Amazon.com (AMZN)

Leadership Development and Compensation Committee Report on Executive Compensation

Introduction:    The Leadership Development and Compensation Committee, which is composed solely of independent members of the Board of Directors, assists the Board in fulfilling its oversight responsibility relating to, among other things, establishing and reviewing compensation of the Company’s executive officers.

Compensation Philosophy:    The Company offers compensation packages designed to attract and retain outstanding employees and to reward them for strong company performance. Through broad-based employee ownership of common stock, the Company seeks to align employee financial interests with long-term shareholder value.

Executive officers receive total compensation packages in line with their responsibilities and expertise. The Company believes that the majority of an executive’s compensation should be closely tied to shareholder value. Accordingly, base salaries for executive officers are low but are accompanied by significant stock awards and, in certain cases, cash bonuses.

Base Salaries.    Base salaries for executive officers generally are designed to be significantly less than those paid by similar companies. These lower base salaries are combined with large stock award grants (and at times cash bonuses), so that the major portion of the executive’s pay is tied to shareholder value. In 2005, no executive officer received a salary increase from 2004.

Stock-Based Compensation.    The Company seeks to align the long-term interests of its executive officers with those of its shareholders. As a result, each executive officer receives a significant stock award when he or she joins the Company. Grant sizes are determined based on various subjective factors, primarily related to the individual’s anticipated contributions to the Company’s success, level of expected responsibility, experience and breadth of knowledge, as well as the Company’s stock price at time of grant.

In late 2002, the Company implemented a restricted stock unit program as its primary vehicle for employee stock-based compensation. The Committee believes that restricted stock units align employees’ interests with shareholders over the long term and help efficiently manage overall shareholder dilution from stock awards.

The Leadership Development and Compensation Committee periodically considers whether to grant additional stock awards to each executive officer on an individual basis. The Committee’s assessment is based on various factors including the executive’s past contributions to Company performance and level of responsibility and the Committee’s view of the executive’s anticipated contributions to the Company’s future success. In making grants in 2005, the Committee reviewed total compensation that might be earned by each executive over a multi-year period, including both the expected value of the executive’s existing equity awards and the expected value and vesting schedule of any proposed new stock award.

Bonus Compensation.    In 2005, the Company made fixed bonus payments to two executive officers under pre-existing contractual commitments made when they were hired. The Company may make additional cash bonuses to executive officers from time to time based on performance, potential and the expected value of total compensation over the bonus period. Through stock awards, executive compensation is aligned with long-term stock price performance. The Committee did not establish any performance-based bonus opportunities for executives in 2005 and does not expect to set such bonus opportunities in 2006, although certain non-officer employees do receive performance-based bonuses.

Other Compensation.    The Company pays relocation and related expenses in connection with executive hires. Executives also may participate in the Company’s 401(k) matching program.

Ongoing Review.    The Committee periodically reviews the total compensation estimated to be earned by each executive officer for a multi-year period, including salary, expected value of stock awards and any bonuses. The Committee receives recommendations from the Chief Executive Officer and the Human Resources

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Department for compensation changes, if any. While the Committee reviews industry surveys compiled by the Company’s Human Resources Department, it primarily relies on individual performance, potential and historic compensation to target the appropriate level of total compensation for each executive.

The Committee evaluates the Company’s compensation policies on an ongoing basis to determine whether they enable the Company to attract, retain, and motivate key personnel. To meet these objectives, the Company may from time to time increase cash compensation, grant additional stock awards or provide other short- and long-term incentive compensation to executive officers, including Mr. Bezos.

Chief Executive Officer Compensation.    Mr. Bezos received $81,840 in annual cash compensation from the Company during 2005. Mr. Bezos’ compensation was considerably less than may have been paid to an individual with similar responsibilities in a similar business. Due to Mr. Bezos’ substantial ownership in the Company (approximately 24%), Mr. Bezos again requested not to receive additional compensation in 2005, and has never received annual cash compensation in excess of his current amount or any stock-based compensation from the Company. The Company provides security for Mr. Bezos, including security in addition to that provided at business facilities and during business-related travel. The Company believes that all Company-incurred security costs are for the Company’s benefit.

Section 162(m).    Compensation payments in excess of $1 million to the Chief Executive Officer or the other four most highly compensated executive officers are subject to a limitation on deductibility for the Company under Section 162(m) of the Internal Revenue Code of 1986. The Committee does not expect cash compensation in 2006 to its Chief Executive Officer to be in excess of $1 million. In certain years, cash compensation to some of the Company’s executive officers may be in excess of $1 million and not qualify as performance-based. The Company intends to maintain qualification of its 1997 Stock Incentive Plan for the performance-based exception to the $1 million limitation on deductibility of compensation payments, although not all awards under that plan will qualify for the exception. Restricted stock unit awards granted to executive officers vest based upon an executive’s continued service through the time-based vesting schedule set forth in the underlying agreement, subject in some cases to the satisfaction of certain business criteria intended, among other things, to qualify the award as tax-deductible compensation under Section 162(m)(4)(c) of the Internal Revenue Code.

