Nike (NKE)

Performance-Based Stock Options

The second component in our long-term portfolio mix is stock options. Stock options are designed to align the interests of the Company’s executives with those of shareholders by encouraging executives to enhance the value of the Company and, hence, the price of the Class B Stock. This is true “pay for performance”: executives are rewarded only if the market price of our stock rises, and they get nothing if the price does not rise. Our stock option program is generally based on granting options for a consistent number of shares each year for each position. When determining the grants, the Committee focuses on the number of shares, not the value for accounting purposes. Our approach is based on our desire to carefully control annual share usage and avoid fluctuations in grant levels due to share price changes. The Committee awards stock options to each executive based on its judgment of a desirable mix of long-term incentive compensation, and what it believes to be competitive with our peer group of companies and our competitors, while maintaining internal pay equity for comparable positions. Our human resources staff periodically tests the reasonableness of our stock option grants against peer group market data.

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Options are generally granted annually to all eligible employees, including the Named Executive Officers, in July of each year. Stock options for fiscal 2009 were granted by the Committee on July 18, 2008 with an exercise price equal to the closing market price of our stock on that date.

Options were granted in July 2008 to Mr. Parker for 135,000 shares, to Mr. Denson for 110,000 shares, and to Messrs. Blair, DeStefano, and Edwards for 50,000 shares each. This was the same number of stock options granted to each of them in July 2007. The Committee determined in its judgment not to increase from the prior year the number of shares granted to the Named Executive Officers based on the Committee’s determination of a desirable mix of long-term compensation, the number of shares granted to Named Executive Officers in the past, and a review of grants to comparable executives in our peer group of companies.

Options we grant generally promote executive retention because they carry four-year vesting periods and are forfeited if the employee leaves before vesting occurs. Under certain conditions optionees may receive accelerated vesting of all of their options upon retirement as described below under the heading “Potential Payments Upon Termination or Change-in-Control.” Based on their ages and years of service, Mr. Parker, Mr. Denson, Mr. DeStefano, Mr. Blair, and Mr. Edwards could terminate employment at any time and receive full vesting of their options. This provision for accelerated vesting has been a standard feature of our stock option grants to all employees since 2002.

Performance-Based Stock Options

The second component in our long-term portfolio mix is stock options. Stock options are designed to align the interests of the Company’s executives with those of shareholders by encouraging executives to enhance the value of the Company and, hence, the price of the Class B Stock. This is true “pay for performance”: executives are rewarded only if the market price of our stock rises, and they get nothing if the price does not rise. Our stock option program is generally based on granting options for a consistent number of shares each year for each position. When determining the grants, the Committee focuses on the number of shares, not the value for accounting purposes. Our approach is based on our desire to carefully control annual share usage and avoid fluctuations in grant levels due to share price changes. The Committee awards stock options to each executive based on its judgment of a desirable mix of long-term incentive compensation, and what it believes to be competitive with our peer group of companies and our competitors, while maintaining internal pay equity for comparable positions. Our human resources staff periodically tests the reasonableness of our stock option grants against peer group market data.

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Options are generally granted annually to all eligible employees, including the Named Executive Officers, in July of each year. Stock options for fiscal 2008 were granted by the Committee on July 20, 2007 with an exercise price equal to the closing market price of our stock on that date.

