Gap (GPS)

Annual Stock Unit Grants

Executives are eligible to earn stock units payable in Company shares based on achievement of annual performance goals (“performance stock awards”). The Committee approves threshold, target and maximum performance goals and potential awards at the beginning of each annual performance period. Awards are made only if threshold performance levels are met. The Committee may reduce (but not increase) actual awards that would otherwise be granted under the program. Actual awards are generally granted in March of the following fiscal year. Awards are then subject to a vesting period based on continued service with the Company. After reviewing the factors described under “Compensation Analysis Framework” above, the Committee made no changes to the program for 2008.

The table below describes the potential award range as a percentage of base salary for each executive, actual achievement, and the actual award earned. The same threshold, target and maximum earnings goals and results described above under “Fiscal 2008 Annual Bonus” applied to performance stock awards for fiscal 2008. Mr. Peck’s target award as a percentage of base salary was increased from 40% to 50% upon his promotion in August 2008, consistent with other executives at his level. The actual award earned was based on Gap Inc. and Outlet division results (134% and 200%, respectively) prorated as previously described above.

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For fiscal 2008, target earnings goals were exceeded (see table on page 26 for actual earnings achievement) and performance stock awards were granted. Mr. Murphy was not eligible to receive an award. The awards will vest 50% two years following the grant date to create a retention incentive for a shorter time horizon and 50% three years following the grant date to promote longer term retention.