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Value of S&P 500 CEO Outstanding Equity Awards Surge +35.8% in 2012

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Recent Steven Hall & Partners study on change in value of S&P 500 CEO Outstanding Equity Awards in 2012

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Value of S&P 500 CEO Outstanding Equity Awards Surge +35.8% in 2012

  1. 1. VALUE OF S&P 500 CEO OUTSTANDING EQUITY AWARDS SURGE +35.8% IN 2012 Disparity Highlights the Leveraged Nature of Stock Option Awards
  2. 2. Value of S&P 500 CEO OutstandingAwards Study – Key Findings• Aggregate value of S&P 500 CEO’s outstanding equity awards increased +35.8% in 2012, far outpacing the +12.1% increase in market capitalizations observed• The disparity between the increase in value of outstanding awards and market capitalizations was driven by option values – Appreciation in full value awards more closely tracked the market capitalization increase• The large increase in stock option values altered the value mix of CEO outstanding equity portfolios – Option values made up more than half the portfolio value on December 31, 2012, but reflected less than half the value in December 2011• The number of underwater options held by S&P 500 CEOs decreased significantly in 2012• There were more ‘winners’ than ‘losers’ among the S&P 500 CEOs; 77% have paper gains of an average of $16.5 million -1- January 23, 2013
  3. 3. Change in Aggregate CEO OutstandingEquity Awards vs. Market Capitalization• Aggregate value of S&P 500 CEO’s outstanding equity awards increased +35.8% in 2012• Aggregate market capitalization for these companies increased +12.1% during the same period S&P 500 CEO Outstanding Awards - Aggregate Value S&P 500 Market Capitalization - Aggregate Value40% +35.8% +31.7% +28.2% +28.4%20% +14.0% +11.7% +12.1% +13.7% +11.4% +3.9% 0% -2- January 23, 2013
  4. 4. Options vs. Full Value Awards• The disparity between the increase in value of outstanding awards and market capitalizations was driven by option values – Leveraged nature of stock options can result in significant gains if long-term stock price increases are attained; if stock price falls below exercise price, options lose all their value – Total option values increased +58.2% – Full Value awards increased +15.2% ¨ Unvested service- and performance-based awards Change in Aggregate Value of CEO Stock Options & Restricted Stock Awards Stock Options Restricted Stock +58.2% 60% 45% 30% 15% 0% -3- January 23, 2013
  5. 5. Change in Value Mix• The large increase in unexercised stock option values altered the mix in value of CEO outstanding equity awards – Majority of outstanding equity value now held in stock options ¨ 56% in unexercised stock options vs. 44% in full value awards ¨ In December 2011, the majority of outstanding equity value was held in full value awards Dec-11 Dec-12 Options Full Value Full Value 44% Options 52% 48% 56% -4- January 23, 2013
  6. 6. Option Value Increases• Total option values increased +58.2% – Vested options +50.7% – Unvested options +79.8% Dec-11 Dec-12 $14,000 +58.2% $12,000 $10,000 +50.7% ($ 000s) $8,000 $6,000 +79.8% $4,000 $2,000 $0 Total Options Vested Options Unvested Options -5- January 23, 2013
  7. 7. Underwater Stock Options• The number of underwater options held by S&P 500 CEOs reduced significantly – 47% of CEOs had at least one underwater option grant outstanding on December 31, 2012 ¨ 65% had at least one underwater grant at the end of 2011 – 25% of all options held by CEOs were underwater at the end of December 2012 ¨ 37% of all options were underwater at the end of 2011 – Underwater options are those in which the exercise price exceeds the current stock price Dec-11 Dec-12 70% 60% 65% 50% 40% 47% 30% 37% 20% 25% 10% 0% S&P 500 CEOs with Underwaters S&P 500 Options Underwater -6- January 23, 2013
  8. 8. Winners Versus Losers• There were more ‘winners’ than ‘losers’ among the S&P 500 CEOs. Of the 497 CEOs analyzed in the study: – 77% gained an average of $16.5 million – 20% lost an average of -$3.8 million – These are all ‘paper’ gains/loses ¨ Actual gains/loses are not realized until options are exercised or full value awards vest # of Average Median Aggregate CEOs Change ($MMs) Change ($MMs) Change ($MMs) Value Increased 383 +$16.5 +$6.6 +$6,324.2 Value Decreased 100 ($3.8) ($2.6) ($384.0) No Change in Value 14 - - - Total Sample 497 +$12.0 * +$3.9 * +$5,940.2 * Numbers are not additive. -7- January 23, 2013
  9. 9. About the Study• Analyzed equity held by CEOs as disclosed in proxy statements filed in 2012 for companies listed in the S&P 500 on December 31, 2012 – Excludes three companies (two that went public during the year and one without sufficient information disclosed)• Equity Valuation – Stock Options calculated as the difference between month-end stock prices and the option exercise price multiplied by the number of options held – Full value awards valued by multiplying stock price by the number of shares held• For additional details regarding the study, please contact Steven Hall Jr. – 212-488-5400 – sehall@shallpartners.com -8- January 23, 2013
  10. 10. About Steven Hall & PartnersSteven Hall & Partners is an independent executive compensation consulting firm servingas outside counsel to Boards, Compensation Committees and management. The firmfocuses solely on executive compensation, Director remuneration and related corporategovernance matters. For more information Web: www.shallpartners.com Email: shp@shallpartners.com Phone: 212.488.5400 Twitter: @SHallPartners -9- January 23, 2013

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