Visa 2008 Annual Report Download - page 149

Table of Contents
VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
September 30, 2008
(in millions, except as noted)
The Company has employee incentive plans under which cash awards may be made annually based on performance results. Personnel costs included
$204 million, $146 million and $106 million in fiscal 2008, 2007 and 2006, respectively, for expenses attributable to these incentive plans.
In addition to the above plans, the Company adopted the 2007 Equity Incentive Compensation Plan, which is described further at Note 18—Share-based
Compensation.
Note 13—Settlement Guarantee Management
Each customer is responsible for its settlement obligations. However, under Visa U.S.A's and Visa International's corporate bylaws, the Company
indemnifies customers for settlement losses suffered due to failure of any other customer to honor Visa cards, travelers cheques, deposit access products,
point-of-sale check service drivers and other instruments processed in accordance with the operating regulations.
This indemnification creates settlement risk for the Company due to the difference in timing between the date of a payment transaction and the date of
subsequent settlement. The term and amount of the indemnification are unlimited. Settlement at risk (or exposure) is estimated using the average daily
volumes during the quarter multiplied by the estimated number of days to settle plus a safety margin of two days, four months of chargebacks, and the total
balance for outstanding travelers cheques. The Company's estimated maximum settlement exposure amounted to approximately $34.8 billion at
September 30, 2008. Of this amount, $3.0 billion is covered by collateral held by the Company as listed below.
The Company has established global credit settlement risk policies and procedures, including a formalized set of credit standards, to manage the
settlement risk under this indemnification. If a customer fails to meet any of the credit standards, it is subject to risk control measures such as collateral.
Customer Collateral
To reduce potential losses related to settlement risk, the Company requires certain customers that do not meet its credit standards to post collateral in
order to ensure their performance of settlement obligations arising from product clearings. The Company holds collateral in the form of cash equivalents,
pledged securities, guarantees and letters of credit. The cash equivalents are reflected in customer collateral on the consolidated balance sheets as they are held
in escrow in the Company's name. Pledged securities are held by third parties in trust for the Company and the customers, and have been excluded from the
consolidated balance sheet. Guarantees and letters of credit are also excluded from the consolidated balance sheet. At September 30, 2008 and September 30,
2007, the Company maintained collateral as follows:
September 30,
2008
September 30,
2007
Cash equivalents $ 679 $ 68
Pledged securities at market value 150 101
Letters of credit 720 —
Guarantees(1) 1,938 1,349
Total $ 3,487 $ 1,518
(1) Guarantees are provided primarily by financial institutions to secure the obligations of their subsidiaries.
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