Dyax (DYAX)

Elements of Executive Compensation

        Our executive compensation program is comprised of three elements:

          (i)  base salary;

         (ii)  annual bonuses based on corporate and departmental performance; and

        (iii)  initial, annual and other equity awards.

        Our Compensation Committee does not have any pre-established policies or targets for the allocation of these compensation elements. Instead, the amount of each element in comparison to the total compensation opportunity for each executive is largely based on competitive factors identified in the Committee's review of the survey data from our peer group as well as on our historical compensation practices.

        Base Salary.    We compete with many larger companies in attracting and retaining high-quality executive talent. As such, we believed that to remain competitive, 2008 base salaries should be targeted between the 50th and 75th percentile of the range of salaries for executives in similar positions and with similar responsibilities in our peer group. Consequently, base salaries are evaluated annually by our Compensation Committee in accordance with this target, and then adjusted as necessary to take into account individual responsibilities, performance and experience.

        For 2008, our Compensation Committee determined that the annual base salary for each executive officer should be adjusted for 2008 in light of the executive's respective performance, tenure and responsibilities, including promotions and changes in responsibilities, as well as independent compensation data.

        The actual base salary that was paid to each of our Named Executive Officers for service during 2008 is set forth in the Summary Compensation Table below.

        Annual Bonus.    Our Compensation Committee has the authority and discretion to award annual bonuses to our executive officers. These bonuses are intended to compensate executive officers for performance. In the first quarter of the year, the Committee establishes a target bonus for each executive officer, which is calculated as a percentage of the officer's base salary and adjusted from time to time to realign bonuses with competitive market compensation paid for similar positions in our designated peer group after taking into account individual responsibilities, performance and experience. The performance of all executive officers is then reviewed and each officer's annual bonus is determined by the Compensation Committee in the first quarter of the following year. In order to be able to respond to changes in competitive market compensation, the Committee has reserved to itself full discretion to determine the actual amount of each executive officer's annual bonus, notwithstanding the bonus target amount set in the first quarter of the year.

        For 2008, our Compensation Committee established a target bonus opportunity for each Named Executive Officer based on a percentage of each officer's respective base salary. The extent to which these target bonuses were achieved was subject to the discretion and judgment of the Committee, based in part upon the Chief Executive Officer's evaluation of each Named Executive Officer's individual performance, other than himself, and in part by the Committee's subjective assessment of performance against corporate objectives. For our Chief Executive Officer, the assessment of executive performance was based on the Committee's evaluation of corporate performance against corporate goals as well as its discretionary evaluation of Mr. Blair's performance. For our other Named Executive Officers, the assessment of executive performance was expected to be based one half on the same corporate performance evaluation, while the remaining half was to be based on the Committee's review of our Chief Executive Officer's evaluation of each officer's departmental performance against objectives determined by the Chief Executive Officer. In 2008, as in 2007, the corporate performance goals focused on progress in our principal development programs, additional collaborations and our discovery

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pipeline, as well as financial goals. These goals were reviewed and adjusted during 2008 as needed to realign incentives with changes to our corporate goals and strategies.

        For 2008, our Compensation Committee set the target amounts for potential cash bonuses (determined as a percentage of base salary) as follows: 45% for Mr. Blair, our Chief Executive Officer; 40% for Mr. Christensen, our Executive Vice President and Chief Business Officer; and 37.5% for Drs. Magovcevic-Liebisch and Wood and Mr. Galliker, our other Executive Vice Presidents.

        For 2008 bonuses, our Compensation Committee considered our corporate performance against corporate goals to be a threshold which the Committee used to exercise its discretion in setting individual bonus compensation. The Committee affirmed its discretion to make bonus awards in excess of those amounts consistent with its reservation to the Committee of full discretion to determine the actual amount of each officer's annual bonus, notwithstanding the bonus target amount set in the first quarter of the year, in order to be able to respond to changes in competitive compensation and other factors not measured by the objectives. In the case of Mr. Christensen, the Committee chose to pay him a higher bonus in recognition of not only his success in developing substantial new collaborations, but also his assumption of additional responsibilities and eventually his promotion to his role as the new CEO and President of the Company. In the case of Mr. Blair, the Committee chose to pay him a higher bonus in recognition of substantial progress in the Company's business during the year and his success in implementing a smooth transition for Mr. Christensen. The bonuses paid to each of the Named Executive Officers for service during 2008 is set forth in the Summary Compensation Table below under the heading "Bonus."

        Equity Compensation Awards.    Our use of equity-based compensation is intended to ensure that our executive officers have a continuing stake in the long-term performance and success of our company. Our equity compensation plans have provided the principal method for our executive officers to acquire equity or equity-based interests in our company. We have not adopted stock ownership guidelines for any of our employees, and in establishing award levels for equity compensation granted in 2008, we did not consider the equity ownership levels of the recipients or prior awards that were fully vested. We believe that any reduction in annual award levels based on any such consideration could put us at a disadvantage with respect to companies in our peer group, which may try to hire away our employees by offering larger awards.

