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Global Share Plan Case Studies:Shell International Limited

19th June 2008 - 13:45

www.globalequity.org

Pam Roffe, Manager Global Share Plans, Shell International LimitedBob Grayson, Senior Legal Counsel, Shell International LimitedIain Wilson, Head of Business Development, Computershare Investor Services, plcLisa Williamson, Manager, Global Employer Services, Deloitte

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Royal Dutch Shell – how we used to do it

Where we started• Fully compliant but manual

• Global due diligence

Mixture of semi automated and manual tax calculations on each optionexercise

• Limited automation

• Special issues for certain countries

• Gaps plugged by in-house expertise

Sustainable and effective for stock options whilst share price steady

Not sustainable for a major vest of performance share plan (10,000calculations to be done at same time)

Royal Dutch Shell – the background

• Variety of plans (Stock Option Plan/ Performance Share Plan/ LTIP/RSP)

• 15,000 holders with outstanding options

• 10,000 awardees of performance shares each year (approx 20% of whichare new awardees each year)

• 120 countries

• 7,500 highly mobile expatriates – of these over 2,500 receive awardseach year

• Many awardees work in several countries during the cycle of an award –particular issue for options with a 10 year life

• Cross border tax compliance a major issue

• Requirement: to collect and track accurate demographic data for eachawardee over cycle of award from grant to exercise/ distribution

Royal Dutch Shell – the risks

• Expected increase in exercise activity (major vesting of in the moneyoptions for the first time for a few years!)

• Vesting of 10,000 awards under performance share plan –it was knownthat we would have 10,000 calculations to do (subject to the performancecondition)

• Burden of maintaining global due diligence on multiple plans andjurisdictions

• Timely payment and reporting of withholding taxes

• Costs of non-compliance

• Reputational

• Penalties

• Interest

• Criminal charges

Royal Dutch Shell – key objectives

• We considered…• Doing all calculations manually in house

• Outsourcing all manually

• Automating

• Aim for• 80% automation on stock options (although the reality turned out to be higher)

• 99% automation on Performance Share Plan

• Prioritise jurisdictions with withholding requirements

• Prioritise countries with high awardee numbers

The Chosen Locations

Argentina Cote d’Ivoire Guatemala Mauritius Philippines Sweden

Australia Czech Rep. Guinea Mexico Poland Switzerland

Austria Denmark Hong Kong Morocco Portugal Syria

Bangladesh Dominican Hungary Mozambique Puerto Rico Taiwan

Barbados Ecuador India Namibia Qatar Thailand

Belgium Egypt Iran Netherlands Romania Togo

Brazil El Salvador Ireland New Zealand Russia Trinidad

Brunei Ethiopia Italy Nigeria Saudi Arabia Turkey

Bulgaria Fiji Jamaica Norway Senegal UAE

Cameroon Finland Japan Oman Singapore Uganda

Canada France Kazakhstan Pakistan Slovakia UK

Chile Gabon Kenya Panama South Africa Uruguay

China Germany Korea Papua New Guinea Spain USA

Colombia Ghana Luxembourg Paraguay Sri Lanka Venezuela

Costa Rica Greece Malaysia Peru Sudan Vietnam

Royal Dutch Shell – key objectives

Scalability and Flexibility• Solution to cover multiple plan types – we started with options but knew that it had

to cover Performance Share Plan as well

• Change in tax strategy for expats to tax equalisation from 2007 onwards

• Specific Shell tax positions

• Application of treaty reliefs

• Different assignment types (long-term expats, short-term assignments,international commuters etc)

• Different exercise types (cashless, sell-to-cover, hold all)

• Different settlement types (cash to payroll could result in different tax positions)

• Specific country issues e.g. Singapore, Netherlands, China, US Green card

• Specific employee groups e.g. seafarers

• Notification of future liability

Royal Dutch Shell – the legal challenges

• Withholding is employer liability – dependent on employee supplied data

• Division of liabilities between Shell, Computershare & Deloitte• Vested Share Account – licensing and FOREX

• Legal issues drive system changes- legal speak “compliance” and “risk management”- Practice “action” or “no action”

What actions?- Non system action (e.g. a filing; extra wording)- Change awards- Change delivery

Deloitte – the tax challenges

• Country coverage – polling knowledge from Deloitte global network

• Regional taxation – e.g. state to state moves

• Social security taxation

• Multi country calculations

• Determining tax residency status

• Payroll reportable amounts

• Future reportable amounts

• Treaty positions and apportionment

• Upfront taxation – e.g. taxation at grant

• Prior transactions – including exchange rate conversions

• Equity settled or cash settled

• Tax Equalisation – hypothetical tax and gross up calculations

• Ongoing maintenance – keeping the tax rules up to date

Deloitte – the technology challenges

• Data collection

• Compatibility

• Speed of calculation and response

• High volume capability

• Company specific positions

• ‘What if’ scenarios

• Bureau calculations

• Security

• Reporting

• Future proofing

Computershare – the facilitation challenges

• 100% straight through web solution for 15,000+ people

• Tri-party solution

• Timescales

• System migration

• Data collection

• Self-certification

• Data interface

• Project management

Computershare – project management

• Round the clock development (global)

• Workshop facilitation

• Scenario-building

• User Acceptance Testing (UAT)

• Future proofing

• I.T: all under one roof

So, Shell required a solution which would…

• Be globally compliant across all incentive plans

• Be efficient, fast and accurate – for both participant and company

• Be cost-effective

• Allow seamless interaction of three parties

• Mitigate risk towards:• Financial penalties

• The Shell brand

• The Shell reputation

The solution…the global tax calculator

Continued…

Payroll disbursement and reporting

The Deloitte automated process

Data Review & Consolidation

Data Validation

Tax Logic & Calculation

Equalisation

Special Cases

Result Delivery

How does the participant benefit?