Options were granted in July 2007 to Mr. Parker for 135,000 shares and to Mr. Denson for 110,000 shares. Mr. Parker and Mr. Denson did not receive stock options in the July 2006 annual option grant, because they had each received two option grants in the prior fiscal year as a result of their promotions to Chief Executive Officer and sole President of the NIKE Brand, respectively. The Committee believed that Mr. Parker and Mr. Denson should resume receiving stock options to continue to provide incentives to align their interests with those of shareholders, and in the Committee’s judgment it determined that the number of shares were appropriate based on the Committee’s determination of a desirable mix of long-term compensation, Mr. Parker and Mr. Denson’s growing experience in their positions, the number of shares granted in the past, and a review of grants to comparable executives in our peer group of companies. Options were granted in July 2007 to Messrs. Blair, DeStefano, and Edwards for 50,000 shares each. These numbers of option shares granted to these executives appear lower than the number of shares granted in the prior year, because the prior year’s option shares were adjusted as a result of the April 2, 2007 two-for-one stock split (the number of shares doubled and the exercise price halved). However, the Committee does not adjust the number of shares for new grants of stock options following a stock split. Accordingly, the number of option shares granted to Mr. DeStefano remained the same as the number granted in July 2006. The number of option shares granted to Mr. Edwards increased from 33,000 in July 2006 to 50,000 in July 2007 based on the Committee’s recognition of his increasing responsibilities in managing our key product categories, and the number of option shares granted to Mr. Blair also increased from 33,000 in July 2006 to 50,000 in July 2007 based on the Committee’s determination that the grant should be increased due to what it believed to be higher equity incentive compensation for his position in our peer group of companies.

Options we grant generally promote executive retention because they carry four-year vesting periods and are forfeited if the employee leaves before vesting occurs. Under certain conditions optionees may receive accelerated vesting of all of their options upon retirement as described below under the heading “Potential Payments Upon Termination or Change-in-Control.” Based on their ages and years of service, Mr. Parker, Mr. Denson, Mr. DeStefano and Mr. Edwards could terminate employment at any time and receive full vesting of their options, and Mr. Blair could terminate employment and be vested in 60% of his unvested options. This provision for accelerated vesting has been a standard feature of our stock option grants to all employees since 2002.

Performance-Based Stock Options

The second component in our long-term portfolio mix is stock options. Stock options are designed to align the interests of the Company’s executives with those of shareholders by encouraging executives to enhance the value of the Company and, hence, the price of the Class B Stock. This is true “pay for performance”: executives are rewarded only if the market price of our stock rises, and they get nothing if the price does not rise. Our stock option program is generally based on granting options for a consistent number of shares each year for each position. When determining the grants, the Committee focuses on the number of shares, not the value for accounting purposes. Our approach is based on our desire to carefully control annual share usage and avoid fluctuations in grant levels due to share price changes. Our human resources staff periodically tests the reasonableness of our stock option grants against peer group market data.

Options are generally granted annually to all eligible employees, including the Named Executive Officers, in July of each year. Stock options for fiscal 2007 were granted by the Committee on July 14, 2006 with an exercise price based on the closing market price on July 13, 2006, the immediately preceding

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trading day. This option pricing was consistent with our long-time practice of using the closing market price on the preceding trading day as the exercise price for options we grant, as expressly stated in our 1990 Stock Incentive Plan. For options granted in fiscal 2008 and in the future, we have modified our practice to use the closing market price on the grant date as the exercise price.

Mr. Parker and Mr. Denson did not receive stock options in the fiscal 2007 annual option grant. On a post-split basis, they each received two option grants in fiscal 2006, one for 140,000 shares as part of the annual grant in July 2005 and another in February 2006 (250,000 shares for Mr. Parker and 200,000 shares for Mr. Denson) in connection with Mr. Parker’s promotion to President and Chief Executive Officer and Mr. Denson’s promotion to sole President of the NIKE Brand. Accordingly, the Committee did not believe that additional option grants for them were appropriate in July 2006. Options were granted in July 2006 to Mr. Blair for 66,000 shares and to Mr. DeStefano and Mr. Stewart for 100,000 shares each. This was the same number of options granted to each of them in July 2005.

Options we grant generally promote executive retention because they carry four-year vesting periods and are forfeited if the employee leaves before vesting occurs. Our options provide, however, that under certain conditions optionees may receive accelerated vesting of all of their options upon retirement as described above under the heading “Potential Payments Upon Termination or Change-in-Control.” Accordingly, based on their ages and years of service, Mr. Parker, Mr. Denson, Mr. DeStefano and Mr. Stewart could terminate employment at any time and receive full vesting of their options, and Mr. Blair could terminate employment and be vested in 20% of his unvested options. This provision for accelerated vesting has been a standard feature of our stock option grants to all employees since 2002.