Issues Related to Global Executive Plans Siobhan Hurley

Issues Related to Global Executive Plans Siobhan Hurley, Pricewaterhouse. Coopers LLP Steve Brown, Accenture 5 November 2001, NCEO Global Equity Compensation Forum Pw. C

Case Study Design and Implementation of Share Plans at Accenture

Agenda • General background on Accenture and how Company determined its equity compensation philosophy • Discussion of country specific issues that Accenture faced as a result of equity compensation philosophy • Key regulatory issues that Accenture faced and how resolved

Accenture Background • Large multi-national company was implementing equity plans for the first time in conjunction with IPO • Change in corporate structure generated a need for new compensation structure -- Transitioning from partnership to corporation • Highly mobile global workforce – Operating in 46 countries – 75, 000 employees; 2, 500 partners • IPO put a tight deadline on implementation • 2 key and distinct groups to satisfy: Executives (i. e. “partners”) and employees – The Plans needed to offer maximum flexibility to satisfy both groups

Accenture Share Plans • 3 Plans Implemented: – Stock Option Plan – Employee Stock Purchase Plan – Restricted Share Units (RSU’s) – Promise to deliver Accenture shares at no cost to employee at a specified future date – No voting or dividend rights until shares delivered

Accenture Objectives • Implement all plans in all countries wherever legally possible • Encourage long-term ownership for partners • Celebrate the IPO and encourage ownership by employees • Flexibility to make plans attractive to executives as well as broader employee base

Accenture Plan Design Stock Options: – Stock option grants limited to managers and above – One-time grants at IPO – Possibility of future grants upon promotion or being hired – Significant future grants anticipated upon promotion to “partner” ESPP: – ESPP designed to offer broad, ongoing participation to employees – Excludes partners Restricted Share Units: (RSU’s): – Generally one-time celebratory grants at IPO – Designed to offer broad participation (Provided to all employees) – Also provided to key executives (I. e. newly promoted, high performing partners)

Accenture Plan Design Key Distinctions between Executives (“partners”) and employees: • Options: – 4 year vesting for employees – 5 year vesting for partners • RSU’s: – 100% vested for employees at IPO – Share delivery at 18 and 36 months from IPO for employees – Generally 5 year vesting for partners with Share deliver spread over 8 years

Plan Implementation • Now that decision of which plans to offer and to whom had been made, Accenture needed to make this happen globally • Objective of providing flexibility and satisfying different groups necessitated creativity in some jurisdictions • Other jurisdictions posed regulatory problems

Netherlands – Stock Options • Traditionally, tax is due at vesting of stock options • Recent legislation allows employees to choose to defer taxation until exercise • However, social tax is still due at vesting and possibility of any deemed discount to be taxed at vesting; corporate deduction can also be an issue • Some companies are seeking rulings to allow only full cashless exercise; • With ruling, Dutch tax authorities treat award as cash compensation, not under stock option rules; entire spread is taxed at exercise • Problem: reconciling desire of some employees to hold shares with administrative issues

Netherlands – Solution for Stock Options • Decision: Offer employees a choice of Stock Option grants Alternative A: Standard grant with income and social tax at vesting • Chosen by 3 of 18 partners who received options Alternative B: Standard grant with choice under new rules to defer income tax until exercise No employees or partners chose this alternative Alternative C: Grant that allows for full cashless exercise only; all taxes now due at exercise/sale • Chosen by 15 of 18 partners who received options • Chosen by 29 of 243 employees • Chosen by 214 of 243 employees

Netherlands – RSU’s • RSUs would be taxed at time of RSU grant (generally IPO date), as they are fully vested at grant, rather than at receipt of actual shares • Broad-based nature of RSUs - tax at grant could make the awards a burden for the employees rather than something positive • Failure to present alternatives to employees could create problems with Works Council • Company wanted to make certain they could achieve their aim of allowing all employees to participate in IPO but keep the grant as flexible as possible

