EQUITY RESIDENTIAL (EQR)

Long-Term Compensation Awards

Option Awards. For 2008, all executive officers were issued 50% of long-term compensation as Option Awards. The Company believes that Option Awards are particularly well-suited to aligning executives’ interests with those of shareholders and for motivating future performance because Option Awards have no value unless the share price appreciates. The number of options is determined by dividing the dollar value of the Option Award by the option value per share. Option Awards vest over three years of continuous employment at a rate of one-third of such award each year, providing further encouragement for the retention of key executives.

Share Awards. The remaining 50% of long-term compensation is issued as Restricted Shares or, at the choice of the employee on a one for one alternative to Restricted Shares, LTIP Units. The number of Share Awards is determined by dividing the dollar value of the award by the grant price. Share Awards vest in full upon completion of three years of continuous employment from the grant date, encouraging the retention of key executives. Dividends are paid on Share Awards at the same rate as on unrestricted common shares/OP Units. An LTIP Unit is a class of partnership interest in the Operating Partnership, which is not economically equivalent in value to a common share, but over time can potentially increase in value to one-for-one parity with common shares by operation of special tax rules. Eligible officers (vice presidents and above) who elected to receive LTIP Units were required to make a capital contribution to the Operating Partnership of $0.50 per LTIP Unit issued in 2009. Once LTIP Units are vested and converted to OP Units, the holder may exchange the OP Units for the Company’s common shares in the same manner as any other limited partner in the Operating Partnership. Unlike restricted shares, which are taxed as ordinary income on the vesting date, the recipient of an LTIP Unit will generally be able to defer tax until the ultimate conversion of the LTIP Unit into a Company common share.

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