UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.     )

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Electronic Arts Inc.

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June 17, 2008

 

DEAR FELLOW STOCKHOLDERS:

 

You are cordially invited to join us at our 2008 Annual Meeting of Stockholders on July 31, 2008 at 2:00 p.m. The meeting will be held at the headquarters campus of Electronic Arts in Building 250 (please note that the street address for Building 250 is 250 Shoreline Drive, Redwood City, California). For your convenience, we are also pleased to offer a live webcast of our Annual Meeting on the Investor Relations section of our web site at investor.ea.com. At this meeting, we are asking the stockholders to:

 

 

After the meeting, we will report on our recent performance and answer your questions.

 

Details regarding admission to the meeting and the business to be conducted are described in the Notice of Internet Availability of Proxy Materials you received in the mail and in this proxy statement. We have also made available a copy of our Annual Report for the fiscal year ended March 31, 2008 with this proxy statement. We encourage you to read our Annual Report. It includes our audited financial statements and provides information about our business and products.

 

You may have noticed changes in the way we are providing proxy materials to our stockholders in connection with our 2008 Annual Meeting. This is because we have elected to provide access to our proxy materials over the Internet under the Securities and Exchange Commission’s new “notice and access” rules. By providing our proxy materials over the Internet, we hope to conserve natural resources and reduce the environmental impact of our Annual Meeting, expedite the delivery of this important information to you, and reduce our printing and mailing costs. For further information, please see the Commonly Asked Questions and Answers section of this proxy statement.

 

Your vote is important. Whether or not you plan to attend the Annual Meeting, we hope you will vote as soon as possible. You may vote over the Internet, by telephone or, if you requested to receive printed proxy materials, by mailing a proxy or voting instruction card. Please review the instructions on each of your voting options described in this proxy statement as well as in the Notice you received in the mail.

 

Thank you for your ongoing support of Electronic Arts. We look forward to seeing you at the 2008 Annual Meeting.

 

Sincerely,

 

John S. Riccitiello

Chief Executive Officer

Notice of 2008 Annual Meeting of Stockholders

 

 

MATTERS TO BE VOTED UPON:

 

 

OUR BOARD OF DIRECTORS RECOMMENDS YOU VOTE FOR EACH OF THE NOMINEES AND FOR EACH PROPOSAL.

 

Any action on the items of business described above may be considered at the Annual Meeting at the time and on the date specified above or at any time and date to which the Annual Meeting may be properly adjourned or postponed.

 

Stockholders of record as of the close of business on June 9, 2008 are entitled to notice of the meeting and to attend and vote at the meeting. A complete list of these stockholders will be available at Electronic Arts’ headquarters prior to the meeting.

 

By Order of the Board of Directors,

 

 

Stephen G. Bené

Senior Vice President, General Counsel

and Secretary

 

TABLE OF CONTENTS

 

 

Our Board of Directors is soliciting proxies for the 2008 Annual Meeting of Stockholders. The proxy materials, including this proxy statement, proxy card and voting instructions, contain important information for you to consider when deciding how to vote on the matters brought before the meeting. Please read them carefully.

 

The Board has set June 9, 2008 as the record date for the meeting. Stockholders who owned common stock on that date are entitled to notice of the meeting, and to attend and vote at the meeting, with each share entitled to one vote. There were 318,567,924 shares of common stock outstanding on the record date.

 

In accordance with rules and regulations recently adopted by the U.S. Securities and Exchange Commission (the “SEC”), we have elected to provide access to our proxy materials to our stockholders by providing such documents on the Internet. The Notice of Annual Meeting, proxy statement, our 2008 Annual Report and form of proxy were distributed and/or made available via the Internet to stockholders on or about June 17, 2008. Stockholders will have the ability to access the proxy materials on a website referred to in the Notice of Internet Availability of Proxy Materials (the “Notice”) or request a printed set of the proxy materials be sent to them, by following the instructions in the Notice.

 

The Notice will also provide instructions on how to inform us to send future proxy materials to you electronically by email or in printed form by mail. If you choose to receive future proxy materials by email, you will receive an email next year with instructions containing a link to those materials and a link to the proxy voting site. Your election to receive proxy materials by email or printed form by mail will remain in effect until you terminate it. We encourage you to choose to receive future proxy materials by email. Doing so will allow us to provide you with the information you need in a more timely manner, will save us the cost of printing and mailing documents to you, and will help conserve natural resources.

 

In this proxy statement:

 

 

Your vote is very important. Whether or not you plan to attend the Annual Meeting, we encourage you to read this proxy statement and submit your proxy or voting instructions as soon as possible. For specific instructions on how to vote your shares, please refer to the instructions on the Notice of Internet Availability of Proxy Materials you received in the mail, the section entitled Commonly Asked Questions and Answers set forth

below in this proxy statement or, if you requested to receive printed proxy materials, your enclosed proxy card.

 

Why am I receiving these materials?

 

Our board of directors has made these materials available to you on the Internet or, upon your request, has delivered printed proxy materials to you in connection with the solicitation of proxies for use at our 2008 Annual Meeting of Stockholders, which will take place on Thursday, July 31, 2008 at 2:00 p.m. local time, at our corporate headquarters in Redwood City, California. This proxy statement describes proposals on which you, as a stockholder, are being asked to vote. It also gives you information on these proposals, as well as other information so that you can make an informed decision. As a stockholder, you are invited to attend the Annual Meeting and are requested to vote on the items of business described in this proxy statement.

 

Why did I receive a notice in the mail regarding the Internet availability of proxy materials instead of a full set of proxy materials?

 

In accordance with rules recently adopted by the SEC, we may now furnish proxy materials, including this proxy statement and our annual report, to our stockholders by providing access to such documents on the Internet instead of mailing printed copies. Most stockholders will not receive printed copies of the proxy materials unless they request them. Instead, the Notice, which was mailed to most of our stockholders, provides instructions as to how to access and review all of the proxy materials on the Internet. The Notice also instructs how you may submit your proxy on the Internet. If you would like to receive a paper or email copy of our proxy materials, you should follow the instructions for requesting such materials in the Notice.

 

Can I vote my shares by filling out and returning the Notice?

 

No, however, the Notice provides instructions on how to vote by Internet, by telephone, by requesting and returning a paper proxy card, or by submitting a ballot in person at the meeting.

 

Who can vote at the Annual Meeting?

 

Stockholders who owned common stock on June 9, 2008 may attend and vote at the Annual Meeting. If your shares are registered directly in your name with our transfer agent, Wells Fargo Shareowner Services, you are considered, with respect to those shares, the shareowner of record. As the shareowner of record, you have the right to vote in person at the meeting. If your shares are held in a brokerage account or by another nominee or trustee, you are considered the beneficial owner of shares held in street name. As the beneficial owner, you are also invited to attend the meeting. Since a beneficial owner is not the shareowner of record, you may not vote these shares in person at the meeting unless you obtain a “legal proxy” from your broker, nominee, or trustee that holds your shares, giving you the right to vote the shares at the meeting. Each share of common stock is entitled to one vote.

