Pitney Bowes (PBI)

Annual Incentive Plan

We pay annual performance-based incentive compensation, or short-term incentives, to reward executives for achieving certain goals over the course of the year. Our target annual incentive compensation is generally competitive in the markets in which we operate. In general, the company targets annual incentives at the median of competitive market data.

All executives are eligible for annual incentives for achieving challenging financial and strategic objectives that are established at the beginning of each year. Annual incentive payments are subject to the company first achieving a threshold income from continuing operations objective. The maximum annual incentive a named officer could receive under the KEIP is $4,000,000 and the Committee applies “negative discretion” to reduce annual awards such that individual payouts are in line with financial and strategic enterprise, business unit and individual performance.

In applying its negative discretion, the Committee looks to certain enterprise performance objectives. For the annual incentive plan, the 2007 enterprise objectives were as follows:

In 2007, each of the four financial metrics for the annual incentive plan were weighted equally at 25%. In addition, the Committee has the discretion to increase or decrease the annual incentive pool by up to 25% based on its assessment of factors such as:

• quality of earnings;

• total return to stockholders;

• progress on strategic objectives; and

• other significant items.

Strategic objectives in 2007 included:

• customer loyalty;

• leadership talent;

• employee engagement; and

• diversity.

Both the financial and strategic objectives were chosen as performance criteria because the company believes that achievement of these results is the best way to ensure the creation of long-term stockholder value. Once financial and strategic results are available, the Committee reviews these results and determines the annual incentive pool and the annual incentive multiplier. At target, the annual incentive multiplier would be 100%.