Performance Management and Reward in the “New World”

1. Elizabeth Warren Head of Human Resources and Administration March 2, 2009 Performance Management and Reward in the “New World”

2. Performance Management and Reward in the “New World” The Times – 16 Feb 2009 Here is the City News 11 Feb 2009 Emirates Business 24/7 24 Feb 2009 Financial Times – 19 Feb 2009

3. Performance Management and Reward in the “New World”Perceptions Overall goal of reward strategy is to attract, retain and motivate employees to increase shareholder value Perception of reward strategies in many financial services companies: • Pay excessive • Encourages unnecessary risk taking • Focus on annual rather than long term performance and reward • Key link is to bottom line rather than broader leadership goals

4. Performance Management and Reward in the “New World” Issues • Focus on annual P & L with no claw back in case of ‘hidden bombs’ • Public outrage at size of bonuses • Limited link to risk of activities • Part of “discretionary bonus” perceived as fixed • Compensation levels and compensation as a % of net income has been driven up by “competitive pressures” • How do government investors and regulators balance need to incent and retain against issues of risk management and public outrage?

5. Performance Management and Reward in the “New World”Proposals • Create compensation structures which truly align stakeholder interests: • Re-establish base salary vs. annual cash bonus • LTIPs rather than focus on deferred bonuses with no performance claw backs • Deferred bonuses with performance claw backs • Develop “bonus banking” structures • Premium vesting options, mandatory stock purchases and/ or forced holdings • Explicit alignment of compensation policies with risk-adjusted performance • More scrutiny of compensation policies below top executives

6. Performance Management and Reward in the “New World” LTIP Carried Interest • % of profit which is generated for investors upon asset realization and netted across a fund with claw back provisions • Encourages long term value creation; is awarded at point of initial value creation but only paid at point of final realization • Rewards spread and netted over several years rather than linked only to annual performance period

7. Performance Management and Reward in the “New World”Bonus Banking Model

8. Performance Management and Reward in the “New World” Conclusions • Cannot slip back to old ways • One approach does not suit all • Need to focus on compensation policies not simply size of compensation • Incentive compensation must have a multi-year approach, and reflect the risk profile and profit flows of the asset class