Electronic Arts 2006 Annual Report Download - page 48

executives, including the Named Executive OÇcers (other than Mr. Mattrick and Mr. McMillan who
were no longer serving as executive oÇcers, and the CEO), received an annual merit increase to their base
salary during the Committee's February 2006 compensation review. Although the CEO did not receive a
merit increase to his base salary in Ñscal 2006, he did receive a market-based salary adjustment. Merit-
based salary increases for EA's executives were, at 3.5% in 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 2006, the Company's annual incentive bonus plan remained the same as it was
in Ñscal 2005. The Compensation Committee assigned a target bonus to each executive (expressed as a
percentage of that executive's base salary) designed to deliver total target cash compensation (base salary
plus target bonus) in the third quartile (50th to 75th percentile) of the competitive market compensation
surveys noted above. The Compensation Committee also 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
2006, and in keeping with the Company's strong pay-for-performance philosophy, the Compensation
Committee approved the recommendation of EA's CEO and members of his executive staÅ that the CEO,
all Executive Vice Presidents and the CEO's other executive direct reports should not be awarded
incentive bonuses. Other executives and employees received bonuses that were substantially below their
target levels.
Stock-Based Compensation. The Company and the Compensation Committee continue to believe in the
use of stock-based compensation as a core component of the rewards strategy to achieve the Company's
goals of attracting the best talent to EA, retaining its high-performing teams and providing an incentive for
its executives to perform at their highest levels. The Company and the Compensation Committee 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. The Company and the Compensation Committee
have engaged in extensive reviews of long-term incentive compensation strategies in light of newly-
applicable stock-based compensation expensing requirements, responsible dilution management, and a
desire to continue to eÅectively attract, motivate and retain key talent. After extensive reviews of various
equity incentive alternatives, the Company and the Compensation Committee determined that a mix of
equity-based compensation, including both stock options and restricted stock unit awards
(""RSU awards''), would be an appropriate and eÅective means of providing equity compensation which is
aligned with competitive trends, consistent with the Company's ownership philosophy, helpful in the
retention of executives, and a responsible use of the Company's equity in light of the expense recognition
requirements of SFAS 123R.
Historically, the Compensation Committee has granted stock options, but not RSU awards, to executive
oÇcers when they Ñrst join 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 target value granted to each executive is based
upon a combination of comparable external market benchmarks and internal parity among similarly
situated executives. In addition, to determine competitive grant levels, the Committee reviews the ongoing
stock option grant value at the market 75th percentile for each benchmark position. Individual grants are
structured to achieve a future value in unvested awards equal to a multiple of each executive's annual base
salary assuming both growth and stock appreciation. All stock options granted to the Named Executive
OÇcers in Ñscal 2006 were made at fair market value on the date of grant and vest as described in
""Options Granted in Fiscal 2006'' above. All RSU awards granted in Ñscal 2006 to the Named Executive
OÇcers vest as described in the footnotes to the Summary Compensation Table above.
In Ñscal 2006, the Compensation Committee granted a mix of stock options and RSU awards to certain
executive oÇcers (other than the CEO) designed to deliver 70% of the target value in stock options and
30% of the value in RSU awards. This mix of stock options and RSU awards reÖects the Compensation
Committee's belief that stock options should remain the primary vehicle for encouraging equity ownership
by executive oÇcers and aligning their interests with EA's stockholders', while RSU awards allow the
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