 

What am I voting on?

 

We are asking you to:

 

 

 

How do I vote my shares if I won’t be able to attend the Annual Meeting in person?

 

You do not need to attend the Annual Meeting in person in order to vote. You may, instead, vote over the Internet, by telephone or by mail (if you have requested printed proxy materials). By doing so, you are giving a proxy appointing John S. Riccitiello (the Company’s Chief Executive Officer) and Eric F. Brown (the Company’s Chief Financial Officer) to vote your shares at the meeting as you have instructed. If a proposal comes up for vote at the meeting for which you have not indicated an instruction, Mr. Riccitiello and Mr. Brown will vote your shares according to their best judgment. Even if you currently plan to attend the meeting, it is a good idea to vote on the Internet, by telephone or, if you received printed proxy materials, to complete and return your proxy card before the meeting date just in case your plans change.

 

 

What does it mean if I receive more than one Notice or proxy card?

 

It means that you have multiple accounts at the transfer agent or with stockbrokers. Please complete and return all proxy cards, or follow the instructions on each Notice to vote by telephone or over the Internet, to ensure that all your shares are voted.

 

What if I change my mind after I give my proxy?

 

You may revoke your proxy and change your vote at any time before the polls close at the meeting. You may do this by:

 

 

Your proxy will not be revoked if you attend the meeting but do not vote.

 

Who will count the votes?

 

A representative of Wells Fargo Shareowner Services will tabulate the votes and act as the inspector of election.

How many shares must be present to hold the meeting?

 

To hold the meeting and conduct business, a majority of EA’s outstanding voting shares as of June 9, 2008 must be present or represented by proxies at the meeting. On this date, a total of 318,567,924 shares of common stock were outstanding and entitled to vote. Shares representing a majority, or 159,283,963 shares, of these votes must be present. This is called a quorum.

 

Shares are counted as present at the meeting if:

 

 

How are votes counted?

 

You may vote “for”, “against” or “abstain” on each of the proposals. Abstentions, although counted for purposes of determining whether a quorum is present, will not be counted for any other purpose. If you sign and return your proxy without voting instructions, your shares will be counted as a “for” vote in favor of each nominee and in favor of each of the other proposals.

 

How many votes must the nominees have to be elected as directors?

 

In an uncontested election (i.e., an election in which EA’s Corporate Secretary has not received timely and proper notice from a stockholder indicating an intention to nominate one or more candidates to compete with the Board’s nominees), EA’s bylaws require each nominee to receive more votes cast “for” than “against” his or her election or re-election in order to be elected or re-elected to the Board. We expect that the election to be held at the 2008 Annual Meeting will be an uncontested election. In the event that the number of nominees for director exceeds the number of directors to be elected, however, directors will instead be elected by a plurality of the votes cast, meaning that the persons receiving the highest number of “for” votes, up to the total number of directors to be elected at the Annual Meeting, will be elected.

 

In accordance with our Corporate Governance Guidelines, the Board expects an incumbent director to tender his or her resignation if he or she fails to receive the required number of votes for re-election in an uncontested election. In such an event, the Nominating and Governance Committee will act on an expedited basis to determine whether to accept the director’s resignation and will submit such recommendation for prompt consideration by the Board. The Board expects the director whose resignation is under consideration to abstain from participating in any decision regarding that resignation. The Nominating and Governance Committee and the Board may consider any factors they deem relevant in deciding whether to recommend/accept a director’s resignation. The Board will act on the Nominating and Governance Committee’s recommendation within 90 days from the date of the certification of election results and will publicly disclose its decision promptly thereafter.

 

Shares represented by your proxy will be voted by EA’s management “for” the election of the eight nominees recommended by EA’s Board of Directors unless you vote against any or all of such nominees or you mark your proxy to “abstain” from so voting.

 

What happens if one or more of the nominees is unable to stand for election?

 

The Board may reduce the number of directors or select a substitute nominee. In the latter case, if you have completed and returned your proxy card, Mr. Riccitiello and Mr. Brown shall have the discretion to vote your shares for a substitute nominee. They cannot vote for more than eight nominees.

 

How many votes are required to pass the amendments to the 2000 Equity Plan and 2000 Purchase Plan, and to ratify the Company’s selection of independent auditors?

 

The Equity Plan and Purchase Plan amendments, and the ratification of independent auditors must receive a “for” vote of a majority of the voting shares present at the meeting in person or by proxy and voting for or

against these proposals. Abstentions and broker non-votes will have no effect on the outcome of these proposals.

 

Where do I find the voting results of the meeting?

 

We will announce preliminary voting results at the meeting. We will also publish the final results in a quarterly report on Form 10-Q, which we will file with the SEC. Once filed, you can request a copy of the Form 10-Q by contacting our Investor Relations department at (650) 628-7352 or the SEC at (800) SEC-0330 for the location of its nearest public reference room. You can also get a copy on the Internet at http://investor.ea.com or through the SEC’s electronic data system called EDGAR at www.sec.gov.

 

Who will pay for this proxy solicitation?

 

We will bear the costs of soliciting proxies from our stockholders. These costs include preparing, assembling, printing, mailing and distributing the Notices, proxy statements, proxy cards and annual reports. If you choose to access the proxy materials and/or vote over the Internet, you are responsible for Internet access charges you may incur. If you choose to vote by telephone, you are responsible for telephone charges you may incur. In addition, some of our officers, directors, employees and other agents may also solicit proxies personally, by telephone and by electronic and regular mail, and we will pay these costs as well. EA will also reimburse brokerage houses and other custodians for their reasonable out-of-pocket expenses for forwarding proxy and solicitation materials to the beneficial owners of common stock.

 

Whom can I call with any questions about my shares?

 

If you hold shares in “street name”, you may contact your broker. If you don’t own your shares through a broker but are a shareholder of record, you may also call our transfer agent, Wells Fargo Shareowner Services, at 1-800-468-9716 (or 1-651-450-4064 for international callers) or visit their web site at www.wellsfargo.com/shareownerservices.

PROPOSALS TO BE VOTED ON

 

At the Annual Meeting, stockholders will elect eight directors to hold office for a one-year term until the next Annual Meeting (or until their respective successors are elected and qualified). All nominees have consented to serve a one-year term, if elected.

 

In May 2008, Timothy Mott announced his retirement from the Board, effective as of the commencement of the 2008 Annual Meeting, and therefore will not be standing for re-election. Accordingly, immediately upon Mr. Mott’s retirement at the commencement of the 2008 Annual Meeting, the authorized size of our Board will be reduced to eight directors.

 

The Board has nominated the following directors to stand for re-election:

 

 

In accordance with our bylaws, if EA’s Corporate Secretary has not received timely and proper notice from a stockholder indicating an intention to nominate one or more candidates to compete with the Board’s nominees in a director election, or if such stockholder has withdrawn all such nominations by the tenth day preceding the date on which we first mail our notice of meeting to stockholders, then the election of directors will be considered “uncontested”. We did not receive notice from a stockholder indicating an intention to nominate one or more candidates for election at the 2008 Annual Meeting, therefore the 2008 election will be uncontested. As such, each nominee must receive more votes cast “for” than “against” his or her re-election in order to be re-elected to the Board. Shares represented by your proxy will be voted by the proxy holders “for” the election of the eight nominees recommended by EA’s Board of Directors unless you vote “against” any or all of such nominees or you mark your proxy to “abstain” from so voting.

