Advanced Medical Optics (EYE)

Analysis of Named Executive Officer Compensation

The compensation committee considered the factors described below in making its compensation decisions for each of our named executive officers.

Base Salary. The compensation committee increased salaries for the Company’s named executive officers an average of 4.9% in February 2008. The committee starts with the corporate target adjustment for the year (4% in 2008), and adjusts from that number based on the following factors: performance assessment (which for each named executive officer includes multiple factors based on objectives for corporate performance, business unit performance, and individual qualitative measures), market data, promotions or changes in job responsibilities, and internal equity considerations. Overall performance is then assessed as not meeting expectations, meeting expectations or exceeding expectations. Generally base salary adjustments are decreased from the budgeted adjustment for not meeting expectations, and may be increased above the targeted adjustment for performance that meets or exceeds expectations. 2008 salary adjustments reflect consideration of 2007 individual performance. For 2007, the compensation committee determined that all of the named executive officers met or exceeded expectations with respect to their overall objectives, and individual performance did not materially impact base salary increases in 2008. The following are the adjustments made by the committee to base salary for 2008 and the primary factors considered: Mr. Mazzo (4.2% increase in line with budget, market data and internal equity considerations); Mr. Lambert (6.7% increase negotiated upon hiring); Mr. Trenary (3.9%, adjusted due to change in role), Mr. Post (5.7% increase above budgeted amounts to better align with market median); and Ms. Rady (4% increase at budget).

Annual Management Incentive. The compensation committee identified all of the named executive officers as “162(m) Participants” under our bonus plan and set forth performance objectives as follows: provided that the corporation achieved adjusted operating income (excluding the impact of the charges or write-offs associated with acquisitions, reorganizations or recapitalizations, unrealized gains or losses on derivative instruments and other one-time charges) of at least $187 million or revenue of at least $1,173 million in 2008, the compensation committee established target awards for 2008 as follows: Mr. Mazzo ($1,500,000), Mr. Lambert ($400,000), Mr. Post ($500,000), Mr. Trenary ($500,000) and Ms. Rady ($350,000). These “targets” are the maximum amounts payable under the program in order to comply with the requirements of Section 162(m) of the Code. The compensation committee retained the discretion to decrease the incentive awards below the target award level. 2008 management incentives were paid to Messrs. Post and Trenary and Ms. Rady in connection with their terminations of employment according to the terms of their employment agreements.

On February 19, 2009, the compensation committee determined that with reported revenue of $1,185 million in 2008, the performance criteria for the annual management incentives were satisfied. The compensation

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committee then applied discretion to reduce the amounts paid to Messrs. Mazzo and Lambert from the maximum amounts set forth above to $775,000 and $180,000, respectively. In applying this discretion, the compensation committee considered corporate financial performance, favorable market shares trends, key milestones during the year, and an analysis of performance to individual performance objectives established at the beginning of 2008.

Total Cash Compensation. In considering bonus awards for each named executive officer, the committee reviews the relationship of each named executive officer’s total cash compensation to Mr. Mazzo’s total cash compensation, and then compares it to the relationship of the benchmark data for each named executive officer to the Chief Executive Officer benchmark. The committee assesses the relative value of the person and position within the Company compared to the market data and used this assessment as another input to their decision making process for establishing total cash compensation opportunities for the named executive officers.

Stock Incentives. In May 2008, our compensation committee awarded stock-based incentive compensation to the named executive officers. These awards consisted of stock options and restricted stock units. On average, stock options represented 95% of the value of the stock-based awards with the remainder (5%) awarded in restricted stock units. The total value of the awards was generally targeted at relevant peers for each executive at the market median of our peer group, but were adjusted based on relevant factors such as internal equity analysis, individual performance and potential, and overall goals for motivation and retention. Application of the committee’s judgment resulted in the awards as shown in the section entitled “2008 Grants of Plan-Based Awards” under Item 11. Mr. Mazzo’s and Mr. Lambert’s stock incentives were granted at the targeted market median value, after concluding such amounts were appropriate in light of individual performance at or above expectations, internal equity, and total direct compensation at the market median. Mr. Trenary and Ms. Rady received higher than targeted awards to account for internal equity disparities and reflecting individual performance at or above expectations. Mr. Post’s stock incentives were granted slightly below the targeted amount, again reflecting considerations of internal equity and total compensation.

In February 2008, the compensation committee granted performance-vested restricted stock units to the named executive officers. The number of units granted to each executive was determined based on the difference between the maximum payout of the award at the 75th percentile long-term incentive benchmark and the market median long-term incentive benchmark. This difference was then divided by the fair market value of the common stock on the date of the grant. These units will vest upon the achievement of specified stock price targets. At the Acceptance Time, each unvested restricted stock unit awarded under any of the Company’s incentive plans will vest in full and be settled for Shares in accordance with the terms of the applicable incentive compensation plan of the Company.

In May 2007, Mr. Post received a grant of 2,000 performance vested restricted stock units. Performance conditions included key metrics associated with the integration and performance of the acquired IntraLase business. These metrics included laser placements, procedure sales, upgrades, selling prices, new product launches and employee turnover. In February 2008, the compensation committee determined that 89.7% of the metrics were attained and approved the vesting of 1,794 of Mr. Post’s units, subject to his continued employment through May 2010.

Total Direct Compensation. In 2008, our compensation committee reviewed an inventory of all elements of executive compensation, including perquisites, retirement plans, benefits, employment agreements and severance arrangements, and their costs to the Company. The compensation committee concluded that the Company’s compensation program is currently reasonable and in the best interests of the Company’s stockholders.

Voluntary Stock Option Cancellation. On December 10, 2008, 50 members of our senior management voluntarily forfeited an aggregate of 785,730 stock options (both vested and unvested) having exercise prices of greater than $40 per Share. Included in this amount were 289,200 stock options held by Mr. Mazzo (128,000 exercisable at $45.26 and 161,200 exercisable at $42.55 per Share). This action was initiated by our management to reduce future expense (2009 and beyond) associated with the initial grant of such stock options in light of the fact that these options may not deliver compensation to the executives that is equivalent to the expense of the grant, which will burden the Company’s income statement over the next two to three years, and to more efficiently utilize Shares authorized under our equity compensation plans to meet the plans’ purposes to attract, motivate and retain

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key talent. The individuals who forfeited options, including Mr. Mazzo, received nothing in return, and were promised nothing in return, such as future equity grants to replace the forfeited options. No new equity grants have been made to members of our senior management since May 2008, and the Company has no plans to vary its equity grant practices as a result of this forfeiture. Moreover, we currently do not intend to utilize any of the forfeited options for future grants to executive officers.

Analysis of Named Executive Officer Compensation

Analysis of Named Executive Officer Compensation