The Leadership Development and Compensation Committee

Patricia Q. Stonesifer

William B. Gordon

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Leadership Development and Compensation Committee Report on Executive Compensation

The Company offers compensation packages designed to attract and retain outstanding employees and to reward them for strong company performance. Through broad-based employee ownership of Common Stock, the Company seeks to align employee financial interests with long-term shareholder value.

Executive officers receive total compensation packages in line with their responsibilities and expertise. The Company believes that the majority of an executive’s compensation should be closely tied to overall Company performance. Accordingly, base salaries for executive officers are low but are accompanied by significant stock awards and, in certain cases, cash bonuses.

Base Salaries.    Base salaries for executive officers generally are designed to be significantly less than those paid by similar companies. These lower base salaries are combined with large stock award grants (and at times cash bonuses), so that the major portion of the executive’s pay is tied to Company performance. In 2004, only one executive officer received a salary increase from 2003.

Stock-Based Compensation.    The Company seeks to align the long-term interests of its executive officers with those of its shareholders. As a result, each executive officer receives a significant stock award when he or she joins the Company. Grant sizes are determined based on various subjective factors, primarily related to the individual’s anticipated contributions to the Company’s success, level of expected responsibility, experience and breadth of knowledge, as well as the Company’s stock price at time of grant.

In late 2002, the Company implemented a restricted stock unit program as its primary vehicle for employee stock-based compensation. The Committee believes that restricted stock units align employees’ interests with shareholders over the long term and help limit overall shareholder dilution from stock awards.

The Leadership Development and Compensation Committee periodically considers whether to grant additional stock awards to each executive officer on an individual basis. The Committee’s assessment is based on various factors including the executive’s past contributions to Company performance and level of responsibility and the Committee’s view of the executive’s anticipated contributions to the Company’s future success. In making grants in 2004, the Committee reviewed total compensation that might be earned by each executive over a multi-year period, including both the expected value of the executive’s existing equity awards and the expected value and vesting schedule of any proposed new stock award.

Bonus Compensation.    In 2004, the Company hired one executive officer and awarded him a bonus payable over two years to encourage him to join the Company. The Company also made bonus payments to one other executive officer under a pre-existing contractual commitment. The Company intends to make additional cash bonuses to executive officers from time to time based on performance, potential and the expected value of total compensation over the bonus period. Through stock awards, executive compensation is aligned with long-term stock price performance. The Committee did not establish any performance-based bonus opportunities for executives in 2004 and does not expect to set such bonus opportunities in 2005, although certain non-officer employees do receive performance-based bonuses.

Other Compensation.    The Company pays relocation and related expenses in connection with executive hires. Executives also participate in the Company’s 401(k) matching program.

Chief Executive Officer Compensation.    Mr. Bezos received $81,840 in cash compensation from the Company during 2004. Mr. Bezos’ compensation was considerably less than may have been paid to an individual with similar responsibilities in a similar industry. Due to Mr. Bezos’ substantial ownership in the Company (approximately 25%), Mr. Bezos requested not to receive additional compensation in 2004, and has never received stock-based compensation from the Company.

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Ongoing Review.    The Committee periodically reviews the total compensation estimated to be earned by each executive officer for a multi-year period, including salary, expected value of stock awards and any bonuses. The Committee receives recommendations from the Chief Executive Officer and the Human Resources Department for compensation changes, if any. While the Committee reviews industry surveys compiled by the Company’s Human Resources Department, it primarily relies on individual performance, potential and historic compensation to target the appropriate level of total compensation for each executive.

The Committee evaluates the Company’s compensation policies on an ongoing basis to determine whether they enable the Company to attract, retain, and motivate key personnel. To meet these objectives, the Company may from time to time increase cash compensation, grant additional stock awards or provide other short- and long-term incentive compensation to executive officers, including Mr. Bezos.

Section 162(m).    Compensation payments in excess of $1 million to the Chief Executive Officer or the other four most highly compensated executive officers are subject to a limitation on deductibility for the Company under Section 162(m) of the Internal Revenue Code of 1986. The Committee does not expect cash compensation in 2005 to its Chief Executive Officer to be in excess of $1 million. In certain years, cash compensation to some of the Company’s executive officers may be in excess of $1 million and not qualify as performance-based. The Company intends to maintain qualification of its 1997 Stock Incentive Plan for the performance-based exception to the $1 million limitation on deductibility of compensation payments, although not all awards under that plan will qualify for the exception. Restricted stock unit awards granted to executive officers vest based upon an executive’s continued service through the time-based vesting schedule set forth in the underlying agreement, subject in some cases to the satisfaction of certain business criteria intended, among other things, to qualify the award as tax-deductible compensation under Section 162(m)(4)(c) of the Internal Revenue Code.

The Leadership Development and Compensation Committee

Patricia Q. Stonesifer

William B. Gordon

L. John Doerr

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