 

In accordance with our Corporate Governance Guidelines, the Board expects a director to tender his or her resignation if he or she fails to receive the required number of votes for re-election in an uncontested election. The Board shall nominate for election or re-election as director only candidates who have previously tendered or, in the case of candidates who have not yet become members of the Board, have agreed to tender promptly following the annual meeting at which they are elected or re-elected as director, irrevocable resignations that will be effective upon (i) a failure to receive the required majority vote at the next annual or special meeting at which they face re-election in an uncontested election, and (ii) Board acceptance of such resignation. In addition, the Board shall fill director vacancies and new directorships only with candidates who agree to tender, promptly following their appointment to the Board, the same form of irrevocable resignation tendered by other directors in accordance with these guidelines.

 

If an incumbent director fails to receive the required majority vote in an uncontested election, the Nominating and Governance Committee will act on an expedited basis to determine whether to accept the director’s resignation and will submit such recommendation for prompt consideration by the Board. The Board expects the director whose resignation is under consideration to abstain from participating in any decision regarding that resignation. The Nominating and Governance Committee and the Board may consider any factors they

deem relevant in deciding whether to recommend/accept a director’s resignation. The Board will act on the Nominating and Governance Committee’s recommendation within 90 days from the date of the certification of election results and will publicly disclose its decision promptly thereafter.

 

The Board recommends a vote FOR each of the nominees.

 

Each of the following directors, other than Mr. Mott, has been nominated for re-election at the 2008 Annual Meeting. Mr. Mott will be retiring from the Board at the 2008 Annual Meeting.

 

Leonard S. Coleman
Director since 2001
Mr. Coleman, age 59, served as Senior Advisor to Major League Baseball from 1999 until 2005 and, from 2001 to 2002, was the Chairman of ARENACO, a subsidiary of Yankees/Nets. Mr. Coleman was President of The National League of Professional Baseball Clubs from 1994 to 1999, having previously served since 1992 as Executive Director, Market Development of Major League Baseball. Mr. Coleman serves on the Board of Directors of the following public companies: Avis Budget Group; Churchill Downs Inc.; H.J. Heinz Corporation; and Omnicom Group Inc.

 

Gary M. Kusin
Director since 1995; Lead Director since 2006
Mr. Kusin, age 57, has been a Partner at TPG (formerly Texas Pacific Group) since June 2006. He served as the President and Chief Executive Officer of Fedex Kinko’s Office and Print Services, an operating division of Fedex, Inc. from August 2001 until February 2006. Fedex Kinko’s is a leading provider of document solutions and business services. From September 1998 to July 2001, he was the Chief Executive Officer of HQ Global Workplaces, Inc., a global leader in office outsourcing. Prior to September 1998, Mr. Kusin was co-founder and Chairman of Kusin Gurwitch Cosmetics, LLC and co-founder and President of Babbages, Inc. Mr. Kusin serves on the Board of Directors of privately-held companies, including PETCO and Sabre Holdings.

 

Gregory B. Maffei
Director since 2003
Mr. Maffei, age 48, has served as President and Chief Executive Officer of Liberty Media Corporation, which owns electronic retailing, media, communications and entertainment businesses and investments, since February 2006. He joined Liberty Media in November 2005 as CEO-Elect. From June 2005 until November 2005, Mr. Maffei served as President and Chief Financial Officer of Oracle Corporation. From 2000 until June 2005, Mr. Maffei served as Chief Executive Officer of 360networks Corporation, a broadband telecom service provider, and also became Chairman of the Board of 360networks in 2002. Previously, Mr. Maffei was with Microsoft Corporation from 1993 to 2000, in several positions, including Senior Vice President, Finance and Administration and Chief Financial Officer. Mr. Maffei also served as Chairman of Expedia, Inc. from 1999 to 2002. Mr. Maffei serves on the Board of Directors of Liberty Media and the DIRECTV Group, Inc.

 

Timothy Mott
Director since 1990; Retiring at the 2008 Annual Meeting
Mr. Mott, age 59, has been Chairman of All Covered, a nationwide information technology outsourcing company focused on small and mid-size businesses, since June 2000 and has served as Chief Executive Officer since September 2006 (a position he had previously held from November 2001 to February 2004). At various times prior to 1999, Mr. Mott co-founded and was Chairman of Audible Inc., co-founded and was Chief Executive Officer and Chairman of Macromedia Inc., co-founded and was Senior Vice President of Electronic Arts, and was a member of the research staff at Xerox PARC. Other than in his role as a director of EA, Mr. Mott has had no operating involvement with EA since he ceased serving as an executive officer in 1990.

 

Vivek Paul
Director since 2005
Mr. Paul, age 49, has been a partner at TPG (formerly Texas Pacific Group) since October 2005. From July 1999 to September 2005, Mr. Paul served as Vice Chairman of the Board of Directors of Wipro, Ltd., a

provider of integrated business, technology and process solutions, and Chief Executive Officer of Wipro Technologies, Wipro’s global information technology, product engineering, and business process services segments. From January 1996 to July 1999, Mr. Paul was General Manager of Global CT Business at General Electric, Medical Systems Division. From March 1993 to December 1995, he served as President and Chief Executive Officer of Wipro GE Medical Systems Limited. Mr. Paul holds a Bachelor of Engineering from the Birla Institute of Technology and Science, and an M.B.A. from the University of Massachusetts, Amherst.

 

Lawrence F. Probst III
Director since 1991
Mr. Probst, age 58, has been employed by EA since 1984. He has served as Chairman of the Board since July 1994 and, from May 1991 until April 2007, also served as our Chief Executive Officer. Previously Mr. Probst served as President from 1991 until 1998 and Senior Vice President of EA Distribution from 1987 to 1991. Mr. Probst holds a B.S. degree from the University of Delaware.

 

John S. Riccitiello
Director since 2007
Mr. Riccitiello, age 48, has served as Chief Executive Officer and a director of EA since April 2007. Prior to re-joining EA, he was a co-founder and Managing Partner at Elevation Partners, a private equity fund. From October 1997 to April 2004, Mr. Riccitiello served as President and Chief Operating Officer of EA. Prior to joining EA, Mr. Riccitiello served as President and Chief Executive Officer of the worldwide bakery division at Sara Lee Corporation. Before joining Sara Lee, he served as President and Chief Executive Officer of Wilson Sporting Goods Co. and has also held executive management positions at Haagen-Dazs, PepsiCo, Inc. and The Clorox Company. Mr. Riccitiello holds a B.S. degree from the University of California, Berkeley.

