Apple (AAPL)

Base Salary—Non-Executive Employees

The base salary for employees is determined on the basis of experience, personal performance, the average salary levels considered appropriate for comparable positions within the appropriate market segment, and the anticipated value of the employee’s future impact on the Company’s success. The Committee targets the base salary levels of non-executive employees at or above the median level of the base salary in the Company’s peer groups, with the opportunity for total compensation to rise above this level based on personal and Company performance. In fiscal 2005, the Committee approved a salary merit increase budget of 4% for non-executive level employees. The market data reviewed by the Committee at that time indicated that the base salary level for non-executive employees was competitive with the market and that the merit increase was within the range of planned increases at comparable companies. None of the Company’s executive officers participated in the merit increase.

Base Salary—Non-Executive Employees

        The base salary for employees is determined on the basis of experience, personal performance, the average salary levels considered appropriate for comparable positions within the appropriate market segment and the anticipated value of the employee's future impact on the Company's success. The Committee targets the base salary levels of non-executive employees at or above the median level of the base salary in the Company's peer groups, with the opportunity for total compensation to rise above this level based on personal and Company performance.

        Due to the economic downturn and the challenges facing technology companies, the base salaries for all employees, including executive officers, were frozen at their 2001 levels. As a result, for three consecutive years, other than salary increases due to an increase in job responsibility or promotion, the Company did not provide for an increase in the base salary levels of its employees and executive officers.

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When the Company returned to more sustained profitability, the Company lifted the salary freeze and at the beginning of fiscal 2004, the Committee approved a merit salary increase budget of 4% for non-executive level employees. The market data reviewed by the Committee at that time indicated that the base salary level for non-executive employees was competitive with the market and that the merit increase was within the range of planned increases at comparable companies. None of the Company's executive officers participated in the merit increase.