Foot Locker (FL)

Performance-Based Long-Term Bonus

We pay performance-based long-term bonuses to our named executive officers under our Long-Term Incentive Compensation Plan (“Long-Term Plan”) in order to provide incentive for them to work toward the Company’s achievement of performance goals established by the Compensation Committee for each three-year performance period. While bonuses under the Long-Term Plan may be paid in either cash or stock, in recent years, we have made these payments in cash.

For many years, target payments under the Long-Term Plan for senior corporate officers have been at the following levels:

If the Company does not achieve threshold performance, as was the case for the 2006-2008 performance period, then no long-term bonus is paid.

Pay-out levels are based on an executive’s rate of base salary payable in the first year of the three-year performance period. For example, if an executive’s base salary is set at $500,000 at the time executive salaries are reviewed in the first year of the performance period, that executive’s target pay-out under the Long-Term Plan would be $450,000. In addition, we adjust on a pro rata basis, the rate of base salary on which pay-out levels are based for salary increases during the performance period related to promotions.

Our Long-Term Plan allows the Compensation Committee, in establishing performance targets under the plan, to choose one or both of consolidated net income or return-on-invested-capital, factors approved by our shareholders. In 2008, the Committee established a performance target for the 2008-2010 performance period under the long-term plan based upon return-on-invested capital. Off of the planned invested capital base, the Company must achieve 80 percent of target after-tax income before a threshold-level bonus is paid, and the maximum pay-out level is reached if after-tax income reaches 120 percent of target. It should be noted that the actual invested capital base will also fluctuate, and the final pay-out for the performance period will also depend upon the invested capital base achieved during the period. Return-on-invested-capital is calculated using the same methodology as is used for the Annual Bonus Plan, as described on Page 23, except that, in addition, long-term bonus expense is excluded from the operating profit calculation.

These performance targets are based upon the business plan and budget for the three-year period reviewed and approved by the Finance and Strategic Planning Committee and the Board of Directors. We believe that these targets are reasonably demanding, and that bonus pay-outs are correlated to Company performance, as evidenced by our pay-out history over the last five years. During that time, we have paid long-term bonuses between threshold and target once, between target and maximum twice, and there has been no pay-out twice.

In 2006, the Compensation Committee established the following return-on-invested-capital target for the 2006-2008 performance period under the Long-Term Plan:

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As the Company did not achieve the threshold level of return-on-invested capital for the performance period, we did not pay long-term bonuses to the participants in the Long-Term Plan, including the named executive officers, for the 2006-2008 performance period.

We do not have a formal policy with regard to the adjustment or recovery of bonus payments if it is determined, at a future date, that the relevant performance measures upon which the payments are based are restated or adjusted. We have not had this situation arise, and if it were to arise, we would expect to make an evaluation at that time based upon the circumstances and the role of each individual executive in the events that gave rise to the restatement or adjustment.

In preparing our financial statements for 2008, we discovered an error in the calculation of income tax expense for 2007, which resulted in a restatement of our results for 2007, pursuant to Staff Accounting Bulletin 108, that decreased our 2007 net income by approximately $6 million. As we did not pay the named executive officers annual bonuses for 2007 or long-term bonuses for the 2005-2007 performance period, this misstatement of 2007 income did not affect the amount of any bonuses paid to the named executive officers.

Performance-Based Long-Term Bonus

We pay performance-based long-term bonuses to our named executive officers under our Long-Term Incentive Compensation Plan (“Long-Term Plan”) in order to provide incentive for them to work toward the Company’s achievement of performance goals established by the Compensation Committee for each three-year performance period. While bonuses under the Long-Term Plan may be paid in either cash or stock, in recent years, we have made these payments in cash.

For many years, target payments under the Long-Term Plan for senior corporate officers have been at the following levels:

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If the Company does not achieve threshold performance, as was the case for the 2005-2007 performance period, then no long-term bonus is paid.

Pay-out levels are based on an executive’s rate of base salary payable in the first year of the three-year performance period. For example, if an executive’s base salary is set at $500,000 at the time executive salaries are reviewed in the first year of the performance period, that executive’s target pay-out under the Long-Term Plan would be $450,000.

Our Long-Term Plan allows the Compensation Committee, in establishing performance targets under the plan, to choose one or both of consolidated net income or return-on-invested-capital, factors approved by our shareholders. In 2007, the Committee established a performance target for the 2007-2009 performance period under the long-term plan based upon return-on-invested capital. Off of the planned invested capital base, the Company must achieve 80 percent of target after-tax income before a threshold-level bonus is paid, and the maximum pay-out level is reached if after-tax income reaches 120 percent of target. It should be noted that the actual invested capital base will also fluctuate, and the final pay-out for the performance period will also depend upon the invested capital base achieved during the period. Return-on-invested-capital is calculated using the same methodology as is used for the Annual Bonus Plan, as described on Page 22, except that, in addition, long-term bonus expense is excluded from the operating profit calculation.

These performance targets are based upon the business plan and budget for the three-year period reviewed and approved by the Finance and Strategic Planning Committee and the Board of Directors. We believe that these targets are reasonably demanding as evidenced by our pay-out history over the last five years. During that time, we have paid long-term bonuses between threshold and target once, between target and maximum three times, and there has been no pay-out once.

