From Design to Communications: The Inner Workings of Global Equity Compensation at HP Marcel Provencher, Hewlett-Packard Company (US) Julie Rumberger, Hewlett-Packard Company (US) Tery Williams, Hewlett-Packard Company (US) May 9, 2014
Agenda Introduction Grant Process French RSUs Belgian Options China SAFE ESPP in Brazil Long-term Cash Implementation and Design Mobile Employees Social Tax for Retirement Eligible Employees
Introduction Introduction to HP About HP Something about each of us Types of Equity that we offer now Types of Equity that we've offered in the past
A Dynamic Partnership Legal Finance Human Resources
Dates Focal Equity Vehicle History below EVPs HP 1990's 100% Stock Options FAS 123R 100% Stock Options, not as broadbased 2007 Introduced PRUs (3 years TSR) broad based 2010 Mix of PRUs and RSUs 2011 Mix of PRUs and RSUs and options 2012 Mix of RSUs and Options, introduced LTC 2013 Mix of RSUs and Options
Guidelines Grant Process Established using market data, prior year grant guidelines Staying competitive in market Distribution of guidelines (# shares updated as price increases) Monthly grants for new hires and retention Annual grants / focal point review Interaction with Legal and Stock Admin (SARs, Cash settled RSUs, France, Belgium, Australia) Posting award agreements to the broker's website Communications
French RSU Rule Change to HP s RSU design Modeling of tax costs to employer and employee for non-qualified RSUs as well as qualified RSUs Change to holding period Socializing the new plan with management and key players Use of a third party vendor to report transactions Employee communications Legal (drafting sub-plan and award agreement, identifying ineligible employees) Administration consequences: change in vesting holding period different coding for grant agreements
Belgium Options Belgium taxes options at grant, or at exercise HP was granting options Tax at grant only: need to accept within 60 days, otherwise the grants were cancelled Immediately vested, but shares subject to claw back New program, choice at grant or exercise Communication Revised grant agreement and election form, working with Legal Collecting elections, working with Administration Tax implications and communications to employees Training Payroll Tracking grant or exercise Instructing vendor when to withhold
China SAFE Historically, did not offer the ESPP in China but re-evaluated due to local interest in participation Coordinate with local HR, Treasury and Payroll SAFE application process handled by local Treasury leveraging existing good relationship with SAFE Tracking flow of funds to/from employees handled locally relieves HQ Administration team Track terminations in order to force sale of stock and transfer funds to China through SAFE account Modify enrollment form to include provisions for SAFE compliance Communication
ESPP in Brazil Similar to China, historically, did not offer the ESPP in Brazil but re-evaluated due to local interest in participation Each employee must provide a current tax clearance certificate at purchase (valid for 6 months) Creates an ongoing need to track each employee s status Coordinate with local HR or engage third party to handle tracking Third party may require employees to complete additional forms Communications
Long Term Cash Implementation and Design Design First granted in 2012, vesting over three years Payout in through broker HP s reasons: Large number of employees Need to maintain burn rate of approx. 4% Share availability in 2012 Employee education Communications what to do with cash in your account Administration with the vendor (communications and forms pushed not relevant to LTC) Payout through broker versus payroll
Mobile Employees Process Description Employee transacts at the broker Broker sends transaction information to the tax preparer who calculates the tax withholding for each country (US/Non US) Tax preparer sends the tax withholding amount to broker Broker calculates withholding in net shares or cash Broker remits the proceeds (strike price, tax withholding, if any) to HP Global Equity Team (GEA) transmits funds to each U.S. and non-u.s. payroll to make tax deposits
Mobile Employees Design Considerations Include state-to-state mobility Payroll integration (Manual vs. On-Cycle) Tracking mobility data (pre- and post-implementation) Broker integration Tax service provider integration Communications to employees
Mobile Employees Specific Challenges Create the mobile employee list Global HR System does not identify mobile employees GEA to coordinate the mobile employee list the relocation vendor Balance and reconcile the mobile employee list Hypothetical tax withholding Actual tax withholding (employee) Actual tax withholding (company) Integration with U.S. and non-u.s. payrolls Non-US payrolls log into ihub to download transactions US payroll gets a manual worksheet from the Global Equity Team
Social Taxes at Retirement Eligibility Social Security taxes due if awardee is retirement eligible because awards are no longer subject to a substantial risk of forfeiture Affects restricted stock, restricted stock units (RSUs), and restricted cash (LTC) of U.S. employees Annual survey of population to identify retirement eligible employees Withhold Old-Age, Survivors and Disability Insurance (OASDI) tax and Medicare tax Send transaction with last payroll of the year (same payroll as annual bonus) to minimize cash flow impact to employees Few complaints from employees Withheld from payroll, not net share withholding Communications to employees
Comments and Questions? Marcel Provencher Hewlett-Packard Company marcel.provencher@hp.com Julie Rumberger Hewlett-Packard Company julie.rumberger@hp.com Tery Williams Hewlett-Packard Company therese.williams@hp.com