From Switzerland to North America: Practical Considerations When Extending Share Plans to the U.S. and Beyond

Transcription

1 From Switzerland to North America: Practical Considerations When Extending Share Plans to the U.S. and Beyond WILLIAM FLANNERY NOVARTIS CORPORATION NANCY MESEREAU FIDELITY STOCK PLAN SERVICES For conference attendees only. Not for distribution to the public.

2 Agenda About Novartis Corporation Equity compensation at Novartis Corporation Moving toward a new global plan design Design and administration Key success factors Q & A 1

3 The Novartis mission We want to discover, develop and successfully market innovative products to cure diseases, to ease suffering, and to enhance the quality of life. 2

4 The Novartis compensation philosophy Compensation mix: fixed base salary, variable short-term and long-term incentives Variable awards: cash, stock options, and restricted shares Benefits structured to compete globally for talent in a challenging recruiting environment Equity incentives viewed as an essential tool in attracting and retaining talent 25% of employees are eligible to receive equity 3

5 Novartis key facts Novartis was created in 1996 from the merger of Ciba-Geigy and Sandoz; HQ in Basel, Switzerland Core businesses: pharmaceuticals, consumer health, generics, eye-care, and animal health Revenues: USD$32.2B; income USD$6.1B (2005) Employs 91,000 in more than 140 countries Stock traded in the US (ADR), Switzerland, Germany, UK, and Mexico Ranked as one of the top 100 global brands in 2005* *Source: Business Week and Interbrand 4

6 Equity: a history of delivering value 5

7 Moving toward a new global plan design Stock options not highly valued by employees Regulatory changes prompt review of traditional pre-2004 plans (options, RSAs/RSUs, and SARs) Seeking to deliver value to employees during periods of slower growth in stock price Give participants an active role in choosing awards Improve employee appreciation for the total value of all Novartis benefits programs Management willingness to explore innovative designs 6

8 The Novartis global equity plan Employees worldwide given choice of restricted awards and/or tradable stock options 100% restricted stock OR 100% tradable options OR 50% / 50% restricted stock / tradable options Choices illustrate perceived value of tradable options 2005: 82% option shares; 18% restricted shares 2004: 89% option shares; 11% restricted shares 3-year cliff vesting for shares and options Market Maker (UBS) buys vested options from employees (price set using Black-Scholes) 7

9 How the plan works Grant All shares & options vest Option exercise/trading period ends at expiration 3- Year vest period 7- Year option exercise and trading period Employee choices post-vesting: Hold/sell restricted shares Exercise options for shares Sell unexercised options to Market Maker Unsold, unexercised options expire 10 years from grant 8

10 Employees perceive greater value Restricted shares deliver value to plan participants regardless of volatility in stock price; satisfies risk-averse Tradable options offer significant upside potential beyond market price; appeals to risk-takers Choice of award mix increases employee satisfaction and sense of involvement 9

11 Administration of North American plan Unified view of benefits increases employee appreciation of total compensation value One data feed for multiple programs simplifies administration Employees have direct access to guidance and financial planning tools Restricted shares deposited directly to brokerage account 10

12 Key success factors Engage internal and external business partners and advisors Consider administrative processes during design phase Coordinated global rollout Ongoing communication initiatives Explanation of award choices; upside and downside potential Documented processes & procedures FAQs, glossary 11

13 Results Dramatic improvement in employee understanding of individual performance objectives Ability to tailor equity compensation to personal circumstances increases employee involvement An equity plan better aligned with corporate goals Rewards leadership for performance Encourages significant levels of equity ownership Differentiation of Novartis from industry competition enhances global recruiting efforts 12

14 Questions? Thank you for your participation WILLIAM FLANNERY NANCY MESEREAU For conference attendees only. Not for distribution to the public. Brokerage services provided by Fidelity Brokerage Services, Member NYSE, SIPC. Novartis Corporation is an independent company and is not affiliated with Fidelity Investments Fidelity Stock Plan Services, LLC 13