 

Richard A. Simonson
Director since 2006
Mr. Simonson, age 48, has served as Executive Vice President and Chief Financial Officer of Nokia Corporation, a manufacturer of mobile devices and a leader in mobile network equipment, solutions and services, since 2004. From 2001 until 2003, Mr. Simonson served as Vice President & Head of Customer Finance of Nokia. In 2001, Mr. Simonson was Managing Director of the Telecom & Media Investment Banking Group of Barclays Capital. Prior to joining Barclays Capital, Mr. Simonson spent 16 years at Bank of America Securities where he held various positions, including Managing Director & Head of Global Project Finance, Global Corporate & Investment Bank, San Francisco and Chicago. Mr. Simonson holds a B.S. degree from the Colorado School of Mines and an M.B.A. from Wharton School of Business at the University of Pennsylvania.

 

Linda J. Srere
Director since 2001
Ms. Srere, age 52, is currently a marketing and advertising consultant. Previously, Ms. Srere was President of Young & Rubicam Advertising. Since 1994, Ms. Srere held many positions with Young & Rubicam Inc. (“Y&R”), including Vice Chairman and Chief Client Officer, Executive Vice President and Director of Business Development, Group Managing Director, and in 1997, was named Chief Executive Officer of Y&R’s New York office, becoming the first female CEO in the company’s 75-year history. Ms. Srere also serves on the Board of Directors of Universal Technical Institute, Inc., a technical education provider.

 

Our Board has determined that each of our non-employee directors qualifies as an “independent director” as that term is used in the NASDAQ Marketplace Rules. Mr. Probst, who served as our CEO through the end of fiscal 2007, and Mr. Riccitiello, our current CEO, do not qualify as independent. The NASDAQ Marketplace Rules have both objective tests and a subjective test for determining who is an “independent director”. The objective tests state, for example and among other things, that a director is not considered independent if he or she is an employee of the Company or is a partner in or executive officer of an entity to which the Company made, or from which the Company received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that year. The subjective test states that an

independent director must be a person who lacks a relationship that, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The Board has not established categorical standards or guidelines to make these subjective determinations, but considers all relevant facts and circumstances.

 

In addition to the board-level standards for director independence, the directors who serve on the Audit Committee each satisfy standards established by the SEC providing that to qualify as “independent” for the purposes of membership on that Committee, members of audit committees may not accept directly or indirectly any consulting, advisory, or other compensatory fee from us other than their director compensation.

 

The Board meets on a fixed schedule four times each year and also occasionally holds special meetings and acts by written consent. In fiscal 2008, the Board met eleven times. At each regularly scheduled meeting, the independent members of the Board meet in executive session separately without management present. A Lead Director, elected by the independent directors, is responsible for chairing executive sessions of the Board and other meetings of the Board in the absence of the Chairman of the Board, serving as a liaison between the Chairman of the Board and the other independent directors, and overseeing the Board’s stockholder communication policies and procedures (including, under appropriate circumstances, meeting with stockholders). Our Lead Director may also call meetings of the independent directors. The independent directors of the Board have chosen Gary Kusin, our current Lead Director, to continue serving as Lead Director for an additional one-year term ending with our 2009 Annual Meeting of Stockholders.

 

The Board currently has three committees, each of which operates under a charter approved by the Board: the Audit Committee; the Compensation Committee; and the Nominating and Governance Committee. The Board of Directors amended and restated the Audit Committee’s charter in May 2006, amended the Compensation Committee’s charter in November 2006, and adopted the Nominating and Governance Committee’s charter in May 2003. Copies of the charters of each Committee may be found in the Investor Relations portion of our website at http://investor.ea.com. In accordance with the charters for each, and with current regulatory requirements, all members of these Committees are independent directors. During fiscal 2008, each director participated in at least 75% of all Board meetings and Committee meetings held during the period for which he or she was a member.

 

From July 26, 2007 (the date of the most recent Board election and beginning of the current Board year) through June 17, 2008, the Committee members were as follows:

 

July 2007 — July 2008 Committee Assignments

 

 

Based on the recommendation of the Nominating and Governance Committee, and subject to the re-election of each of the directors named below, the Board expects Committee assignments following the 2008 Annual Meeting to be as follows:

 

July 2008 — July 2009 Committee Assignments

 

 

The Audit Committee assists the Board in its oversight of the Company’s financial reporting and other matters, and is directly responsible for the appointment, compensation and oversight of our independent auditors. The Audit Committee is comprised of three directors, each of whom in the opinion of the Board of Directors meets

the independence requirements and the financial literacy standards of the NASDAQ Marketplace Rules, as well as the independence requirements of the SEC. In the opinion of the Board of Directors, Mr. Maffei and Mr. Simonson meet the criteria for an “audit committee financial expert” as set forth in applicable SEC rules. The Audit Committee met nine times in fiscal 2008. For further information about the Audit Committee, please see the Report of the Audit Committee of the Board of Directors below.

 

The Compensation Committee is responsible for setting the overall compensation strategy for the Company, for determining the compensation of the CEO (via recommendation to the Board) and other executive officers and for overseeing the Company’s equity incentive plans and other benefit plans. In addition, the Compensation Committee is responsible for reviewing and recommending to the Board compensation for non-employee directors. The Compensation Committee is comprised of three directors, each of whom in the opinion of the Board of Directors meets the independence requirements of the NASDAQ Marketplace Rules and qualifies as an “outside director” within the meaning of Section 162(m) of the Internal Revenue Code, as amended. The Compensation Committee met 17 times in fiscal 2008 and also acted frequently by written consent. For further information about the Compensation Committee, please see the Compensation Committee Report on Executive Compensation below.

 

The Nominating and Governance Committee is responsible for recommending to the Board nominees for election to the Board of Directors, for appointing directors to Board Committees, and for reviewing developments in corporate governance, reviewing and ensuring the quality of the Company’s succession plans, recommending formal governance standards to the Board, reviewing the performance of the CEO, and establishing the Board’s criteria for selecting nominees for director and for reviewing from time to time the appropriate skills, characteristics and experience required of the Board as a whole, as well as its individual members. The Nominating and Governance Committee is currently comprised of four directors, each of whom in the opinion of the Board of Directors meets the independence requirements of the NASDAQ Marketplace Rules. Following the 2008 Annual Meeting, we expect that the size of the Nominating and Governance Committee will be reduced to three directors. The Nominating and Governance Committee met four times in fiscal 2008.

 

In evaluating nominees for director to recommend to the Board, the Nominating and Governance Committee will take into account many factors within the context of the characteristics and needs of the Board as a whole. While the specific needs of the Board may change from time to time, all nominees for director are considered on the basis of the following minimum qualifications:

 

 

In determining whether to recommend a director for re-election, the Nominating and Governance Committee will also consider the director’s tenure on the Board, past attendance at meetings, participation in and contributions to the activities of the Board, the director’s continued independence (including any actual, potential or perceived conflicts of interest), as well as the director’s age and changes in his or her principal occupation or professional status.

have developed over the course of their service. Accordingly, consistent with past EA practice, the Nominating and Governance Committee will first consider recommending incumbent directors who wish to continue to serve on the Board for re-election at EA’s annual meeting of stockholders.