• Real-time tax estimate during transaction process• Contract notes with aggregated tax withholding across all jurisdictions

(in plan currency)• Individual tax summaries covering up to 3 countries

• breakdown of income attributable to income tax per jurisdiction and taxeswithheld

• social security• regional taxes for up to 3 jurisdictions• Where no withholding the summary shows the future reportable amount to

be reported on the participant’s tax return

• On line storage of the tax documents• On line storage of detailed country tax summaries• On line tax FAQs – for both stock options and performance shares• Access to Shell equitytax help inbox for addressing specific tax queries

How does Shell benefit?

• Globally compliant

• Save time

• Save money

• Mitigate risk

• Improved service to participants through

• Automated tax summaries for participant

• Contract notes with tax information

• Real time tax estimates

• Real time tax calculations

• On line source of tax information cuts down on questions

• Tax reporting to payroll hubs

What does this mean for Computershare?

• Delivery of straight-through end to end process

• Timely delivery of net shares / net proceeds

• Additional challenges:• Requirements to hold per person attributes such as those with Netherlands

30% tax rule, Singapore tax tracking election etc

• Reports to relevant payroll hubs with tax withholding per person - in plancurrency and converted to local currency

• Sending of tax withholding funds to relevant payrolls– in some countries thismust be within a few days of the transaction - in local currency

• Special countries e.g. China – delivery of net proceeds and taxes to SAFEaccount

Results for Stock Options Since March 2007

• 98% of all calculations were automated

• Over 18,000 calculations in total

• Over 6,300 transactions were completed

• 28,000,000 units were exercised/vested

• No cheques were issued

• 2700 BACS payments were made

• 3600 wire payments were made

• 93 countries dealt with

Results for Performance Share Plan since March 2008(to 26 May 2008)

• 99% of all calculations were automated – less than 200 were manual

• Over 15,000 calculations in total (including estimates and live calcs)

• Over 350 tax equalisation calculations (for US expats only this year)

• Non US

– 6,200 individuals (non US) delivery completed

– 4.6m Royal Dutch Shell A and B shares were delivered

• US

– 2,220 individuals delivery completed

– 1.15m ADRs (equivalent to 2.3m RDSA/B shares) delivered

• 117 countries dealt with

Lessons Learned

• Lead time to get through the internal hurdles – procurement, contractsetc !

• First class project management is vital to success

• Business sponsorship across functions

• Ability to make quick decisions without involving all stakeholders at alltimes i.e. delegated authority was absolutely vital

• Teamwork was the key to success• Between the 3 organisations (Shell, Deloitte, Computershare)

• Withing the 3 organisation (Tax, IT, HR, Legal)

• Global

• Flexibility

• Communications are vital – many participants think equity awards aretax free!

So, were Shell’s requirements met?

• Be globally compliant

• Save time

• Save money

• Mitigate risk

And

• Positions Shell as global innovator

• Proves that three parties can work together successfully

• Provides high profile employees with fast, easy-to-use service

What Next? – Managing Hypothetical Tax

Managing, valuing and reporting current multi-currency assets against future contingent liabilities

1000s of Individuals

Administrator

Deloitte (Tax Advisor to Shell)

Pay Roll(Many)

Suspense A/C

Revenue Authorities

Tax Return Advisor

Inform of Future Reportable Amount

TIM

E L

AG

(P

ER

HA

PS

1 Y

EA

R)

Provide Cash for Tax Return

Pay Real Tax

Deliver HYPO Tax

Send REAL and HYPO Data (Residence History)

Advise Tax Due

Calculate Number of Shares to Sell to Cover HYPO

Receives Net Shares

Calculate REAL and HYPO Tax

Fill and Send Tax Return

Pay Tax

Provide Cash for REAL Tax

Tell REAL Tax

Calculate Value at Vest

Managing, valuing and reporting current multi-currency assets against future contingent liabilities

1000s of Individuals

Administrator

Deloitte (Tax Advisor to Shell)

Pay Roll(Many)

Suspense A/C

Revenue Authorities

Tax Return Advisor

Inform of Future Reportable Amount

TIM

E L

AG

(P

ER

HA

PS

1 Y

EA

R)

TIM

E L

AG

(P

ER

HA

PS

1 Y

EA

R)

Provide Cash for Tax Return

Pay Real Tax

Deliver HYPO Tax

Send REAL and HYPO Data (Residence History)

Send REAL and HYPO Data (Residence History)

Advise Tax Due

Calculate Number of Shares to Sell to Cover HYPO

Calculate Number of Shares to Sell to Cover HYPO

Receives Net SharesReceives Net Shares

Calculate REAL and HYPO TaxCalculate REAL and HYPO Tax

Fill and Send Tax Return

Fill and Send Tax Return

Pay TaxPay Tax

Provide Cash for REAL TaxProvide Cash for REAL Tax

Tell REAL TaxTell REAL Tax

Calculate Value at Vest

Calculate Value at Vest

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