Electronic Arts 2006 Annual Report Download - page 49

Company keep abreast of competitive trends in equity compensation and aid in the retention of key
employees. The Compensation Committee determined that, unlike other executives, the CEO's equity
compensation should be structured to achieve maximum alignment with the interests of EA's stockholders.
As a result, the Compensation Committee granted a stock option to the CEO in Ñscal 2006 but did not
grant him an RSU award.
Excluding stock options and RSU awards assumed by EA in connection with its acquisition of JAMDAT
Mobile Inc., stock options and RSU awards granted to all executives represented 13.8% of total stock-
based compensation awarded during Ñscal 2006 and 0.37% of total shares outstanding as of the end of
Ñscal 2006. Overall, excluding stock options and RSU awards assumed by EA in connection with its
acquisition of JAMDAT, total stock option and RSU award grants made by EA to all employees during
Ñscal 2006 represented approximately 2.67% of total shares outstanding as of the end of Ñscal 2006.
Executive Ownership Requirements. In Ñscal 2004, the Board of Directors implemented EA stock
ownership requirements for all Section 16 executive oÇcers. These ownership requirements are established
as multiples of the executive's base pay, ranging from one to six times the executive's annual salary
depending on the executive's level within the organization. In some cases, the ownership requirements are
phased in on the basis of the executive's tenure. The Compensation Committee believes these ownership
guidelines further align the interests of EA's stockholders and executives. As of March 31, 2006, each of
EA's executives had either met their then-applicable stock ownership requirements or had not yet reached
the date on which they are required to meet their ownership requirements.
Exchange Program and Additional Retention Awards
In June 2006, the Compensation Committee considered the ongoing impact of the recent trading prices of
Proxy Statement
EA's Common Stock on the Company's ability to retain employees. The Compensation Committee
recognized that many of the Company's employees hold options with exercise prices signiÑcantly higher
than the current market price of EA's Common Stock. The Compensation Committee concluded that to
enhance long-term stockholder value, the Company needed to maintain competitive employee compensa-
tion and incentive programs that will assist in motivating and retaining employees. The Compensation
Committee believes that a meaningful equity stake in the success of the Company is a critical component
of these programs. In considering the terms of the Exchange Program described under Proposal 2 above,
the Compensation Committee consulted with its independent compensation consulting Ñrm, outside legal
counsel, outside Ñnancial consultants (through management), and senior management of the Company.
The Compensation Committee considered the likely positive impact of the Exchange Program on
employee motivation and retention, and reviewed the terms and accounting consequences of the Exchange
Program, as described under Proposal 2 above. The Compensation Committee concluded that the
Exchange Program will provide the Company with an opportunity to enhance incentives for eligible
employees to remain with the Company, while reducing the Company's outstanding overhang. The
Compensation Committee also believes that the Exchange Program, pursuant to which employees will be
aÅorded the opportunity to exchange outstanding stock options for restricted stock or restricted stock units,
will further align the Company's current equity compensation with the Company's and Compensation
Committee's philosophy of shifting from the exclusive use of stock options to using a mix of stock options
and other equity-based incentives, such as RSU awards, to provide long-term equity incentives to
employees.
The Compensation Committee also concluded that while the Exchange Program would aÅord signiÑcant
retention beneÑts, these beneÑts would not necessarily be suÇcient to provide adequate retention for
certain key employees due to the signiÑcant competition for talented employees in EA's industry.
Accordingly, and again in consultation with various outside advisors and senior management, the
Compensation Committee also approved a program of additional retention awards consisting of a
combination of stock options and RSU awards to acquire up to 2.8 million total shares to be granted in
August 2006, as further described in Proposal 2 above. The Compensation Committee believes that the
combination of the Exchange Program and these new retention awards is necessary to achieve the primary
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