 

The Nominating and Governance Committee regularly seeks qualified candidates to serve as directors, particularly so in situations where it determines not to recommend an incumbent director for re-election, an incumbent director declines to stand for re-election, or a vacancy arises on the Board for any reason (including the resignation, retirement, removal, death or disability of an incumbent director or a decision of the directors to expand the size of the Board). The Nominating and Governance Committee may, in its discretion, use a variety of means to identify and evaluate potential nominees for director. The Nominating and Governance Committee has used, and may continue to use, qualified search firms and may also work with members of EA’s Human Resources Department to identify potential nominees meeting the Board’s general membership criteria discussed above. The Nominating and Governance Committee may also consider potential nominees identified by other sources, including current directors, senior management and stockholders. In determining whether to recommend a candidate to the Board of Directors, the Nominating and Governance Committee will consider the current composition of the Board and capabilities of current directors, as well as any additional qualities or capabilities considered necessary or desirable in light of the existing or anticipated needs of the Board.

 

The Nominating and Governance Committee will evaluate candidates proposed by stockholders under criteria similar to the evaluation of other candidates, except that it may also consider as one of the factors in its evaluation, the amount of EA voting stock held by the stockholder and the length of time the stockholder has held such stock. Stockholders wishing to submit candidates for consideration by the Nominating and Governance Committee may do so by writing to EA’s Corporate Secretary at 209 Redwood Shores Parkway, Redwood City, CA 94065, Attn: Director Nominations. To be considered by the Nominating and Governance Committee in connection with EA’s annual meeting of stockholders, recommendations must be submitted in writing to EA not less than 120 calendar days prior to the anniversary of the date on which EA’s proxy statement was released to stockholders in connection with the previous year’s annual meeting (on or about February 17, 2009, for our 2009 Annual Meeting of Stockholders). Recommendations should include: (1) the stockholder’s name, address and telephone number; (2) the amount and nature of record and/or beneficial ownership of EA securities held by the stockholder; (3) the name, age, business address, educational background, current principal occupation or employment, and principal occupation or employment for the preceding five full fiscal years of the proposed candidate; (4) a description of the qualifications and background of the proposed candidate that addresses the minimum qualifications and other criteria for Board membership approved by the Board from time to time and set forth in EA’s Corporate Governance Guidelines; (5) the amount and nature of record and/or beneficial ownership of EA securities held by the proposed candidate, if any; (6) a description of all arrangements or understandings between the stockholder and the proposed candidate relating to the proposed candidate’s candidacy; (7) a statement as to whether the proposed candidate would be considered an independent director under applicable NASDAQ Marketplace Rules; (8) the consent of the proposed candidate (a) to be named in the proxy statement relating to EA’s annual meeting of stockholders, and (b) to serve as a director if elected at such annual meeting; and (9) any other information regarding the proposed candidate that may be required to be included in a proxy statement by applicable SEC rules. The Nominating and Governance Committee may request any additional information reasonably necessary to assist it in assessing a proposed candidate.

 

Our Board of Directors has adopted, upon the recommendation of the Nominating and Governance Committee, a formal set of Corporate Governance Guidelines. A complete copy of the Corporate Governance Guidelines is available in the Investor Relations portion of our website at http://investor.ea.com. Our Corporate Governance Guidelines contain policies relating to:

 

 

 

Our Global Code of Conduct (which includes code of ethics provisions applicable to our directors, principal executive officer, principal financial officer, principal accounting officer, and other senior financial officers) is available in the Investor Relations section of our website at http://investor.ea.com. We will post amendments to our Global Code of Conduct in the Investor Relations section of our website. Copies of our charters and Global Code of Conduct are available without charge by contacting our Investor Relations department at (650) 628-7352.

 

Our directors are expected to make every effort to attend our annual meeting of stockholders. Seven of the nine directors who were elected at the 2007 Annual Meeting of Stockholders attended the meeting.

 

EA stockholders may communicate with the Board as a whole, with a committee of the Board, or with an individual director by sending a letter to EA’s Corporate Secretary at Electronic Arts Inc., 209 Redwood Shores Parkway, Redwood City, CA 94065, or by sending an email to StockholderCommunications@ea.com. All stockholder communications received will be handled in accordance with procedures approved by the independent directors serving on the Board. For further information regarding the submission of stockholder communications, please visit the Investor Relations portion of our website at http://investor.ea.com.

 

Our Compensation Committee is responsible for reviewing and recommending to our Board the compensation paid to our non-employee directors. Historically, our non-employee directors have been paid a mix of cash and equity compensation for their service as directors. During fiscal 2008, Mr. Riccitiello and Mr. Probst did not receive any additional compensation for their services as directors. The table below reflects the annualized components of cash compensation for directors other than Mr. Riccitiello and Mr. Probst that were in place during fiscal 2008. Because our Board year does not correspond to our fiscal year, actual amounts paid during fiscal 2008 were pro-rated based on the annualized figures in the following table (for more information

regarding the specific compensation received by each non-employee director during fiscal 2008 see the “Fiscal 2008 Director Compensation Table” below).

 

Fiscal 2008 Annualized Components of Non-Employee Director Cash Compensation

 

 

In addition, individual directors were eligible to earn up to $1,000 per day, with the approval of the Board of Directors, for special assignments, which may include providing advisory services to management in such areas as sales, marketing, public relations and finance (provided, however, no independent director is eligible for a special assignment if the assignment or payment for the assignment would prevent the director from being considered independent under applicable NASDAQ Marketplace or SEC rules). No directors earned any compensation for special assignments during fiscal 2008.

 

Stock Compensation

 

Non-employee directors are eligible to automatically receive an option grant to purchase 17,500 shares and 2,500 restricted stock units issued under the 2000 Equity Incentive Plan upon their initial appointment or election to the Board, and each continuing non-employee director is eligible to automatically receive an annual option grant to purchase 8,400 shares and 1,200 restricted stock units upon his or her election or re-election to the Board.

 

In fiscal 2008, annual option grants to purchase 8,400 shares of common stock were made under the Equity Plan to each of the directors (other than Mr. Probst and Mr. Riccitiello) who was re-elected at the 2007 Annual Meeting of Stockholders. All stock options were granted on July 26, 2007, the date of the directors’ re-election to the Board, at an exercise price of $50.65 per share. Each non-employee director was also granted 1,200 restricted stock units on the same date.

 

Under the Equity Plan, non-employee directors may elect to receive all or part of their cash compensation in the form of common stock. As an incentive for our non-employee directors to increase their stock ownership in EA, non-employee directors making such an election receive shares of common stock valued at 110% of the cash compensation they would have otherwise received.

 

Deferred Compensation Plan

 

We maintain a Deferred Compensation Plan (“DCP”) that allows our directors and certain employees, including our Named Executive Officers, to defer receipt of their salary into cash accounts that mirror the gains and/or losses of several different investment funds which correspond to the funds we have selected for our 401(k) plan. Participants may defer up to 75% of their salary and up to 100% of their bonuses and/or commissions until the date(s) they have specified. We are not required to make any contributions to the DCP and did not do so in fiscal 2008.