        Historically, the primary form of equity compensation awarded by us and other companies in our peer group consisted almost entirely of incentive and non-qualified stock options. We selected this form of equity compensation because of its favorable accounting and tax treatments and the near universal expectation by employees in our industry that they would receive stock options. Beginning in 2006, the accounting treatment for stock options changed as a result of Statement of Financial Accounting Standards No. 123(R), which requires the expensing of stock options. As a result, our Compensation Committee has considered alternative forms of equity compensation, such as restricted stock units and performance shares, and is continuing to monitor the mix of options and alternative equity awards used in our industry. For 2008, however, consistent with the survey data generated by Radford, we elected to continue our historical practice of granting equity awards only in the form of stock options.

        Stock Options.    The Compensation Committee administers our Amended and Restated 1995 Equity Incentive Plan, which authorizes us to grant options to purchase shares of common stock to our employees, directors and consultants. In line with our compensation philosophy, the Committee determines the size of stock option awards granted to executive officers based upon a review of competitive compensation data from our peer group and its review of individual performance and retention considerations.

        Timing of Grants.    Stock option grants are made at the commencement of employment and following a significant change in job responsibilities or to meet other special retention or performance

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objectives. The Compensation Committee also approves annual stock option awards to all of our employees, including executive officers. In 2008, annual stock option awards were made in conjunction with annual bonuses and salary increases in February, after the completion of performance evaluations.

        Stock option awards to newly hired employees begin to vest on the employee's first day of employment. Stock options awarded to executive officers are subject to approval by the Compensation Committee. All stock options granted by us in 2008 had an exercise price equal to the closing price of our common stock on the date of grant. All options vest monthly based upon continued employment over a four-year period, and expire ten years after the date of grant.

        In 2008, our Named Executive Officers were awarded stock options in the amounts indicated in the section entitled "Grants of Plan Based Awards for 2008". Variations in the amounts of awards to our Named Executive Officers were based on each individual's position, responsibilities and performance, as well as survey data generated from our peer group.

        Other Compensation.    Our policy has been to limit other compensation and perquisites that we provide to our executive officers. During 2008, our Named Executive Officers did not receive any benefits that were not otherwise available to all of our employees, such as our health and life insurance benefits and our 401(k) plan. In this regard, it should be noted that we do not provide pension arrangements, post-retirement health coverage, or similar benefits for our executive officers or employees; however, our Compensation Committee in its discretion may revise, amend or add to an executive officer's benefits if it deems it advisable to do so at any time.

Elements of Executive Compensation

        Our executive compensation program is comprised of three elements:

(i)

base salary;



(ii)

annual bonuses based on corporate and departmental performance; and



(iii)

initial, annual and other equity awards.

        Our Compensation Committee does not have any pre-established policies or targets for the allocation of these compensation elements. Instead, the amount of each element in comparison to the total compensation opportunity for each executive is largely established by competitive factors that are based upon the Committee's review of the survey data from our peer group.

        Base Salary.    We compete with many larger companies in attracting and retaining high-quality executive talent. As such, we believed that to remain competitive, 2007 base salaries should be targeted between the 50th and 75th percentile of the range of salaries for executives in similar positions and with similar responsibilities in our peer group. Consequently, base salaries are evaluated annually by our Compensation Committee in accordance with this target, and then adjusted as necessary to take into account individual responsibilities, performance and experience.

        For 2007, our Compensation Committee determined that the annual base salary for each executive officer should be adjusted for 2007 in light of the executive's respective performance, tenure and responsibilities, including promotions and changes in responsibilities, as well as independent compensation data.

        The actual base salary that was paid to each of our executive officers for service during 2007 is set forth in the Summary Compensation Table below.

        Annual Bonus.    Our Compensation Committee has the authority and discretion to award annual bonuses to our executive officers. These bonuses are intended to compensate executive officers for performance. In the first quarter of the year, the Committee establishes a target bonus for each executive officer, which is calculated as a percentage of the officer's base salary and adjusted from time to time to realign bonuses with competitive market compensation paid for similar positions in our designated peer group after taking into account individual responsibilities, performance and experience. The performance of all executive officers is then reviewed and each officer's annual bonus is determined by the Compensation Committee in the first quarter of the following year. In order to be able to respond to changes in competitive market compensation, the Committee has reserved to itself full discretion to determine the actual amount of each officer's annual bonus, notwithstanding the bonus target amount set in the first quarter of the year.