Netherlands – Solution for RSU’s • Decision: Offer employees a choice of RSU grants Alternative A: Taxed at time of grant of RSU on FMV of shares with a discount factor • Chosen by 0 partners Alternative B: Tax at time shares are delivered based on FMV on date of delivery. Requires vesting conditions and ability to convert shares to cash. • Chosen by 3 of 3 partners who received RSU’s • Chosen by 250 of 838 employees • Chosen by 588 of 838 employees

Switzerland • Generally, tax is due at grant • Taxation can be shifted to exercise if certain conditions are met: – Option life is greater than 10 years – Vesting period is greater than 5 years – Option cannot be objectively valued at grant

Switzerland -- Solution • 2 plans offered -- employees have choice • Standard grant with 10 year life -- tax at grant • Amended grant with 10 year + 1 month life -- tax at exercise • Employees choose before grant • Allows employees with funds and ability to take risk the opportunity to pay tax at grant – One of 8 partners and 5 of 95 employees who received options chose tax at grant

Japan • Securities filing requirements are complex and can be time consuming • Number and value of anticipated option grants upon IPO meant full securities filing (Form 7) would be necessary • Time involved in preparing and translating audited financial statements meant it was unlikely filing would be completed prior to IPO • Accenture was faced with the possibility that if grants may not be able to take advantage of IPO price

Japan -- Solution • Establish a trust to which the options are granted—Ninni Kumiai (the NK) • Company grants options to the NK indicating optionee’s name and number of options • NK is viewed as single holder of options – full Form 7 not necessary • When NK is dissolved, options are distributed to optionees under original terms and conditions

Regulatory Issues Faced by Accenture • Primarily exchange control issues, although securities regulations also were a factor • Post IPO implementation of ESPP meant more time to complete exchange control filings; not the case for securities filing in Japan • Accenture been successful in offering ESPP in “unusual” locations— Brazil, India, South Africa • Looking at possibilities for China and Russia

China • Lack of regulations and responsible authority on stock plans means there are numerous discrepancies on what is permissible • Exchange controls are strict; previously thought to include ownership of foreign shares • Currently, it is believed ownership of shares is OK, but still difficult to remit funds • Accenture decided to proceed with implementation of options and RSUs; employees generally must do a sell to cover or cashless exercise • ESPP– Cash-based alternatives available

India • Exchange control restrictions -- annual remittances greater than $20, 000 require Reserve Bank of India (RBI) approval • All plans were extended to employees, but local entity must monitor compliance with $20, 000 limit for ESPP • Generally, sell to cover and cashless exercise are necessary for options • In order to secure most favorable tax treatment, a change to the RSU plan was necessary – RSU recipients must pay a nominal purchase price when they receive the shares

India New Guidelines • Exchange controls were not the only difficulty faced in India • Confusing guidelines published by the Securities and Exchange Board of India (SEBI) meant taxation of plans was unclear • Conflicting information made full implementation difficult—plans were rolled out, but caveated that tax treatment could change • New Central Government guidelines published October 5, 2001 • Clarified that plans of foreign parent companies are eligible for preferential tax treatment (tax at sale) – retroactive to April 2000

Brazil • Exchange controls make implementation difficult • Remittance abroad of more than $20, 000 per year requires Central Bank of Brazil (CBB) approval • Company can make remittances on behalf of employees below that amount, but must report details to the CBB • Funds remitted by employees for ESPP are tracked and monitored by the company to ensure that $20, 000 annual limit is not exceeded

South Africa • Exchange control restrictions make stock plans difficult to implement • Accenture opted to file for exchange control approval in order to extend stock plans to the fullest extent possible • Employees can participate in all 3 Accenture plans • Any remittance of funds as part of participation counts against employees lifetime investment allowance of RND 750, 000 • All exercise methods available (exercise and hold, sell to cover, full same-day-sale) as long as investment allowance is respected

Closing Comments and Questions • Strategy is important for global plans – need to understand what the company’s objectives are in order to make the best decisions when faced with country specific challenges • Companies may need to offer choices in some countries in order to provide the flexibility to satisfy both executives and broader employee population • There alternatives and solutions for problems with exchange controls and securities filings