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Variable Pay Funding Project

This update discusses key aspects of the Variable Pay Funding Project as of June 10, 2008. The agenda includes a review of the accrual methodology for 2008, presenting a new HNAH model with a simple example. It highlights model inputs, assumptions, and finance performance factors, illustrating proforma results and implications. It also outlines next steps, including obtaining refreshed data, finalizing participant lists, and adjusting legal entity accruals based on updated projections and performance metrics.

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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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