Activision Blizzard (ATVI)

Establishing Compensation Levels

        The Compensation Committee believes that to attract and retain the executive talent necessary to lead the Company, the Company must enter into an employment agreement with each of its named executive officers. The typical employment agreement for a named executive officer of the Company:

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has a term from two to five years (subject in most cases to the right of the Company to extend the term if the executive has received a stated minimum amount of compensation during the initial term);



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establishes an initial base salary with automatic annual increases ranging from 4% to 10% and/or permits additional increases in the discretion of the Compensation Committee;



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provides for or permits participation in a performance-based annual incentive program;



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provides for a one-time long-term incentive equity grant; and



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provides for certain payments upon termination.

The specific agreements the Company currently has in place with the named executive officers are described above under "—Employment Agreements."

        The Compensation Committee emphasizes intra-company pay comparability and does not generally engage in extensive peer company benchmarking in establishing compensation levels. However, in order to ensure that the compensation and benefits provided to its named executive officers pursuant to employment agreements or otherwise are in a competitive range for the marketplace for executive talent, the Compensation Committee reviews a peer group analysis prepared by the Company's senior management with the assistance of Compensia, Inc. (the compensation consultants retained by the Company) for each of two tiers of peer groups. The primary peer group consists of the Company's direct competitors, which for fiscal 2007 consisted of Electronic Arts Inc., Take-Two Interactive Software, Inc. and THQ Inc. The Compensation Committee considers the level, elements and mix of compensation in this peer group in evaluating whether the Company's compensation policies are appropriate to promote the Company's executive retention goals, ensure the proper motivation of the senior leadership of the Company and aid recruitment of talented individuals. The secondary peer group consists of software companies, high-technologies companies that generate approximately $1 billion to $3 billion in annual revenues, select entertainment companies and large consumer products companies. The companies in the secondary peer group are selected by senior management, in consultation with Compensia, Inc., and are likely to change from year to year. The Compensation Committee focuses on the elements and mix, rather than level, of compensation in this peer group in evaluating the Company's compensation policies.

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        In addition to using the peer group analyses to assist in determining appropriate employment agreement terms, the Compensation Committee uses these analyses to determine whether the terms contained in existing employment agreements have resulted in compensation that is below market or otherwise insufficient to reward and motivate the named executive officers. In the event that these analyses show that the Company is not compensating its named executive officers under the terms of their current employment agreements at market or sufficiently to retain and motivate them, the Compensation Committee may decide to provide additional amounts and/or elements of compensation to the named executive officers for a given year.