Pitney Bowes (PBI)

Description of the KEIP

General. The KEIP is a cash incentive compensation plan administered by the Executive Compensation Committee, which is comprised of members of the board of directors who are “disinterested persons” within the meaning of Rule 16b-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934 and “outside directors” within the meaning of Section 162(m) of the Code. Key employees of the company are eligible for grants under the KEIP. Grants to employees at the level of vice president and above are subject to an aggregate limit of an amount equal to the “Incentive Fund” amount for each calendar year. The “Incentive Fund” amount is determined by the Executive Compensation Committee for each calendar year prior to the end of the following year, and may not exceed (i) 4 ¹ / ₂ % of the consolidated net income of the company and its consolidated subsidiaries before provision for income taxes, as certified by the company’s independent registered public accounting firm, plus (ii) an additional amount equal to any excess of the aggregate amount of the Incentive Funds for the five preceding years over the aggregate amount of awards made for such years. Annual Incentives are annual cash payments of specified percentages of base salary, which are paid based upon the achievement of pre-established corporate, unit and/or individual performance objectives. CIUs represent a right to receive cash, the receipt and amount of which are entirely contingent upon the extent to which specified performance criteria are achieved during the related three-year period. Grants made to participants in the KEIP by the Executive Compensation Committee may be in the form of Annual Incentives, CIUs or any other form of grant permitted under the KEIP, and will be made subject to the achievement of one or more pre-established Performance Goals, in accordance with procedures established by the Executive Compensation Committee.

The KEIP provides flexibility in creating incentive packages for specific individuals as well as various groups of key employees. Persons eligible to participate in the KEIP are those key employees who, in the judgment of the committee, are in a position to contribute to the success of the company. Currently, there are approximately 2,000 employees eligible for awards under the KEIP.

Federal Income Tax Consequences. A participant who is granted a CIU will not realize any income, nor will the company receive any deduction, for Federal income tax purposes, in the year of the grant.

Ordinary income will be realized by the participant at the time that he or she receives payment of an Annual Incentive award, or that cash is distributed to him or her in payment of a CIU award. Pitney Bowes will receive a deduction on its consolidated Federal income tax return for the taxable year in the amount of such ordinary income realized by a KEIP participant subject to the rules under Section 162(m) of the Code.

Termination and Amendments. The KEIP does not have a stated term but may be terminated by the board at any time. The board may amend the KEIP to conform to any change in applicable law or for any other reason.

Other Matters. The committee has discretion to determine the type, terms and conditions and recipients of awards granted under the KEIP. Accordingly, it is not possible to determine the future awards that may be granted to any officer or other employee of Pitney Bowes.

The board has submitted the amendments to the stockholders for approval in order to meet certain requirements of the New York Stock Exchange and Section 162(m) of the Code. Although satisfaction of such requirements is subject to stockholder approval, the amendments to the KEIP will apply only to Mr. Critelli and Mr. Martin for 2006 and were not made contingent upon the receipt of such approval. In the event stockholder approval is not received, the board and the committee intend to review the relevant facts and circumstances and make decisions in light of such vote, the requirements of Section 162(m) of the Code, and the committee’s policy with respect to Section 162(m) of the Code as described on page 31 of this proxy statement in the section entitled “Compensation Philosophy.”