 

Stock Ownership Guidelines

 

Each non-employee director is required, within three years of becoming a director, to own shares of EA common stock having a value of at least 3 years’ annual retainer for service on the Board. As of June 1, 2008, each of our directors had either fulfilled their ownership requirements or had not yet reached three years of service.

 

The following table shows compensation information for each of our directors during fiscal 2008 (other than Mr. Riccitiello).

 

 

 

 

						Shares of EA Common Stock
Name		Cash Fees Earned ($)				Received in Lieu of Cash Fees (#)
M. Richard Asher(5)			16,250				358
Leonard S. Coleman			65,000				1,401
Vivek Paul			60,000				1,293
Richard A. Simonson			10,500				232
Linda J. Srere			70,625				1,522

 

 

The 2000 Equity Incentive Plan, which initially was approved by the stockholders on March 22, 2000, continues EA’s program of providing equity incentives to eligible employees, officers and directors. We offer these incentives in order to assist in recruiting, retaining and motivating qualified employees, officers and directors. Since the Equity Plan’s adoption, 76,400,000 shares of common stock have been reserved for issuance. The following summary of the proposed amendments to the Equity Plan is subject to the specific provisions contained in the full text of the Equity Plan, as proposed to be amended, which we have filed with the Securities and Exchange Commission along with this proxy statement. For more information regarding the Equity Plan, we urge you to read the full text of the Equity Plan, as proposed to be amended, or the summary of its material terms, as proposed to be amended, included as Appendix A of this proxy statement.

 

We are proposing amendments to the 2000 Equity Incentive Plan that would:

 

 

We continue to believe that alignment of the interests of our stockholders and our employees, officers and directors is best advanced through the issuance of equity incentives as a portion of their total compensation. In this way, we reinforce the link between our stockholders and our employees’, officers’ and directors’ focus on personal responsibility, creativity and stockholder returns. We also believe that delivering a portion of their total compensation in the form of long-term equity compensation helps encourage a long-term view in an industry that is subject to lengthy business cycles. Equity incentives such as stock options and restricted stock units also play an important role in our recruitment and retention strategies, as the competition for creative and technical talent and leadership in our industry is intense.

 

While equity is a strategic tool for recruitment and retention, we also carefully manage stock option and restricted stock unit issuances and strive to keep the dilutive impact of the equity incentives we offer within a reasonable range. Historically, we have made a significant portion of our equity grants in a given fiscal year in connection with our annual reviews and merit increases. Excluding stock options and restricted stock units we granted in connection with acquisitions, during fiscal 2008, a year in which our employee base grew by over 1,100 people, we granted stock options to purchase a total of 6,671,977 shares and restricted stock units to acquire a total of 2,951,743 shares. Together these stock option and restricted stock unit grants represent approximately 3% of our total shares outstanding. During fiscal 2007, we granted stock options and restricted stock units representing approximately 1.8% of our total shares outstanding. Going forward, we intend to continue to responsibly manage issuances of equity incentive awards under the Equity Plan.

 

The Equity Plan contains several features designed to protect stockholders’ interests. For example, the Equity Plan does not allow any options to be granted at less than 100% of fair market value, and the exercise price of outstanding options issued under the Equity Plan may not be reduced without stockholder approval. The Equity Plan does not contain an “evergreen” provision whereby the number of authorized shares is automatically increased on a regular basis. In addition, the Equity Plan prohibits us from loaning, or guaranteeing the loan of, funds to participants under the Equity Plan.

 

 

In May 2005, we began granting restricted stock units to certain of our U.S.-based employees, and in March 2006, we began offering restricted stock units to our employees throughout the world. We expect restricted stock, restricted stock units and stock options to remain important forms of equity incentive compensation. If approved by stockholders, the amendment would remove the specific limitation on the number of shares that may be granted as restricted stock or restricted stock units over the life of the Equity Plan (which is currently set at 11 million shares) and replace it with an alternate method of calculating the number of shares remaining available for issuance under the Equity Plan (sometimes referred to as a “fungible equity grant pool”). As proposed to be amended, each share subject to an option or stock appreciation award would reduce the number of shares available for issuance under Equity Plan by one (1) share, and each share

subject to a full value stock award (i.e., restricted stock or restricted stock units) would reduce the number of shares available for issuance by 1.82 shares. This change will provide us with greater flexibility to utilize the shares remaining available for issuance under the Equity Plan as either stock options, stock appreciation rights, restricted stock or restricted stock units. We believe it is essential to maintain a flexible equity incentive compensation program for new and existing employees, officers and directors in order to maximize our ability to recruit, retain and motivate key employees.

 

 

In May 2007, the Board unanimously approved, subject to stockholder approval, the Electronic Arts Inc. Executive Bonus Plan (the “Executive Bonus Plan”). The Executive Bonus Plan was subsequently approved by the stockholders at the 2007 Annual Meeting of Stockholders. The Executive Bonus Plan allows cash bonuses paid under it to be considered “performance-based compensation” within the meaning of Section 162(m) of the Code and therefore fully deductible by Electronic Arts for federal income tax purposes. We are proposing to amend the Equity Plan to add additional performance measures to the list of performance measures for use in granting performance-based equity under the Equity Plan. The additional performance measures to be added under the Equity Plan include profit before tax and other performance factors consistent with the performance factors available under the Executive Bonus Plan. This amendment will allow us to apply consistent performance measures to all forms of performance-based compensation, including performance-based equity compensation.

 

 

The Equity Plan currently has a ten-year term and is set to expire in March 2010. Rather than adopt a new equity incentive plan prior to the expiration of the Equity Plan, we believe it is more efficient to simply extend the current term for an additional ten years. The ten-year term was initially included in the Equity Plan to help meet the requirements for granting incentive stock options (“ISOs”) under the Code. To date, we have not granted ISOs under the Equity Plan nor do we expect to grant ISOs in the future. While we will retain the ability to grant ISOs under the Equity Plan, we will be restricted from doing so if we do not receive stockholder approval to amend the Equity Plan at least once every ten years.

 

Plan Benefits

 

Except for the automatic stock option and restricted stock units grants to non-employee directors, the amount and timing of awards granted under the Equity Plan are determined in the sole discretion of the administrator and therefore cannot be determined in advance. The future awards that would be received under the Equity Plan by executive officers and other employees are discretionary and are therefore not determinable at this time.

 

Required Vote and Board of Directors’ Recommendation

 

Approval of this proposal requires the affirmative vote of a majority of the voting shares present at the meeting in person or by proxy and voting for or against the proposal.

 

The Board recommends a vote FOR the amendments to the 2000 Equity Incentive Plan.

 

The 2000 Employee Stock Purchase Plan, which initially was approved by the stockholders on July 27, 2000, provides our employees with a convenient means of purchasing equity in the Company through payroll deductions. It also provides an incentive for continued employment. Since its adoption, 8,300,000 shares of common stock have been reserved for issuance under the Purchase Plan.