        For 2007 our Compensation Committee established a target bonus opportunity for each executive officer based on a percentage of each officer's respective base salary. The extent to which these target

15

bonuses were achieved was subject to the discretion and judgment of the Committee, based in part upon the Chief Executive Officer's evaluation of each executive's individual performance, other than himself, and in part by the Committee's subjective assessment of performance against corporate objectives. For our Chief Executive Officer, the assessment of executive performance was based on the Committee's evaluation of corporate performance against corporate goals as well as its discretionary evaluation of Mr. Blair's performance. For our other executive officers, the assessment of executive performance was expected to be based one half on the same corporate performance evaluation, while the remaining half was to be based on the Committee's review of our Chief Executive Officer's evaluation of each officer's departmental performance against objectives determined by the Chief Executive Officer. In 2007, as in 2006, the corporate performance goals focused on progress in our principal development programs and our discovery pipeline, as well as financial goals. These goals were reviewed and adjusted during 2007 as needed to realign incentives with changes to our corporate goals and strategies.

        For 2007, our Compensation Committee set the target amounts for potential cash bonuses (determined as a percentage of base salary) as follows: 45% for Mr. Blair, our Chief Executive Officer; 40% for Mr. Christensen, our Executive Vice President and Chief Business Officer; and 37.5% for Drs. Magovcevic-Liebisch and Wood and Mr. Galliker, our other Executive Vice Presidents.

        For 2007 bonuses, our Compensation Committee considered our corporate performance against corporate goals to be a threshold which the Committee used to exercise its discretion in setting individual bonus compensation. Based in part on its independent evaluation of management's assessment of company performance against these goals, and taking into account the successful partnering of DX-2240, which resulted in a substantial collaboration agreement being entered into in early 2008, our Compensation Committee exercised its discretion to approve Mr. Blair's recommendation of upward adjustments to the bonuses for Mr. Christensen and Drs. Magovcevic-Liebisch and Wood. Based on the Compensation Committee's independent evaluation of our Chief Executive Officer, the Committee also exercised its discretion in determining the 2007 bonus for Mr. Blair. The bonuses paid to each of the executive officers for service during 2007 is set forth in the Summary Compensation Table below under the heading "Bonus."

        Equity Compensation Awards.    Our use of equity-based compensation is intended to ensure that our executive officers have a continuing stake in the long-term performance and success of our company. Our equity compensation plans have provided the principal method for our executive officers to acquire equity or equity-based interests in our company. We have not adopted stock ownership guidelines for any of our employees, and in establishing award levels for equity compensation granted in 2007, we did not consider the equity ownership levels of the recipients or prior awards that were fully vested. We believe that any reduction in annual award levels based on any such consideration could put us at a disadvantage with respect to companies in our peer group, which may try to hire away our employees by offering larger awards.

        Historically, the primary form of equity compensation awarded by us and other companies in our peer group consisted almost entirely of incentive and non-qualified stock options. We selected this form of equity compensation because of its favorable accounting and tax treatments and the near universal expectation by employees in our industry that they would receive stock options. Beginning in 2006, the accounting treatment for stock options changed as a result of Statement of Financial Accounting Standards No. 123(R), which requires the expensing of stock options. As a result, our Compensation Committee has considered alternative forms of equity compensation, such as restricted stock units and performance shares, and is continuing to monitor the mix of options and alternative equity awards used in our industry. For 2007, however, consistent with the survey data generated by Radford, we elected to continue our historical practice of granting equity awards only in the form of stock options.

16

        Stock Options.    The Compensation Committee administers our Amended and Restated 1995 Equity Incentive Plan, which authorizes us to grant options to purchase shares of common stock to our employees, directors and consultants. In line with our compensation philosophy, the Committee determines the size of stock option awards granted to executive officers based upon a review of competitive compensation data from our peer group and its review of individual performance and retention considerations.

        Timing of Grants.    Stock option grants are made at the commencement of employment and following a significant change in job responsibilities or to meet other special retention or performance objectives. The Compensation Committee also approves annual stock option awards to all of our employees, including executive officers. In 2007, as in prior years, annual stock option awards were made at the end of the second quarter, based upon our interim review of individual performance. In January 2008, at the recommendation of our Chief Executive Officer, the Compensation Committee approved revising the annual stock option grant schedule for all employees so that the awards will be made in conjunction with annual bonuses and salary increases when we complete performance evaluations.

        Stock option awards to newly hired employees begin to vest on the employee's first day of employment. Stock options awarded to executive officers are subject to approval by the Compensation Committee. All stock options granted by us in 2007 had an exercise price equal to the closing price of our common stock on the date of grant. All options vest monthly based upon continued employment over a four-year period, and expire ten years after the date of grant.

        In 2007, our executive officers were awarded stock options in the amounts indicated in the section entitled "Grants of Plan Based Awards". Variations in the amounts of awards to our executive officers were based on each individual's position, responsibilities and performance, as well as survey data generated from our peer group.

        Other Compensation.    Our policy has been to limit other compensation and perquisites that we provide to our executive officers. During 2007, our executive officers did not receive any benefits that were not otherwise available to all of our employees, such as our health and life insurance benefits and our 401(k) plan. In this regard, it should be noted that we do not provide pension arrangements, post-retirement health coverage, or similar benefits for our executives or employees; however, our Compensation Committee in its discretion may revise, amend or add to an executive officer's benefits if it deems it advisable to do so at any time.