General Mills (GIS)

Annual Incentive Awards – Tied to Corporate and Individual Performance

General Mills has an Executive Incentive Plan that provides the named executive officers with an opportunity to earn an annual incentive award that is paid partially in cash, with the balance paid in restricted stock units that require a stock ownership commitment. The Compensation Committee approves performance targets for these awards at the beginning of each fiscal year and also approves the awards granted annually in June after fiscal year end, based on that fiscal year’s performance. For the named executive officers, the restricted stock unit component is equal to 30% of their cash incentive award, and can be increased or decreased by as much as 30% based on the Corporate Performance Rating for that fiscal year.

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For the five named executive officers, annual cash incentive awards are determined by multiplying their base salary by a base incentive rate (50% to 75% for the named executive officers, which is a percentage based on their level of responsibility), the Corporate Performance Rating (determined by the Compensation Committee) and by their Individual Performance Rating (determined by the Compensation Committee for the Chief Executive Officer and by the Chief Executive Officer, subject to review by the Compensation Committee, for other senior executives). Annual incentive awards for the named executive officers can vary greatly from year to year based on the Corporate Performance Rating, which can range from 0 to 1.80; and the executive’s Individual Performance Rating, which can range from 0 to 1.50. The Executive Incentive Plan establishes a maximum award, which is adjusted downward based on these ratings.

After reviewing the Company’s fiscal 2007 performance, the Compensation Committee assigned a Corporate Performance Rating of 1.80. This maximum incentive ranking was based on June estimates of a comparable year-to-year increase in net sales of 6.2%, segment operating profit increase of 7.0%, earnings-per-share increase of 10.7% and improvement in return on capital of 95 basis points. In measuring earnings-per-share for compensation purposes, we excluded the impact of expensing stock-based compensation under recently adopted accounting rules and the effect of accounting for contingently convertible debt. We excluded charges for stock-based compensation in measuring improvement in return on capital.

All four performance measures met or exceeded the targets in the approved fiscal 2007 Corporate Rating Schedule for a 1.80 rating, and all four measures significantly exceeded the two and five-year compound growth rate trends for our performance peer group. Performance also materially exceeded General Mills’ publicly stated long-term performance goals of low single-digit net sales growth, mid-single-digit operating profit growth and high single-digit earnings-per-share growth. In fiscal 2007, all employees eligible for annual stock incentive awards received the maximum upward adjustment in grant size that is based on the 1.80 Corporate Performance Rating.

Individual Performance Ratings are based on the achievement of specific annual objectives such as financial and operating results, completion of strategic initiatives, the quality of business plans and organizational development progress in important areas like diversity and employee development.

The specific cash incentive awards for the five named executive officers for fiscal 2007 are included in the Summary Compensation Table in the column titled “Non-Equity Incentive Plan Compensation,” and the specific stock incentive awards for the five named executive officers are included in the narrative accompanying the Alternative Summary Compensation Table.

The restricted stock units issued as annual stock incentive awards are subject to four-year cliff vesting. To be eligible to receive the restricted stock unit component of the annual incentive, each named executive officer must put an equal number of personally-owned General Mills stock on deposit with the Company for four years. The named executive officer’s shares must remain on deposit until the end of the restricted period in order for the restricted stock units to vest. Restricted stock units earn dividend equivalents equal to regular dividends paid on our common stock.