 

Since the adoption of the Purchase Plan, we have experienced significant growth in the number of employees who elect to participate in the Purchase Plan. The following table presents information since the beginning of fiscal 2006 relating to the aggregate number of shares purchased under the Purchase Plan, as well as the number of employees who have participated in the Purchase Plan.

 

 

 

 

We are proposing amendments to the 2000 Employee Stock Purchase that would:

 

 

The proposed amendment would increase the number of shares authorized under the Purchase Plan by 1,500,000 to a total of 9,800,000, an amount that we expect will continue to permit all current and potential future employees to fully participate in the Purchase Plan at least through fiscal 2009.

 

 

The proposed amendments would remove the ten-year term of the Purchase Plan, which is set to expire in 2010. Rather than adopt a new employee stock purchase plan, we believe it is more efficient to simply extend the life of the Purchase Plan by removing the ten-year term.

 

For more information about the Purchase Plan, we urge you to read the summary of its material terms included as Appendix B to this proxy statement.

 

Required Vote and Board of Directors’ Recommendation

 

Approval of this proposal requires the affirmative vote of a majority of the voting shares present at the meeting in person or by proxy and voting for or against the proposal.

 

The Board recommends a vote FOR the amendments to the 2000 Employee Stock Purchase Plan.

 

KPMG LLP has audited the financial statements of EA and its consolidated subsidiaries since fiscal 1987. The Board, through the Audit Committee, has appointed KPMG LLP as EA’s independent auditors for fiscal 2009. The Audit Committee and the Board believe that KPMG LLP’s long-term knowledge of EA and its subsidiaries is valuable to the Company. Representatives of KPMG LLP have direct access to members of the Audit Committee and the Board. We expect one or more representatives of KPMG LLP to attend the Annual Meeting in order to respond to appropriate questions from stockholders, and to make a statement if they desire to do so.

 

Ratification of the appointment of KPMG LLP as our independent auditors is not required by our bylaws or otherwise. The Board of Directors has determined to submit this proposal to the stockholders as a matter of good corporate practice. If the stockholders do not ratify the appointment, the Audit Committee will review their future selection of auditors. Even if the appointment is ratified, the Audit Committee may, in its discretion, direct the appointment of different independent auditors at any time during the year if they determine that such a change would be in the best interests of the Company and the stockholders.

 

Fees of Independent Auditors

 

The aggregate fees billed for the last two fiscal years for each of the following categories of services are set forth below:

 

 

 

 

Services Provided by the Independent Auditors

 

The Audit Committee is required to pre-approve the engagement of, and has engaged, KPMG LLP to perform audit and other services for the Company and its subsidiaries. The Company’s procedures for the pre-approval by the Audit Committee of all services provided by KPMG LLP comply with SEC regulations regarding pre-approval of services. Services subject to these SEC requirements include audit services, audit-related services, tax services and other services. The audit engagement is specifically approved and the auditors are retained by the Audit Committee. In some cases, pre-approval for a particular category or group of services is provided by the Audit Committee for up to a year, subject to a specific budget and to regular management reporting. In other cases, the Chairman of the Audit Committee has the delegated authority from the Audit Committee to pre-approve additional services up to a specified dollar limit, and such pre-approvals are then communicated to the full Audit Committee.

 

The Audit Committee considered and determined that fees for services other than audit and audit-related services are compatible with maintaining KPMG LLP’s independence.

 

Required Vote and Board of Directors’ Recommendation

 

Approval of this proposal requires the affirmative vote of a majority of the voting shares present at the meeting in person or by proxy and voting for or against the proposal.

 

The Board recommends a vote FOR the ratification of KPMG LLP as our independent auditors for fiscal 2009.

 

The following Report of the Audit Committee shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission nor shall this information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that EA specifically incorporates it by reference into a filing.

 

The Audit Committee of the Board of Directors operates under a written charter, which was most recently amended in May 2006. The Audit Committee is comprised of three non-employee directors, each of whom in the opinion of the Board of Directors meets the current independence requirements and financial literacy standards of the NASDAQ Marketplace Rules, as well as the independence requirements of the Securities and Exchange Commission. During fiscal 2008, the Audit Committee consisted of Gregory B. Maffei, Vivek Paul and Richard A. Simonson. In the opinion of the Board of Directors, Mr. Maffei and Mr. Simonson each meet the criteria for a “financial expert” as set forth in applicable SEC rules as well as the above-mentioned independence requirements.

 

EA’s management is primarily responsible for the preparation, presentation and integrity of the Company’s financial statements. EA’s independent registered public accounting firm, KPMG LLP (“independent auditors”), is responsible for performing an independent audit of the Company’s (i) financial statements and expressing an opinion as to the conformity of the financial statements with generally accepted accounting principles, and (ii) internal control over financial reporting in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States) and issuing a report thereon.

 

The function of the Audit Committee is to assist the Board of Directors in its oversight responsibilities relating to the integrity of EA’s accounting policies, internal controls and financial reporting. The Audit Committee reviews EA’s quarterly and annual financial statements prior to public earnings releases and submission to the SEC; reviews and evaluates the performance of EA’s internal audit function; reviews and evaluates the performance of EA’s independent auditors; consults with the independent auditors and EA’s internal audit function regarding internal controls and the integrity of the Company’s financial statements; assesses the independence of the independent auditors; and is responsible for the selection of the independent auditors. In this context, the Audit Committee has met and held discussions with members of management, EA’s internal audit function and the independent auditors. Management has represented to the Audit Committee that the Company’s consolidated financial statements were prepared in accordance with accounting principles generally

accepted in the United States, and the Audit Committee has reviewed and discussed the consolidated financial statements with management and the independent auditors. Management has also represented to the Audit Committee that the Company’s internal control over financial reporting was effective as of the end of the Company’s most recently-completed fiscal year, and the Audit Committee has reviewed and discussed the Company’s internal control over financial reporting with management and the independent auditors. The Audit Committee also discussed with the independent auditors matters required to be discussed by Statement on Auditing Standards No. 61 (Communications with Audit Committees), as amended, including the quality and acceptability of the Company’s financial reporting process and internal controls. The Audit Committee has also discussed with the Company’s independent auditors the overall scope and plans for their annual audit and reviewed the results of that audit with management and the independent auditors.

 

In addition, the Audit Committee has discussed with the independent auditors the auditors’ independence from the Company and its management, including the matters in the written disclosures required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees). The Audit Committee has also considered whether the provision of any non-audit services (as described above under “Proposal 4. Ratification of the Appointment of KPMG LLP, Independent Registered Public Accounting Firm” — “Fees of Independent Auditors”) and the employment of former KPMG LLP employees by the Company is compatible with maintaining the independence of KPMG LLP.

 

The members of the Audit Committee are not engaged in the practice of auditing or accounting. In performing its functions, the Audit Committee necessarily relies on the work and assurances of the Company’s management and independent auditors.

 

In reliance on the reviews and discussions referred to in this report and in light of its role and responsibilities, the Audit Committee recommended to the Board of Directors that the audited financial statements of the Company as of and for each of the last three years ended March 31, 2008 be included for filing with the SEC in the Company’s Annual Report on Form 10-K for the year ended March 31, 2008. The Audit Committee has also approved the selection of KPMG LLP as the Company’s independent auditors for fiscal 2009.

