TO QUALIFY OR NOT TO QUALIFY

Presented by Computershare and Aon

1

Upcoming Events

Webinar Series

- All Things ESPP @ www.computershare.com/allthingsespp

- All Things Equity Plans @ www.computershare.com/allthingsequityplans

ESPP Day 2019

- May 16, 2019 | Boston, MA

- November 2019 | Dallas, TX

- www.computershare.com/esppday

2

Disclaimer

The following presentation and the views expressed by the presenters are not intended to provide legal, tax, accounting, investment, or other professional advice. The information contained in this presentation is general in nature and based on authorities that are subject to change. Applicability to specific situations should be determined through consultation with your investment, legal, and tax advisors. The information contained in these materials is only current as of the date produced. The materials have not been and will not be updated to incorporate any changes since the production date.

3

Asking Questions

Enter your question into the Questions pane on the

GoToWebinar Control Panel.

4

Housekeeping

Presentation is being recorded

- Email will be sent to all attendees with link to recording and presentation

Presentation qualifies for one CEP credit

Please take our survey!

5

Introductions

Liz Stoudt, CEPDirector, Valuation ServicesAon Hewitt

Lisa SabatinoRelationship ManagerComputershare

Prepared by AonAon is part of Aon Hewitt, a business unit of Aon plc.

To Qualify or Not To QualifyComputershare and Aon

AonProprietary & Confidential

Agenda

Overview of ESPP

Plan Design

Design Prevalence

Participation Rates

7

AonProprietary & Confidential

ESPP Overview

8

Pre-123R

• ESPPs with 15% discount and lookback common

• No compensation charge

FAS 123R

• Most ESPPs are compensatory• Safe harbor ESPPs have 5% discount

and no look-back

Today

• Resurgence of ESPP• Variations in design and specific

company goals for ESPP

AonProprietary & Confidential

Why ESPP?

Company perspective Encourages broad based ownership

Non-excessive

Expense efficient

Shareholder friendly

Corporate tax deduction

Employee Perspective Guaranteed appreciation at purchase

Control timing of taxable event with qualified plans

Employee motivation, loyalty, engagement

9

AonProprietary & Confidential

Plan Design Alternatives

10

Qualified Plans

• Most common in US• Common goals are to

promote broad based ownership while providing a good incentive for employees to participate

• Limits benefits and share purchases

• Preferential tax treatment for employees

• Corporate tax deduction depends on timing of sales

• Shareholder friendly

Non-Qualified Plans

• Most countries don’t have qualified plans

• Common goals are to provide additional benefits beyond a qualified plan or provide a simpler direct stock purchase program

• More flexibility on design• Taxed at purchase for

employees• Always get a corporate tax

deduction• Shareholder friendly

AonProprietary & Confidential

Computershare and Aon ESPP Research Project

Computershare and Aon partnered to analyze global ESPP design, participation rates, and employee behavior in the marketplace Covers 250 plans and participation rate data for 125 plans

Covers approximately 2.7 million eligible participants

Prevalence of design features Plan Type: Non-Qualified vs. Section 423B Qualified plans

Length of Purchase Period: Monthly, Semi-Annual, etc.

Size of Discounts and Employer Match

Look-back provisions

How plan design features drive employee behaviors Participation Rate

Contribution Level

11

AonProprietary & Confidential

Company Summary The breakdown of Computershare ESPP clients by industry and size are summarized

below:

12

37%

33%

30%

Market Cap Size Breakdown

Small Cap

Mid Cap

Large Cap

13%

5%

4%

18%

13%

27%

9%

5%

2%1% 3%Industry Breakdown

Consumer Discretionary

Consumer Staples

Energy

Financials

Health Care

Industrials

Information Technology

Materials

Real Estate

Telecommunication Services

Utilities

AonProprietary & Confidential

ESPP Design Summary The broad plan design details of the ESPP clients are summarized below:

13

60%

40%

Plan Type

QualifiedNon-Qualified

4%

31%

15%7%

43%

Discount

0% w/ Match0% w/o Match5%10%15%

6%

37%

31%

20%

6%

Length of Purchase PeriodWeekly or Bi-Weekly

Monthly

Quarterly

Semi Annual

Annual

69%

31%

Purchase Price Type

Ending Price

Look-Back

AonProprietary & Confidential

Plan Type Qualified plans showed slightly higher participation rates than Non-Qualified plans. We find that

the specific plan designs illustrated later in this deck show greater differences in participation rates.

14

60%

40%

Plan Type

QualifiedNon-Qualified

20% 19%

0%

10%

20%

30%

40%

Qualified Non-Qualified

Average Participation Rate

$4,400 $3,600

$0

$2,000

$4,000

$6,000

Qualified Non-Qualified

Average Yearly Contribution

AonProprietary & Confidential

Plan Type There are more variations in prevalence by industry or company size when looking broadly at

qualified versus non-qualified plans.

