Electronic Arts 2005 Annual Report Download - page 38

Download and view the complete annual report

Please find page 38 of the 2005 Electronic Arts annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 168

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168

Compensation Philosophy and Challenges
EA's compensation philosophy to attract, motivate and retain the best executive talent relies on two basic
principles. First, a signiÑcant portion of each executive's compensation should be in the form of equity to align
the executive's interests with those of EA's stockholders. Second, a signiÑcant portion of each executive's cash
compensation should be performance-based and ""at risk'' Ì varying from year to year depending on EA's
Ñnancial and operational performance and on the individual meeting Ñnancial and other performance
measures. For Ñscal 2005, several of EA's most senior executive oÇcers, including the Chief Executive
OÇcer, all Executive Vice Presidents, and the CEO's executive direct reports, did not receive an incentive
bonus. The Compensation Committee and the Company remain committed to this ""pay for performance''
philosophy which ensures that executive cash compensation will reÖect the Company's and the executive's
performance.
As the employment market has improved over the last Ñscal year, EA has experienced competitive recruiting
eÅorts aimed at its executives. EA's leading and growing position within the entertainment industry makes it a
prime target for recruiting of executives and key creative talent.
The Company also continues to recruit for key talent and executives. Competition in attracting and retaining
talent comes primarily from three broad industry segments: entertainment, high technology and consumer
packaged goods. EA has continued to build its senior management team and has been successful in attracting
talent from the entertainment software industry and other market segments to add management depth and
experience to the organization. The Company continues to look at creative new methods using its
compensation programs to successfully recruit new talent into the organization while maintaining parity with
compensation of current key executives. Just as important as recruiting new talent and executives into the
organization is the internal development and retention of key talent and executives. As EA grows, it will, like
all organizations, have normal turnover within its executive ranks.
Data Considered and Process Used
In Ñscal 2005, at the direction of the Compensation Committee, EA's Human Resources Department
gathered executive compensation data from nationally recognized surveys and provided a comprehensive
analysis of this data to the Compensation Committee and its independent compensation consulting Ñrm. The
factors used to determine the participants in the survey included industry type, annual revenues, industry
growth rate and geography. Companies included in this data were from high technology (primarily software
developers), entertainment and selected packaged goods companies as reference points. The companies in the
compensation survey overlap considerably with the companies contained in the RDG Technology Composite
index. Additional companies included in the survey group were judged to be relevant because they compete for
executive talent with EA.
EA's executive level positions, including the CEO, were matched to comparable survey positions and
competitive market compensation levels to determine base salary ranges, target incentives and target total
cash compensation. EA's Human Resources Department participated in comprehensive surveys such as the
Mellon Global Long-Term Incentive Practices Survey to assist in determining appropriate equity level
compensation. In keeping with its performance-based and ""at-risk'' pay philosophy, the Committee targets
total cash compensation (consisting of base salary plus bonus target) between the 50th and 75th percentile of
the market, and targets equity compensation to approximately the 75th percentile.
This competitive market data was reviewed by the Human Resources Department with the CEO for each
benchmark executive level position, and with the Compensation Committee for the CEO and other key
executives. The Compensation Committee also considers each executive's responsibility level and EA's Ñscal
year performance compared to objectives and potential performance targets for the subsequent year.
Executive Compensation
The Compensation Committee awards executive compensation in three components: base salary, cash
incentive bonus and equity incentives. Historically, the Compensation Committee has generally reviewed and,
26