Deductions

UK corporate tax deduction available on

the full gain for “securities options”.

United KingdomIncome tax and social security treatment of RSUs from 6 April 2016


= Always treated as equity-settled for accounting purposes.

= Accounting treatment previously unclear whether it should be accounting for as equity or cash, IASB has now clarified.

Effective from 1 January 2018:

Amount paid in cash by employer

to cover taxes

Employer delivers net shares to the

individual

Share award

WorldwideAmendments to IFRS 2 for net-settlement of share-based payment transactions


3. Upcoming/future changes

Current legislation at exercise:

FMV Exercise Price

Taxable Benefit

10

6

50% Deduction

Not

iona

l sha

re v

alue The employee may

claim a 50% deduction on the taxable benefit.

Why the changes?• New Liberal government are looking for opportunities to reduce tax benefits that

substantially benefit individuals earning in excess of CAD 200,000.

CanadaProposed limitations to the stock option deduction


• Strict foreign exchange regulations.

• Difficult for Vietnamese nationals to participate in overseas employee share

schemes.

CURRENTLY

• Vietnamese nationals able to participate in overseas employee share schemes.

• Provided certain conditions will have to be met.

PROPOSED

VietnamProposed changes for Vietnamese nationals participating in overseas employee share schemes


ClosingMitul Shah

Refreshments

45

Laura is a Consultant who has been working within the Deloitte Global Incentive Plan team in London since 2006. Laura has significant experience advising clients from a diverse range of industries on designing, implementing and communicating incentive arrangements. She also advises on the accounting, taxation and compliance issues involving the operation of share plans in the UK.

Laura has been on secondments to both a large multinational bank and a leading international investment company. There she helped conduct reviews of existing incentive arrangements and assisted with the implementation of new incentive plans.

Laura has been responsible for the design and coordination of the 2015 Global Share Plan Survey, analysing responses from 177 companies operating between them 436 different share plans.

Laura has a degree in Business Management and is a member of the Association of Tax Technicians.

Laura SpurrTel: +44 20 7007 7988Email: [email protected]

AppendixDeloitte speakers


Mitul is a Partner in the Global Employer Services practice in London. Mitul has over fifteen years experience of advising companies and their remuneration committees on all aspects of executive compensation, including the design and implementation of executive remuneration strategies. He also has extensive experience on designing and implementing incentive plans globally, advising on the tax, structuring and regulatory aspects.

As part of this, Mitul has worked with a number of international companies across a wide range of industries. His clients range from FTSE 350 companies to companies listed in Australia, India, Japan and Russia/CIS, as well as privately owned companies and companies looking to float.

Mitul has a LLB (Hons) from the University of Birmingham and is a member of the Chartered Institute of Taxation.

Mitul ShahTel: +44 20 7303 5013Email: [email protected]



David Luo joined the Deloitte UK Global Incentive Plan team on secondment from Deloitte Shanghai where he was a Senior Manager within Global Employer Services. He started his career with another “Big Four” firm and first joined Deloitte in 2007. In his current role, David specialises in providing advice to global companies operating stock incentive plans in China.

David has experience in managing the delivery of services to many companies. This includes foreign exchange advisory & compliance services, country specific due diligence, advice regarding internationally mobile individuals and advice around corporate recharge arrangements.

David also has experience advising on PRC individuals’ income tax and social security. Additionally he has helped provide consultancy services for inbound and outbound assignees.

David graduated from Shanghai University with a Bachelor degree of Finance & Accounting and he is a member of Certified Tax Agent in China.

David LuoTel: +44 20 7007 4835Email: [email protected]



Katie is a Consultant with over four years’ experience within our Global Incentive Plans team in London. Her day to day role is working with multinational companies to address both domestic and internationally mobile employee issues relating to the operation of global incentive plans. This includes providing practical advice on the tax technical and regulatory positions applied globally.

Katie has extensive experience advising on the operation of incentive plans in the financial services industry and manages some of our biggest accounts. She works very closely with our US colleagues and has a lot of experience in advising on the specific US regulations that impact on deferred compensation arrangements.

Katie also has experience in advising on company recharge arrangements and corporate tax deductibility in respect of incentive plan costs, both for UK domestic and internationally mobile employees.

Katie has a degree in Economics from the University of Manchester and is a member of the Association of Tax Technicians.

Katie StephensTel: +44 20 7303 5013Email: [email protected]



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Global Incentive Plans Breakfast Seminar March 2016...Industry Consumer Goods Healthcare Industrials Oil and Gas Consumer ad Business Services Media Property Other Finance Technology