Pitney Bowes (PBI)

Cash Incentive Units

CIUs are long-term incentive awards that are paid in cash with a unit value that is based on the achievement of pre-established financial objectives over a three-year performance period. For the named executive officers, payments are subject to the company first achieving a threshold income from continuing operations objective, consistent with the requirements for deductibility under Section 162(m) of the Code. The maximum long-term incentive payout a named executive officer could receive under the KEIP is $8,000,000 and the Committee applies negative discretion to reduce awards such that individual payouts are in line with financial and strategic enterprise performance. With respect to CIUs awarded before 2008, in applying negative discretion the Committee will consider achievement of financial metrics over the cumulative three year cycle. With respect to CIUs awarded beginning in 2008, in applying negative discretion the Committee will consider achievement of financial metrics for each individual year in the three-year cycle.

CIUs are granted annually to named executive officers. The pre-established goals used to determine the value of each unit are:

Adjusted earnings per share and adjusted free cash flow are each weighted at 50% in calculating CIU values. The Committee also uses a Total Stockholder Return (“TSR”) modifier in the calculation of the CIU value. The unit value based on financial performance will be modified by up to 25%, upwards or downwards, based on Pitney Bowes’ three-year TSR performance compared to the three-year TSR performance of the S&P 500. The purpose of the TSR modifier is to balance the measurement of performance using the internal financial goals with the measurement of the relative stockholder value created by meeting these goals.

For the 2008-2010 CIU cycle, the unit value at target is $1.00. The two performance goals for the CIUs are set in the first quarter of each year during the three-year CIU cycle. If the threshold level of performance is not met for both of these goals, one-third of the award value will be forfeited. If the initial income from continuing operations threshold is not met over the three year cycle, the entire award will be forfeited.

The performance objectives for the 2008 portion of the 2008-2010 CIU cycle are as follows:

Targets for each additional year in the cycle will be determined in the first quarter of each year.

Cash Incentive Units

CIUs are long-term incentive awards that are paid in cash with a unit value that is based on the achievement of pre-established financial objectives over a three-year performance period. For the named officers, payments are subject to the company first achieving a threshold income from continuing operations objective, consistent with the requirements for deductibility under Section 162(m) of the Code. The maximum long-term incentive payout a named officer could receive under the KEIP is $8,000,000 and the Committee applies “negative discretion” to reduce awards such that individual payouts are in line with financial and strategic enterprise performance.

CIUs are granted annually to executive officers and other members of senior management. The pre-established goals used to determine the value of each unit are:

• adjusted earnings per share; and

• adjusted free cash flow.

Adjusted earnings per share and adjusted free cash flow are each weighted at 50% in calculating CIU values. The Committee also uses a Total Stockholder Return (“TSR”) modifier in the calculation of the CIU value. The unit value based on financial performance will be modified by up to 25%, upwards or downwards, based on Pitney Bowes’ three-year TSR performance compared to the three-year TSR performance of the S&P 500. The objective of the TSR modifier is to balance the measurement of performance using the internal financial objectives with the measurement of the stockholder value created by meeting these objectives.

The Committee set the following objectives for the 2007-2009 CIU cycle in January 2007: adjusted earnings per share and adjusted free cash flow, weighted at 50% each.

For the 2007-2009 CIU cycle, the unit value at target is $1.00. If the threshold level of performance is not met for both of these objectives, the CIUs will have no value.

The unit value based on internal financial performance is determined as follows:

CIUs are granted annually to executive officers and other members of senior management. As noted in the narrative for the “Summary Compensation Table” and the “Grants of Plan-Based Awards in 2006 Table” on page 45, the pre-established goals used to determine the value of each unit are:

• adjusted earnings per share; and
• adjusted free cash flow.

Adjusted earnings per share and adjusted free cash flow are each weighted at 50% in calculating CIU values. The Committee also uses a Total Stockholder Return (“TSR”) modifier in the calculation of the CIU value beginning with the 2005-2007 cycle. The unit value based on financial performance will be modified by up to 25%, upwards or downwards, based on Pitney Bowes’ three-year TSR performance compared to the three-year TSR performance of the S&P 500. The objective of the TSR modifier is to balance the measurement of performance using the internal financial objectives with the measurement of the stockholder value created by meeting these objectives.

For the 2006-2008 CIU cycle, the unit value at target is $1.00. The unit value based on internal financial performance ranges from $0.20 at threshold performance to $1.80 for maximum performance. The unit value based on financial performance will then be modified by up to 25%, upwards or downwards, based on the TSR modifier discussed in the preceding paragraph. The unit value as modified thus ranges from $0.15 at threshold performance to $2.25 at maximum performance. The Committee set the following objectives for the 2006-2008 CIU cycle: adjusted earnings per share and adjusted free cash flow, weighted at 50% each.

At its February 2007 meeting, the Committee also determined the CIU payout for the 2004-2006 cycle. The payout was $1.71 per unit, which represents a performance level that is above target. The target for the 2004-2006 CIU cycles were adjusted three-year earnings per share of $7.22 and adjusted free cash flow of $1.730 billion and actual performance was adjusted three-year earnings per share of $7.37 and adjusted free cash flow of $1.971 billion.