Pitney Bowes (PBI)

Compensation of the Chief Executive Officer

CEO compensation is based on the same compensation objectives and policies applicable to all executives, and includes base salary, annual incentives, cash incentive units, and stock options. Mr. Critelli’s annual base salary was increased by 2.8% for 2005. Restricted stock is not granted annually to the CEO but may be granted from time to time under special circumstances.

Prior to conducting its annual compensation review of the CEO, the Committee met in executive session jointly with the Governance Committee in July 2005 to evaluate Mr. Critelli’s leadership capabilities. The Joint Committee’s evaluation was discussed with the full board in executive session at its November 2005 meeting. Among other factors the Committee considered in 2005 were Mr. Critelli’s leadership in driving the company’s short and long-term operational and financial performance, its strong governance practices, its strong external stakeholder relations, its talent and leadership development, and its strategy development and implementation.

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Compensation of the Chief Executive Officer

CEO compensation is based on the same compensation objectives and policies applicable to all executives, and includes base salary, annual incentives, cash incentive units, and stock options. Mr. Critelli’s annual base salary was increased by 2.8% for 2005. Restricted stock is not granted annually to the CEO but may be granted from time to time under special circumstances.

Prior to conducting its annual compensation review of the CEO, the Committee met in executive session jointly with the Governance Committee in July 2005 to evaluate Mr. Critelli’s leadership capabilities. The Joint Committee’s evaluation was discussed with the full board in executive session at its November 2005 meeting. Among other factors the Committee considered in 2005 were Mr. Critelli’s leadership in driving the company’s short and long-term operational and financial performance, its strong governance practices, its strong external stakeholder relations, its talent and leadership development, and its strategy development and implementation.

The Committee met separately in executive session in January 2006 to formulate recommendations for the board regarding the CEO’s compensation and evaluation of performance for the fiscal year ended December 31, 2005. The Committee then provided recommendations for compensation actions to the independent directors for their consideration and approval.

In evaluating Mr. Critelli’s performance for 2005, the Committee considered good progress in achieving the strategic objectives, and significantly improved and positive operating and strategic results achieved during 2005. The Committee believes that Mr. Critelli’s leadership skills contributed substantially to the results and that he continues to make significant contributions to the overall success of the company. It also recognized his strong influence and leadership in the mailstream industry and his success in driving postal transformation. It also considered that while the company’s total stockholder return in 2005 was behind the proxy peer group, the Dow Jones Industrial Average and the Standard & Poor’s 500 Index, the company was ahead on all indices over a five-year period and the actions taken in 2005 significantly strengthened the company’s ability to enhance future stockholder value realization.

The Committee recommended and the independent directors approved the following actions with regard to Mr. Critelli’s compensation. Mr. Critelli’s annual incentive payout for 2005 performance was $1,872,100, which represents an above target level of performance. The CIU payout for the 2003-2005 cycle approved for Mr. Critelli totaled $1,560,000 ($1.56 per unit), which represents an above target level of performance.

Consistent with the company’s compensation policy, Mr. Critelli was granted stock options in February 2005 to purchase 200,000 shares of company common stock, and he was awarded 1,500,000 CIUs for the 2005-2007 cycle.