15

53%

33%

44%

60%

69%

63%

89%

42%

40%

67%

57%

47%

67%

56%

40%

31%

37%

11%

58%

60%

33%

43%

Consumer Discretionary

Consumer Staples

Energy

Financials

Health Care

Industrials

Information Technology

Materials

Real Estate

Telecommunication Services

Utilities

Plan Type

423B Qualified Non-Qualified

69%

73%

35%

31%

27%

65%

Small Cap

Mid Cap

Large Cap

Plan Type by Market Cap

423B Qualified Non-Qualified

AonProprietary & Confidential

Discount The breakdown for discount by plan type is summarized below. There’s a significant

difference in discounts and matches between qualified and non-qualified plans.

16

5%

23%

9%63%

Qualified Plans

0% w/o Match5%10%15%

11%

71%

2%4%12%

Non-Qualified Plans

0% w/ Match0% w/o Match5%10%15%

AonProprietary & Confidential

Discount The breakdown for participation rates and contributions by discount level is

summarized below:

17

$1,795 $3,874 $4,110 $4,915

$3,757 $2,810 $3,554

$9,537

$5,911

$0

$2,000

$4,000

$6,000

$8,000

$10,000

0% w/ Match 0% w/o Match 5% 10% 15%

Average Yearly Contribution

QualifiedNon-Qualified

9%16%

10%

25%25%

12% 11%

31%

0%

10%

20%

30%

40%

0% w/ Match 0% w/o Match 5% 10% 15%

Average Participation Rate

QualifiedNon-Qualified

AonProprietary & Confidential

Length of Purchase Period The length of purchase varies significantly for qualified and non-qualified plans. Monthly plans are

most common for non-qualified plans where quarterly and semi-annual plans are most common for qualified plans.

18

1%

19%

41%

31%

8%

Qualified Plans

Weekly or Bi-WeeklyMonthlyQuarterlySemi AnnualAnnual

14%

66%

16%

2% 2%

Non-Qualified Plans

Weekly or Bi-WeeklyMonthlyQuarterlySemi AnnualAnnual

AonProprietary & Confidential

Length of Purchase Period Participation rates and contribution levels generally peak at semi annual purchase periods, then

decline for longer periods. The qualified weekly or bi-weekly column only represents 2 companies.

19

29%

9%

20%25%

17%3%

21% 23%

12%

0.0%

10.0%

20.0%

30.0%

40.0%

Weekly or Bi-Weekly Monthly Quarterly Semi Annual Annual

Average Participation Rate

QualifiedNon-Qualified

$6,903

$3,459 $4,424

$5,233 $3,277

$1,840 $3,193

$6,773

$3,532 $2,043

$0

$2,000

$4,000

$6,000

$8,000

Weekly or Bi-Weekly Monthly Quarterly Semi Annual Annual

Average Yearly Contribution

QualifiedNon-Qualified

AonProprietary & Confidential

Purchase Price Type

20

Approximately 31% of all companies offer a plan with a look-back feature, while 47% of qualified plans have a look-back. Companies who offer plans with a Look-Back period see higher average contributions and participation rates

15%26%

20%10%

0%

10%

20%

30%

40%

Ending Price Look-Back

Average Participation Rate

QualifiedNon-Qualified

$3,862 $5,022

$3,525 $4,081

$0

$2,000

$4,000

$6,000

Ending Price Look-Back

Average Yearly Contributions

QualifiedNon-Qualified

53%47%

Qualified Plans

Ending Price

Look-Back

94%

6%

Non-Qualified Plans

Ending Price

Look-Back

AonProprietary & Confidential

Plan Design Combinations The plan design breakdowns are summarized below. There’s a significant difference

between qualified and non-qualified plan designs.

21

32%

5%12%7%

21%

23%

All Plan Designs

0% w/o Match

0% w/ Match

5% Discount, No Lookback

10% Discount

15% Discount, No Lookback

15% Discount, Lookback

6%

19%

9%

29%

37%

Plan Design for Qualified Plans

0% Discount

5% Discount, NoLookback

10% Discount

15% Discount, NoLookback

15% Discount, Lookback

75%

12%

13%

Plan Design for Non-Qualified Plans

0% w/o Match

0% w/ Match

15% Discount

AonProprietary & Confidential

Plan Design Combinations Participation rates for qualified plans and non qualified plans

22

9%13%

10%

19%

28%

12%

25%

35%

12%

0.0%

10.0%

20.0%

30.0%

40.0%

0% w/o Match 0% w/ Match 5% Discount,No Lookback

10% Discount 15%Discount, No

Lookback

15%Discount,Lookback

Average Participation Rate

QualifiedNon-Qualified

AonProprietary & Confidential

Plan Design Combinations Annual contribution levels for qualified and non-qualified plans

