Gap (GPS)

Base Salary

Base salaries are set at a level which the Committee believes will effectively attract and retain top talent, considering the factors described under “Compensation Analysis Framework” above. In addition, the Committee considers the impact of base salary changes on potential annual bonuses and performance-based stock units described in the following sections because these elements are based on a percentage of base salary. Potential deferred compensation accumulation and severance benefits are also impacted when base salaries are changed. The Committee generally reviews base salaries for executives in the first fiscal quarter, and as needed in connection with promotions or other changes in responsibilities. The table below summarizes base salaries during fiscal 2008, and any changes.

In an effort to save costs during a particularly challenging business climate, we do not intend to increase executive base salaries in 2009, other than in connection with promotions or other changes in responsibilities. In addition, the Committee considered and approved a proposal from Mr. Murphy to reduce his base salary by 15% for fiscal 2009, effective February 1, 2009, which will also reduce the amount he is eligible to receive under our annual bonus program.

Base Salary

Base salaries are set at a level which the Committee believes will effectively attract and retain top talent, considering the factors described under “Compensation Analysis Framework” above. Base salary changes impact the potential annual bonus and performance-based stock units described in the following sections because these elements are based on a percentage of base salary, and the Committee considered the impact on these elements in making its decisions. Potential deferred compensation accumulation and severance benefits are also impacted when base salaries are changed.

Mr. Murphy’s initial base salary was set at a level equal to that of our former CEO, Mr. Pressler, which the Committee determined was within the range of competitive salaries, reasonable when compared to other executives at the Company, and would be likely to attract him to the Company. Sabrina Simmons received significant base salary increases in fiscal 2007, one in connection with her promotion to Executive Vice President, Finance and Acting Chief Financial Officer in August 2007, and another in January 2008 following her promotion to Chief Financial Officer (“CFO”). In setting Ms. Simmons’ salary in August 2007, the Committee determined that her expanded job responsibilities, balanced by the acting nature of the role, warranted a salary at the lower end of the peer group data but within the range of salaries paid to other executives responsible for major corporate functions. The salary increase in January 2008 for Ms. Simmons reflected her formal appointment to CFO and positioned her toward the middle of the peer group data and appropriately relative to other executives at the Company. Our former CFO, Byron Pollitt, received a base pay increase in the first fiscal quarter consistent with percentage increases provided to employees generally to maintain competitive positioning. The Committee determined that the base salaries for Marka Hansen, Dawn Robertson, and Lauri Shanahan remained appropriate, and no increase was made.

Base Salary

The Committee generally reviews and approves base salaries for executives in the first fiscal quarter, and as needed in connection with promotions or other changes in responsibilities. Base salary increases raise the potential annual bonus and performance unit awards described in the following sections because these elements are based on a percentage of base salary, and the Committee considered the impact on these elements in making base salary decisions. Potential deferred compensation accumulation and severance benefits are also increased when base salaries are increased. Base salaries are set at a level which the Committee believes will effectively attract and retain top talent, considering the factors described previously. Based on this review, the Committee determined that for fiscal 2006, base salary increases were required for certain executives. Base salaries for Marka Hansen and Cynthia Harriss were increased to ensure appropriate internal positioning relative to other executives, and to improve competitive positioning. Ms. Hansen’s base salary was further increased in February 2007 when she became President, Gap North America. Byron Pollitt and Eva Sage-Gavin received a base pay increase consistent with percentage increases provided to employees generally to maintain competitive positioning. The initial salary for Dawn Robertson was set based on the competitive market for her position, base salaries of other Company executives, and her compensation at her previous employer. The Committee determined that the base salaries for Ms. Ming and Mr. Pressler remained appropriate, and no increase was made.

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Base Salary

We review and approve base salaries for executive officers annually and in connection with promotions, changes in responsibilities, or any other unusual circumstances. Our goal is to pay competitive base salaries, which we set at levels that will effectively attract and retain top talent. We take into consideration the market data discussed previously, individual compensation history, pay in relation to other executives at the Company, individual job performance and future potential, as well as the CEO’s evaluation and recommendations. Based on our review, we determined that base pay for a number of our executive officers, including the CEO, already met competitive levels and required no adjustment in fiscal 2005. We approved salary increases in select cases where appropriate.

Base Salary

We review base salaries for executive officers annually and in connection with promotions, changes in responsibilities, or other unusual circumstances. Our goal is to pay competitive base salaries, which we set at levels that will effectively attract and retain top talent. We take into consideration the market data discussed previously along with the CEO’s evaluation and recommendations. Based on our review, we determined that base pay for a number of our executive officers already met competitive levels and required no adjustment in fiscal 2004. We approved modest salary increases in select cases where appropriate. Base salaries for executive officers were not increased during fiscal year 2003.

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