Activision Blizzard (ATVI)

Factors Considered in Compensation Decisions

        In general, our senior management and the Compensation Committee evaluate a variety of factors when making compensation decisions including:

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an individual's skill set, experience, historical performance and expected future value to us, and the impact on us if that individual were to depart from employment with us;



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the level of total compensation for our other senior executives; and



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pay information about other companies and published surveys as a general market reference.

        Although the Compensation Committee used the information provided by management and Vivendi described above to be better informed about Activision Blizzard and the marketplace, the Compensation Committee ultimately exercised its independent and subjective judgment in developing compensation plans and policies for named executive officers. As such, for the nine month period ended December 31, 2008, compensation decisions were based primarily on the terms of existing employment agreements and the desire to maintain and motivate a high-performing group of executives to drive business results and the successful consummation of the Combination.

        In connection with the amendment to Mr. Kotick's employment agreement in December 2007, which we described in our proxy statement for our annual meeting held in September 2008, the Compensation Committee reviewed a peer group analysis prepared by Frederic W. Cook with the goal of ensuring that the compensation and benefits provided to Mr. Kotick were in a competitive range for the marketplace for executive talent. The analysis included peer group companies that would match our size and line of business following the Combination. Before this peer group analysis, we did not have a formal peer group that we used for compensation decisions.

        In light of our recent growth and increasingly global business, a new peer group for the combined company was developed and approved by the Compensation Committee in December 2008. This peer group will be used as a key reference point to help guide compensation decisions going forward for all of our executive officers. The primary screening criteria for the selection of the peer group were as follows:

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Industry: gaming, technology, consumer packaged goods, and entertainment & leisure



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Size: revenue (generally $2 billion to $10 billion); market capitalization (approximately $8 billion to $16 billion) for consumer packaged goods



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Business characteristics: consumer orientation and global operations

        The resulting peer group reflects our blend of gaming, technology, consumer packaged goods and entertainment focus, the projected size of our business subsequent to the Combination, taking into account contemplated growth over the next few years, and a similar mix of domestic and international

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operations. The 2009 executive compensation peer group consists of 15 companies, balanced among the four industry groups as indicated below (most recent trailing four quarters of net revenue in billions available as of April 2009 are shown in parentheses below):

        We believe the inclusion of consumer packaged goods companies along with our more natural industry comparator groups (gaming, technology, and entertainment & leisure) is warranted given that several of our named executive officers come from top-tier global consumer products companies and such companies continue to be among those from which we recruit executive talent. Further, it should be noted that Take-Two Interactive and Viacom were outside the initial revenue screen, but the Compensation Committee determined that their industry and business characteristics warranted their inclusion in the peer group. While the peer group provides the Compensation Committee with an important general frame of reference, the Compensation Committee, where appropriate, may consider the compensation practices of other specific companies with which we compete directly or for executive talent.

        The peer group listed above differs from the group used in connection with Mr. Kotick's employment agreement in December 2007. All of the companies used in connection with Mr. Kotick's employment agreement were technology and software industry companies and some were larger than us. Many of the companies were excluded in the new peer group due to revised screening criteria of industry balance, size, and business characteristics. In particular, THQ Inc., which was previously considered a peer company, was excluded due to its revenue size (approximately $847 million for the four quarters ended December 31, 2008).

        As noted above, we also annually consult outside industry and non-industry specific surveys prepared by compensation specialists with respect to companies with comparable revenues, industry focus, number of employees and other similar factors. We will continue to utilize surveys to help us understand the competitive market for the industries in which we compete for talent, including the gaming, media and consumer products sectors.

        Furthermore, we evaluate broader industry trends and practices to determine the appropriate elements of compensation and the effective design of each element.

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