23

$1,795

$4,048 $4,110 $4,015

$5,515

$2,810 $3,757

$0 $0

$6,588

$4,332

$0

$2,000

$4,000

$6,000

$8,000

0% w/o Match 0% w/ Match 5% Discount,No Lookback

10% Discount 15% Discount,No Lookback

15% Discount,Lookback

Average Yearly Contributions

QualifiedNon-Qualified

AonProprietary & Confidential

Plan Designs

24

24%

4%7% 5%

14%

29%

10%

11% 18

%

3% 6%

19%

12%

12%

3%

22% 30

%

7% 12%15

%

10%

25%

48%

20%

34%

31%

26%

14%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

Qualified Participation Rate by Industry

0% Discount 5% Discount, No Lookback 10% Discount 15% Discount, No Lookback 15% Discount, Lookback

AonProprietary & Confidential

Plan Designs

25

8% 2%

36%

32%

2% 4% 12%

4%

42%

24%

17%

52%

30%

66%

40%

28%

7%

20%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

Non-Qualified Participation Rate by Industry

0% w/o Match 0% w/ Match 15% Discount

AonProprietary & Confidential

Summary

ESPPs are a cost-friendly and effective way for companies to engage employees and improve share ownership amongst employees on an extensive basis

As shown in the slides above the prevalence of different plan types and design features vary depending on a company’s size and industry

Blending different design features can increase participation without a large increase in expense

26

AonProprietary & Confidential

Contact Information

Liz Stoudt, ASA, CEP

Associate Partner

Aon

(908) 380-0144

estoudt@radford.com

Lisa Sabatino

Relationship Manager

Computershare

(732) 417-2938

Lisa.Sabatino@computershare.com

APPENDIX

28

AonProprietary & Confidential

US vs. Non-US Employee Participation

We have also analyzed participation for both US and Non-US participants from 121 unique companies. US employees tend to participate at a higher rate than Non-US employees as they will have access to 423B Qualified plans and

easier administration, which should lead to higher participation

29

21%

16%

0%

10%

20%

30%

40%

US Participation Non-US Participation

US vs. Non-US Participation

AonProprietary & Confidential

Purchase Price Type by Industry

30

• Technology Companies tend to offer Look-Backs at a higher rate than other industries, while small cap companies have the highest rates of look-backs by company size.

77%

83%

78%

63%

59%

77%

37%

83%

60%

67%

100%

23%

17%

22%

38%

41%

23%

63%

17%

40%

33%

Consumer Discretionary

Consumer Staples

Energy

Financials

Health Care

Industrials

Information Technology

Materials

Real Estate

Telecommunication Services

Utilities

Purchase Price Type

Ending Price Look-Back

58%

65%

88%

42%

35%

12%

Small Cap

Mid Cap

Large Cap

Look-Back by Market Cap

Ending Price Look-Back

AonProprietary & Confidential

Discounts Health Care, Real Estate and Information Technology company have the highest

prevalence of 15% discounts.

31

43%

58%

56%

28%

10%

33%

16%

42%

20%

67%

14%

3%

3%

7%

7%

8%

14%

3%

17%

11%

23%

10%

20%

16%

29%

10%

8%

22%

14%

7%

8%

40%

17%

11%

48%

59%

33%

68%

42%

80%

33%

43%

Consumer Discretionary

Consumer Staples

Energy

Financials

Health Care

Industrials

Information Technology

Materials

Real Estate

Telecommunication Services

Utilities

Discount

0% w/o Match 0% w/ Match 5% 10% 15%

AonProprietary & Confidential

Discounts Small cap companies have the highest prevalence of 15% discounts, while large cap

companies have the highest prevalence of direct stock purchase plans.

32

27%

23%

46%

5%

3%6%

8%

20%

16%

4%

11%

6%

56%

43%

26%

Small Cap

Mid Cap

Large Cap

Discount by Market Cap

0% w/o Match 0% w/ Match 5% 10% 15%

7%12% 13%

6%

36%42%

21%

11%18%

2% 7%16%

28%22%

29%

0%5%

10%15%20%25%30%35%40%45%

Small Cap Mid Cap Large Cap

Average Participation Rate vs. Discount by Market Cap

0% w/o Match 0% w/ Match 5% 10% 15%

AonProprietary & Confidential

Plan Designs

33

24%

2%11% 9%

18%

2% 6%

18%16% 17%25%

33%

24%

0%

10%

20%

30%

40%

Small Cap Mid Cap Large Cap

Average Participation Rate by Qualified Plan Design and Market Cap

0% Discount 5% Discount, No Lookback 10% Discount15% Discount, No Lookback 15% Discount, Lookback

3%

32%

13%6%

36%42%

7%

27%

37%

0%

10%

20%

30%

40%

Small Cap Mid Cap Large Cap

Average Participation Rate by Non-Qualified Plan Design and Market Cap

0% w/o Match 0% w/ Match 15% Discount