Activision Blizzard (ATVI)

Compensation Philosophy and Objectives

        To respond to these requirements for top executive talent, the Compensation Committee has established the following compensation philosophy for the named executive officers:

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Attract and Retain Key Executive Talent.    Executives should be recruited and retained through employment agreements.



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Competitive Requirements.    Compensation should reflect the competitive talent market from which we recruit.



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Alignment with Stockholders' Interests.    Our objective is to align executive compensation with the interests of stockholders through the use of performance-based incentive programs and equity. As such, a significant portion of the compensation opportunity should be variable and linked to performance.



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Accountability for Achieving Clearly Defined Short- and Long-Term Goals Aligned with Our Strategy.    Performance and business goals for named executive officers should be clearly defined to provide clear alignment between our business strategy, performance goals, results, and incentive payouts.

        Currently, we have employment agreements with each of our named executive officers. We believe these agreements are critical in enabling us to attract and retain talent in a highly competitive industry. The employment agreements specify details of the approach toward salary, annual incentives, equity awards, termination provisions, and restrictive covenants surrounding executive officer employment, including non-competition and non-solicitation provisions. Generally, the employment agreements are established at the time of hire, which was before 2008 for most executive officers, and were amended in December 2008 in order to comply with the requirements of Section 409A of the Internal Revenue Code. The agreement with Mr. Morhaime was entered into upon the close of the Combination on July 9, 2008. As such, our compensation decisions for the nine month period ended December 31, 2008 reflect the terms of these pre-existing employment agreements.

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Table of Contents

Compensation Philosophy and Objectives

        To respond to these requirements for top executive talent, the Compensation Committee follows several key principles in establishing compensation programs for named executive officers:

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Competitive Requirements.    Compensation should reflect the competitive employment market for our industry and the market for the talent from which the Company recruits, while factoring in the Company's historical and expected future growth and significant related managerial and staffing needs. This often requires recruiting executives from stable, mature industries to a fast-growth, higher-risk environment. The Compensation Committee considers these market conditions as it develops compensation policies to attract, retain and motivate talented individuals who will make long-term commitments to the Company. Accordingly, the Company positions annual target total compensation between the 50^th and 75^th percentile of our industry (calculated based on the sum of salaries, target annual incentives and the annualized value of long-term incentive and equity awards).



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Alignment with Stockholders' Interests.    The Company should align executive compensation with the interests of stockholders. To achieve this objective, the Compensation Committee grants options, restricted shares, performance shares and restricted share units. The Compensation Committee also emphasizes awarding annual bonuses based on the achievement of Company earnings per share and operating income targets at both the corporate and divisional levels. In order to align pay, performance and shareholder returns, more than 50 percent of named executive officer compensation is variable, tied to the metrics and results described above.



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Accountability for Achieving Clearly Defined Short and Long-Term Goals Aligned with Company Strategy. The Company should establish clearly defined performance and business goals for named executive officers. The Compensation Committee measures the performance of named executive officers annually against financial and other goals established at the beginning of each fiscal year. These goals reflect the Company's annual targets and long-term operating plans.



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Exercise of Independence.    Although the Compensation Committee uses internal and external data and occasionally retains compensation consultants and consults with senior management, ultimately the Compensation Committee exercises its independent judgment in developing the Company's compensation plans and policies.

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Compensation Philosophy and Objectives

        The Compensation Committee is guided by the following key principles in determining the compensation programs for the Company's named executive officers:

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Competitive Requirements.    Compensation should reflect the competitive marketplace so that the Company can attract, retain and motivate talented individuals who will make a long-term commitment to the Company. Because the Company has grown rapidly in size and reputation, and remains in a significant growth phase, the Company has sizeable managerial and staffing needs. Accordingly, the Compensation Committee is acutely sensitive to marketplace conditions as it shapes compensation policies to support the Company's business expansion strategy.



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Alignment with Stockholders' Interests.    Compensation should be substantially aligned with the interests of the Stockholders. A significant component of the named executive officers' compensation should be tied to the Company's success in delivering stockholder value. To accomplish this objective, the Compensation Committee uses grants of options and restricted shares, as well as annual bonus metrics that heavily value delivery of and improvement in operating income in determining the bonus opportunity for the Company's named executive officers. The Compensation Committee may in the future use other forms of long-term equity compensation, including restricted share units, in lieu of or in addition to options and restricted shares.



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Accountability for Achieving Clearly Defined Business Goals.    The named executive officers should be held accountable for achieving clearly defined business performance goals. As part of the Company's compensation plans, the performance of the named executive officers is measured annually against Company goals that the Compensation Committee establishes near the beginning of each fiscal year. These goals may be expressed in financial terms and/or other objectively framed metrics that are communicated to the executive officers and other members of senior management as a guide to performance expectations. These annual goals not only reflect targets for the year, but also represent targets that must be achieved to effect the Company's long-term operating plan.



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Accountability for Achieving Individual Goals.    In addition to business performance goals, the named executive officers' compensation should also encourage and reward individual leadership. Individualized goals are intended to foster professionalism, build loyalty and respect for the Company and its products, and encourage creative leadership. The Compensation Committee annually reviews the performance of the named executive officers against individual goals established and communicated to the named executive officer near the beginning of each fiscal year. Historically, these goals have been defined, for example, as implementation of constructive management succession plans throughout the Company, enhancement of professional development, improvements to the Company's internal and external communications, improvements to the Company's compensation structure and demonstration of industry leadership in terms of the quality, creativity and acclaim of its products. Accordingly, the evaluation of the named executive officer's performance against his or her goals has been largely subjective. As the Company has matured, the Compensation Committee has determined that in the future it may be beneficial and desirable to establish individual goals that are more objective.

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Exercise of Independence.    The Compensation Committee is composed of independent directors, who rely on both internally generated information and externally developed data sources and expertise. The Compensation Committee believes that effective oversight in this area is best achieved by engaging, on a collaborative basis, the Company's senior management, including the Chairman and the Co-Chairman of the Company and the President and Chief Executive Officer, the Chief Financial Officer and the Vice President of Compensation and Benefits of Activision Publishing, in formulating compensation plans. The Compensation Committee often invites these members of senior management to its meetings to make recommendations on and engage in discussions regarding the compensation of executives and other employees. The Compensation Committee ultimately exercises its independent judgment on how to apply the guiding philosophical principles and objectives in developing, establishing and balancing the elements of the Company's compensation program for named executive officers.