Electronic Arts 2005 Annual Report Download - page 39

if appropriate, adjusted executive compensation in October of each year. Beginning in Ñscal 2005, in order to
better align with EA's Ñscal year planning and performance, the Committee moved its annual executive
compensation review to February.
Base Salary. In reviewing executive oÇcers' base salaries, the Compensation Committee considered each
executive's performance over the last year as reported by the CEO and the Executive Vice President of
Human Resources, as well as each executive's responsibility level. In Ñscal 2005, those eligible executives
received an annual merit increase to their base salary during the Committee's February 2005 compensation
review, including the Named Executive OÇcers. In Ñscal 2005, EA re-aligned its global pay practices so that
all merit-based salary increases would become eÅective on a common date. Ordinarily, merit-based salary
increases occur once every twelve months. As of February 2005, however, executives at EA had not received
merit-based salary increases since October 2003 (unlike non-executives who received merit-based salary
increases in July 2004). Accordingly, executive merit increases in February 2005 were pro-rated to account for
the extended period of time between merit increases. Excluding the impact of this pro-ration, merit-based
salary increases for EA's executives were, in the aggregate, approximately the same on a percentage basis as
merit-based salary increases received by the overall non-executive employee population.
Incentive Bonus. In Ñscal 2005, the Company's annual incentive bonus plan remained the same as it was in
Ñscal 2004. The Compensation Committee assigned a target bonus to each executive oÇcer (expressed as a
percentage of that executive's base salary), determined which portions of each executive's target bonus are
dependent on EA's Ñnancial performance and individual achievements and approved the overall mechanics
and structure of the bonus plan. As a result of EA's Ñnancial performance in Ñscal 2005, and in keeping with
the Company's strong pay-for-performance philosophy, the Compensation Committee approved the recom-
mendation of EA's CEO and members of his executive staÅ that the CEO, all Executive Vice Presidents and
Proxy Statement
the CEO's executive direct reports should not be awarded incentive bonuses. Other executives and employees
received bonuses that were substantially below their target levels.
Stock Options. In March 2005, the Compensation Committee made stock option grants to certain executive
oÇcers including the CEO. See ""Options Granted in Fiscal 2005'' above. Stock options typically have been
granted to executive oÇcers when the executive Ñrst joins EA, in connection with a signiÑcant change in
responsibilities, annually to provide incentives for continued performance and retention of employment and
occasionally, to achieve internal equity between diÅerent positions within EA. The number of shares subject to
each stock option granted to an executive oÇcer was calculated to achieve a future value in unvested options
equal to a multiple of each executive's annual base salary assuming both growth and stock appreciation. All
grants were made at fair market value on the date of grant and vest as described in the ""Options Granted in
Fiscal 2005'' above. For certain executives, individual option grants awarded in March were bifurcated for the
purposes of vesting: one portion of the award vests as to 24% of the shares 12 months after the date of grant,
and then 2% on the Ñrst calendar day of each month thereafter for 38 months; the remaining portion vests as to
25% of the shares 24 months after the date of grant, 25% of the shares 36 months after the date of grant, and
50% of the shares 48 months after the date of grant. Option grants awarded to all executive oÇcers represented
17% of total options awarded during Ñscal 2005 and 0.5% of total shares outstanding as of the end of Ñscal
2005. Overall, total option grants to all employees represented approximately 2.9% of total shares outstanding
as of the end of Ñscal 2005.
The Company and the Compensation Committee continue to believe in the use of stock options as the best
form of equity compensation to achieve the Company's goals of attracting the best talent to EA, retaining its
high-performing team and providing an incentive for its executives to perform at their highest levels. The
Compensation Committee and the Company also continue to believe that stock options reward executives in a
manner consistent with the value that is created for the Company's stockholders when the Company achieves
its goals, and that performance is reÖected in the growth of the Company's share price. Like other companies
that see the same value in the use of stock options as a key component of executive compensation, the
Compensation Committee and the Company are preparing for the likelihood of stock option expensing by
carefully evaluating the type of equity incentive awards the Company grants and the amount of such awards
granted annually.
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