In 2005, the Compensation Committee established the following return-on-invested-capital target for the 2005-2007 performance period under the Long-Term Plan:

As the Company did not achieve the threshold level of return-on-invested capital for the performance period, we did not pay long-term bonuses to the participants in the Long-Term Plan, including the named executive officers, for the 2005-2007 performance period.

We do not have a formal policy with regard to the adjustment or recovery of bonus payments if it is determined, at a future date, that the relevant performance measures upon which the payments are based are restated or adjusted. We have not had this situation arise, and if it were to arise, we would expect to make an evaluation at that time based upon the circumstances and the role of each individual executive in the events that gave rise to the restatement or adjustment.

Under normal circumstances, the Compensation Committee has no discretion to increase annual or long-term bonus payments, which are formula-driven based upon company performance, and our program for the named executive officers does not provide for discretionary adjustments based upon individual performance. The Compensation Committee has not adjusted, either upward or downward, any of the annual or long-term bonus payments to the named executive officers shown in the summary compensation table from pay-outs calculated based upon the applicable formula. The Committee has limited authority when determining bonus payments, consistent with Section 162(m) of the Internal Revenue Code, to disregard certain events that it determines to be unusual or non-recurring. When establishing the targets, the Committee normally specifies certain items that it considers to be unusual or non-recurring, and these events, if they occur, are automatically excluded when calculating payments. For example, in recent years targets have excluded the effect of acquisitions or dispositions, any non-cash impairment charges under Financial Accounting Standard No. 144, and changes in accounting and tax rules.

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Performance-Based Long-Term Bonus

We pay performance-based long-term bonuses to our named executive officers under our Long-Term Incentive Compensation Plan in order to provide incentive for them to work toward the Company’s achievement of performance goals established by the Compensation Committee for each three-year performance period. While long-term bonuses may be paid in either cash or stock, in recent years, including 2006, we have made these payments in cash.

For many years, target payments under the long-term bonus plan for senior corporate officers have been 90 percent of the rate of base salary payable in the first year of each three-year period. (For example, if an executive’s base salary was set at $500,000 at the time executive salaries are reviewed in the first year of the performance period, that executive’s target pay-out under the long-term plan would be $450,000.) The long-term bonus payments for any three-year performance period may range from 22.5 percent of first year base salary if threshold performance is achieved to 180 percent of first year base salary if maximum performance is achieved. If the Company does not achieve threshold performance, then no long-term bonus is paid.

Our Long-Term Incentive Compensation Plan allows the Compensation Committee, in establishing performance targets under the plan, to choose one or both of consolidated net income or return-on- invested-capital, factors approved by our shareholders. In 2006, the Committee established a performance target for the 2006-2008 performance period under the long-term plan based upon return-on- invested capital. Off of the planned investment capital base, the Company must achieve 80 percent of target after-tax income before a threshold-level bonus is paid, and the maximum pay-out level is reached if after-tax income reaches 120 percent of target. It should be noted that the actual invested capital base will also fluctuate, and the final pay-out for the performance period will also depend upon the invested capital base achieved during the period.

These performance targets are based upon the business plan and budget for the three-year period reviewed and approved by the Finance and Strategic Planning Committee and the Board of Directors. In recent years, the targets established under the Long-Term Plan have required that the Company achieve return-on-invested-capital of between 10.5 and 10.9 percent in the three-year performance period for payment of the target pay-out.

We believe that these targets are reasonably demanding as evidenced by our pay-out history over the last five years. During that time, which overall has been a period of relatively strong performance for the Company, we have paid long-term bonuses between threshold and target once, between target and maximum three times, and at maximum once.

The payment under the Long-Term Incentive Compensation Plan for the 2004-2006 performance period for all of the named executive officers was at slightly above the mid-point between threshold and target (63.6 percent of starting base salary for Messrs. Serra, Mina, and Bahler, who had a 90 percent target). This payment is based upon the Company’s return-on-invested-capital performance over the 2004-2006 performance period as compared to the target established by the Compensation Committee at the beginning of the period. Because Mr. McHugh was promoted during the performance period, the payment made to him was calculated on a blended basis, with a lower target percentage and a lower base salary applying to the period prior to his promotion. The payment made to Mr. Halls was calculated based upon the target percentage applicable to him in his position as President and Chief Executive Officer of the Champs Sports division, and was 35.3 percent of his base salary at the beginning of the performance period.

We do not have a formal policy with regard to the adjustment or recovery of bonus payments if it is determined, at a future date, that the relevant performance measures upon which the payments are

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based are restated or adjusted. We have not had this situation arise, and if it were to arise, we would expect to make an evaluation at that time based upon the circumstances and the role of each individual executive in the events that gave rise to the restatement or adjustment.

Under normal circumstances, the Compensation Committee has no discretion to increase annual or long-term bonus payments, which are formula-driven based upon Company performance, and our program for the named executive officers does not provide for discretionary adjustments based upon individual performance. The Compensation Committee has not adjusted, either upwards or downwards, any of the annual or long-term bonus payments to the named executive officers shown in the summary compensation table from pay-outs calculated based upon the applicable formula. The Committee has limited authority when determining bonus payments, consistent with Section 162(m) of the Internal Revenue Code, to disregard certain events that it determines to be unusual or non-recurring. When establishing the targets, the Committee normally specifies certain items that it considers to be unusual or non-recurring, and these events, if they occur, are automatically excluded when calculating payments. For example, in recent years targets have excluded the effect of acquisitions or dispositions.