Gap (GPS)

CEO Compensation

In August 2007, Glenn Murphy joined the Company as the Chairman of the Board, President and CEO. Mr. Murphy’s compensation package is intended to reward him for significant, sustained improvement in the Company’s financial performance and returns to shareholders. A significant portion of his compensation requires short and long-term improvement in earnings performance, and long-term appreciation of our stock price. The Committee used the same factors outlined under “Compensation Analysis Framework” above to determine the value and structure of Mr. Murphy’s compensation, and its judgment on the value and type of compensation that was needed to attract him to the Company in light of other available opportunities. The Committee received advice from its independent compensation consultant on the compensation values and structure. The Committee determined that the majority of Mr. Murphy’s potential compensation should (i) be performance-based and earned over a longer time period than that typically used for other executives given the CEO’s leadership role; (ii) provide the potential to earn significant compensation payments based on achievement of financial goals and returns to shareholders; and (iii) ensure improvements are sustained prior to vesting of a significant portion of potential compensation. Each compensation element is described more fully below.

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CEO Compensation

In August 2007, Glenn Murphy joined the Company as the Chairman of the Board, President and CEO. Prior to Mr. Murphy, Robert J. Fisher, who is currently a non-employee member of the Board, served as Chairman of the Board and Interim President and CEO following the departure of Paul Pressler in January 2007. During this time, Robert J. Fisher continued to receive his regular director compensation as Chairman and a non-employee member of our Board of Directors, but did not receive compensation for his additional responsibilities as Interim President and CEO.

Mr. Murphy’s compensation package is intended to reward him for significant, sustained improvement in the Company’s financial performance and returns to shareholders. A significant portion of his compensation requires short and long-term improvement in earnings performance, and long-term appreciation of our stock price. The Committee used the same factors outlined under “Compensation Analysis Framework” above to determine the value and structure of Mr. Murphy’s compensation, and its judgment on the value and type of compensation that would be needed to attract him to the Company in light of other available opportunities. The Committee received advice from its independent compensation consultant on the compensation structure. The Committee determined that the majority

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of Mr. Murphy’s potential compensation should be performance-based and earned over a longer time period than that typically used for other executives given the CEO’s role, the potential value of compensation payments based on achievement of goals and returns to shareholders, and to ensure improvements are sustained prior to vesting of a significant portion of potential compensation. Each compensation element is described more fully below.