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Variable Pay Funding Project

Variable Pay Funding Project. June 10, 2008 Update. Agenda . Review accrual methodology for 2008 Present new HNAH model and a simple example Model inputs, assumptions & Finance Performance Factor Proforma results and what they mean Next Steps. 1. Accrual Methodology for 2008.

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Variable Pay Funding Project

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  1. Variable Pay Funding Project June 10, 2008 Update

  2. Agenda • Review accrual methodology for 2008 • Present new HNAH model and a simple example • Model inputs, assumptions & Finance Performance Factor • Proforma results and what they mean • Next Steps 1

  3. Accrual Methodology for 2008 • HBUS - Controlled centrally based on historical data, includes GCB 0s & 1s and an estimate for payroll taxes and TRIP ($67mm) • HBIO – Decentralized in business units based on 120% of target X salary (historical) and ($120mm) • HBCA – Controlled centrally based on historical and includes GCB ($55mm) • HTSU – TSI based on historical data ($40mm) • Total HNAH accrual $285mm 2

  4. New HNAH Model • (Market Data Point) x (1 + Target %) = Total Cash Available • Total Cash Available – Actual Salary = Available Bonus • Available Bonus x Finance Performance Factor = Adjusted Bonus • Example: • $100,000 (MDP) x 1.15 (15% target) = $115,000 • $115,000 - $102,000 (actual salary) = $13,000 (avail bonus) • $13,000 x 1.0 (finance performance factor)* = $13,000 (adjusted bonus) 3

  5. Inputs and Assumptions • Current Market Data Point, Target and Actual Salary by individual and Legal Entity - information to be provided by HR • Separate list of all secondees and GCB 0s & 1s by legal entity - controlled centrally by HNAH CEO office • Reflects a 20/70/10 weighted average performance management rating scale (MDP 55%) • Finance Performance Factor based on HNAH PBT against AOP (or ROP?) 4

  6. Finance Performance Factor • Expressed as a percentage (200% - 50%) and based on HNAH PBT • Achieving HNAH PBT equal to AOP ($5,000) equates to a Finance Performance Factor (FF) of 100% • Sliding scale where “slope of the line” determines PBT required to payout 200% (cap) and floor (50%) 5

  7. Proforma results and what they mean • Sample HR data (from 12/07 CMS), run through the model and using a FF of 100% for illustrative purposes • Units (legal entities) where actual salaries are below MDP will require larger amounts of variable compensation where as units with a salary structure above MDP will require lower accrual amounts • HUSI Proforma ($xxx) versus current accrual ($xxx) • HBIO Proforma ($xxx) versus current accrual ($xxx) • HBCA Proforma ($xxx) versus current accrual ($xxx) • HTSU Proforma ($xxx) versus current accrual ($xxx) 6

  8. Next Steps • Obtain refreshed data including all MDP update and current participant population and targets • Finalize secondees and GCB 0s & 1s list with variable comp projections for 2008 • Finalize FF methodology (slope of the pay line) and correlate versus YTD performance (ROP?) • Discuss omission and or managed view results. IE. GB&M PBT used to determine FF yet they have no participants in this variable comp plan • Adjust legal entity accruals accordingly (includes taxes and TRIP?) 7

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