Dan Walter is the founder of Performensation Consulting, which provides equity compensation consulting services. He has over 18 years of experience designing and administering management and broad-based equity programs for public and private companies in the US and abroad. His expertise includes all aspects of equity compensation programs, from design to administration to reporting. He is also an author on the topic of equity compensation and writes on related issues.

1. Performance is the new normal. Are you normal?

2. Dan Walter, CEP, is the founder of Performensation Consulting. Dan has more than 18 years of
experience in with equity compensation programs. He has designed and administrated both
management and broad-based programs, for both public and private companies.
Dan has worked extensively with companies in U.S. and abroad. His experience with young
entrepreneurial companies and established Fortune 100 companies provides his clients with a unique
perspective on compensation issues. He creates effective, and when needed, innovative company-
specific solutions. His clients appreciate the post-consultation support he provides to help ensure
programs are working as designed.
Dan’s expertise includes equity compensation, executive programs and talent management issues.
He has experience with all aspects of these programs including:
diagnosis, design, communication, administration and reporting. His equity compensation expertise
includes stock options, restricted share and units, stock purchase and performance-based programs.
Executive compensation experience includes benchmarking, short and long-term incentive program
design, proxy disclosure reporting and total-reward evaluations. Dan also has significant experience
in administrative and technological best practices for these programs.
Dan is co-author of two publications: “Equity Alternatives” and “The Decision Makers Guide to Equity
Compensation”, available at www.nceo.org. He is also a featured writer at the
www.CompensationCafe.com blog.
He accepts LinkedIn invitations from all compensation professionals at
www.linkedin.com/in/danwalter.

4.  Determine Needs
 Define Metrics
 Set Goals
 Track Progress
 Communicate Achievement
 Reward Accomplishment (or not)
 Start over….quickly

5. The What
 Needs: Why you are measuring?
 Metrics: What is being measured?
 Goals: Achievement Levels and Timing
 Done correctly it is continuous and ubiquitous
 We sometimes forget its happening
What’s Missing?
The How
 What are the actions that must be taken?

6.  (And Nothing)
 Pay for Performance has become a textable
abbreviation: P4P
 Take that Brangelina!
 Performance-based equity is most companies
solution to the age old compliant:
“Why do you pay those guys so much!”

7.  Through April 23, 2012
 286 Companies
 5 “true” failures (ATU, IGT, KBH, C, FMER)
 Those who passed averaged better than 89%
yes votes
 Failures have been very decisive

8.  UK Shareholders have had SOP for a decade
 Pay level growth was not materially impacted
 Main change was a move from time based equity
and cash compensation to TSR focused equity
compensation
 Recent push to include more financial and
operational metrics after a combination of
plan design stagnation and misalignment
between peer pay

9.  Shareholders
 Media
 Politicians
 Compensation Consultants
 Executives (when they pay out)
 Companies (when they get SOP approval)
Only administrators don’t really love them
 And the providers who support admin

10. 1. Links equity comp to business strategy
2. Provides a easy argument for better
communication (and a budget)
3. Done right it can be leveraged like Stock
Options and safe like RSUs
4. More interesting than time-based awards
5. Like or not, it is the future of equity
compensation

11. Stock Options Restricted Performance
40% 37% 43% 41% 49% 48%
16% 22% 17% 20%
17% 20%
44% 41% 39% 39% 34% 31%
2008 CEO 2009 CEO 2010 CEO

12. 1988-1999 proved to be an anomaly.
This period became basis for future equity
compensation expectations.
Since 2000, the market has been more volatile and is
reflective of periods prior to 1988. Higher volatility
may lead to higher values for time-base stock
options, but it also leads to higher corporate
compensation expense and greater risk of delivering
no value to participants

13.  Relative Goals can reduce the impact of
market volatility
 Relative TSR
 Absolute Goals can increase the focus on key
achievements
 In a volatile Market Stock Options are too
unpredictable
 In almost any market Restricted Stock Units
provide limited motivation

14.  Properly designed, performance equity can offer
MORE STABILITY than time-based equity
 Not completely dependent upon stock price
 Can factor in influence of the market volatility on
peers and self
 Can provide upside leverage and downside protection
 Time to achievement based on corporate success
cycles rather than the orbit of the earth around the
sun

15.  Even if properly designed, performance equity
can offer MORE RISK than time-based equity
 Improper goal setting can occur when source data or
future projections are incorrect
 Payout based on excellent past performance, but
delivered during poor current performance
 Grants at historically low prices it can result in
tremendous value delivery
 Goals always seem ambitious until, and unless, they
are achieved too soon

16.  Long-term Performance Compensation is
Like a Marathon
 You run slowest in the dark
 A bit faster when there are occasional lights
 Even faster when there are mile markers
 Faster still when you know where the competition
is
 A bit faster when you are in a strong group
 Fastest when you have all of the above AND a
cheering section motivating you along the way

17.  Performance goals are in themselves a form
of communication
 They must be talked about, consistently in
patterns than mean something to participants
 Progress must be available when it is wanted, not
only when its convenient
 Messages must include both the good and the
bad, or the patterns will be inconsistent and
unbelievable

18. 1. Incorrect Metrics
 Metrics are the “things” that are being measured.
These are the foundation of your plan and must
represent the measurements of success
 Common issue: Misunderstanding of business
strategy Vs employee engagement/alignment
 Common issue: Motivating one action without
balance of counter-action

19. 2. Poorly Set Goals
 Goals are the levels that define the success of each
metric
 These are the drivers of your plan and must
represent your destination
 Common issue: Insufficient modeling of Best
Case, Worst Case and Expected Case scenarios
 Common issue: Goal achievement becomes
obviously impossible (or far too possible) very early
in the life of the program

20. 3. Underwhelming Communication
 Performance compensation is often confusing
 Clean, clear, frequent, communications are essential
to engaging and motivating your staff
 Common issue: No time or money to communicate
after initial roll out of program
 Common issue: Disconnect between what HR/Comp
believe is the purpose of the plan versus
managements actual purpose
 Common issue: Communication, Who has time for
communication?

21. 4. Human Nature
 Human nature is the one thing that you cannot build
into your compensation programs, yet it is the
single biggest risk to pay for performance
 The problem isn’t that P4P programs don’t work
well enough, it’s that they work TOO well
 For programs that demand high-performance, you
must also provide strong management and
oversight
 Many companies assume their compensation plans
will manage people (only people manage people)

22. Dan Walter, CEP, President
Performensation
514 Precita Ave, Suite 100
San Francisco, CA 94110
877-803-9255 (toll free) ext. 700
415-625-3406 (office)
917-734-4649 (mobile)
dwalter@performensation.com
www.performensation.com
Twitter: www.twitter.com/performensation
LinkedIn: www.linkedin.com/in/danwalter
Blog: www.compensationcafe.com

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