 

AUDIT COMMITTEE

 

Gregory B. Maffei (Chairman)

 

Vivek Paul

 

Richard A. Simonson

 

 

The following table shows, as of June 1, 2008, the number of shares of our common stock owned by our directors, executive officers named in the Summary Compensation Table below, our current directors and executive officers as a group, and beneficial owners known to us holding more than 5% of our common stock. As of June 1, 2008, there were 318,474,411 shares of our common stock outstanding. Except as otherwise indicated, the address for each of our directors and executive officers is c/o Electronic Arts Inc., 209 Redwood Shores Parkway, Redwood City, CA 94065.

 

 

 

 

This Compensation Discussion and Analysis describes our executive compensation program for fiscal 2008. We use this program to attract, motivate, reward, and retain the key individuals that lead our business.

 

This discussion describes our executive compensation program and addresses how we made compensation decisions in fiscal 2008 for our:

 

 

Collectively, these individuals are referred to in this discussion as the “Named Executive Officers.” The compensation of the Named Executive Officers is set forth in the compensation tables that follow this Compensation Discussion and Analysis.

 

Fiscal Year 2008 Overview

 

In February 2007, we entered into an agreement with Mr. Riccitiello, under which he was appointed as our Chief Executive Officer effective April 2, 2007, the beginning of fiscal 2008. During the year we launched several new initiatives that resulted in a comprehensive review and re-evaluation of our executive compensation program and had a significant impact on individual compensation decisions. In addition, during fiscal 2008, we made several other changes to our senior management team, hiring four new executive officers (some of whom did not join the Company until fiscal 2009) and promoting others into a number of newly-created leadership positions within our reorganized operating structure. Most notably, we initiated the reorganization of the Company into four operating “labels” — EA Games, EA SPORTS, The Sims and EA Casual Entertainment — and an additional group, Global Publishing, that works closely with the labels and which operates in North America, Europe and Asia.

 

To support the objectives of the reorganization, we reoriented our use of cash and equity compensation to better reflect our new operating structure and to ensure that our incentive pay arrangements are properly aligned to help us achieve our financial and operating objectives. Accordingly, beginning in fiscal 2009, the annual incentive plans for our employees, including our executives, have been revised to provide for cash bonus payments that are directly tied to the Company’s financial performance as a whole (as well as, in certain cases, the financial performance of an employee’s label, studio, or other relevant business unit) and the employee’s individual performance. In addition, to strengthen the relationship between the Company’s operating performance and our employees’ long-term incentives, in May 2008, we granted performance-based restricted stock units to a group of our senior executive officers, including our Named Executive Officers (other than Mr. Jenson), in lieu of annual stock option grants.

 

The impact of these changes on the compensation we offer our executive officers, including the Named Executive Officers, is described in a separate section of this Compensation Discussion and Analysis.

 

Compensation Philosophy

 

We operate in an intensely competitive business environment, which is characterized by ongoing technological advances, constantly changing and difficult-to-predict consumer tastes and preferences, and the emergence of new competitors and technologies. The market for technical, creative, marketing, and other personnel essential to the development, marketing, and sales of our products is extremely competitive. Similarly, the market for

talented executives with the skills, experience, integrity and dedication necessary to oversee a dynamic organization and the vision to anticipate and respond to emerging market developments is equally competitive.

 

Our success as a global leader in the interactive entertainment industry depends heavily on attracting, motivating, and rewarding a highly-skilled and experienced management team. At the same time, our leading position within the interactive entertainment industry makes us a prime target for our competitors (which range from very small start-up companies with limited resources to very large, diversified corporations with greater financial and marketing resources than ours) seeking to recruit executives and key creative talent.

 

Accordingly, it is imperative that our executive compensation program be competitive with the organizations with which we compete for executive talent, so that we are able to attract, motivate, reward, and retain the individuals that we believe are capable of leading the Company. At the same time, our program must support our strategic business objectives and promote the short-term and long-term profitable growth of the Company. To achieve these dual objectives, our compensation philosophy is predicated on two basic principles:

 

 

Further, we believe that an executive officer’s compensation must be appropriate in light of his or her experience, responsibilities, and performance. Our executive compensation program is designed to be consistent with this philosophy and to maintain parity between the compensation of our executive officers.

 

Compensation-Setting Process

 

The Compensation Committee of the Board is responsible for establishing the Company’s compensation philosophy and making the pay decisions for our executive officers. The Committee’s scope of authority is set forth in a written charter and includes the oversight and administration of all compensation, equity, and employee benefit plans and programs, including the annual bonus and equity compensation plans for executive officers.

 

The Committee regularly meets on a quarterly basis and holds additional meetings as needed during the year. The Committee also takes action by written consent, often after informal telephone discussions among the Committee members. During fiscal 2008, the Committee met 17 times, four of which were regularly-scheduled quarterly meetings and the remainder of which were in special sessions to consider a variety of items, many of which emanated from the reorganization discussed above under the heading “Fiscal Year 2008 Overview”. Among other things, the Committee addressed the Company’s compensation philosophy, the compensatory aspects of strategic transactions and acquisitions, the adoption of the Key Employee Continuity Plan, the adoption of new annual cash bonus plans, the adoption of a targeted equity-based retention program, and the terms and conditions of the compensation arrangements for new, departing, and continuing executives.

 

For its regular meetings, the Committee maintains a calendar to help guide the meeting agendas and to ensure fulfillment of the various responsibilities outlined in the Committee’s charter. In fiscal 2008, this calendar included a comprehensive review of the Company’s total rewards programs, review of the compensation levels for members of our Board, review and approval of all executive employment offers and promotions, review and approval of the fiscal 2007 bonus payments, and a review of all actions taken by management using authority delegated by the Committee.

 

In fiscal 2008, the Committee reviewed and approved the base salaries (or, as appropriate, the base salary adjustments), target bonus opportunities, and equity awards of each of our executive officers, including the Named Executive Officers, other than Mr. Riccitiello, whose base salary, target bonus opportunity, and equity award were developed and recommended by the Committee and approved by the Board in connection with his appointment as Chief Executive Officer.

For additional information about the Compensation Committee, see the section entitled “Board, Board Meetings and Committees” set forth above in this proxy statement.

 

Compensation Consultants

 

The Committee has the authority to engage the services of outside advisors. During fiscal 2008, the Committee engaged Compensia, Inc., a national compensation consulting firm, to assist with its analysis and review of the compensation of our executive officers and other aspects of our total compensation strategy. Compensia also advised the Committee with respect to the design and implementation of the Electronic Arts Executive Bonus Plan.

 

Compensia works directly with the Committee Chair and Committee members and sends all invoices, including descriptions of services rendered, to the Committee Chair for review and payment approval. Compensia performed no work for our management during fiscal 2008.

 

From time to time, our management separately engages consulting services in connection with our compensation practices. In fiscal 2008, we retained Frederic W. Cook & Co. to assist management and the Committee with a review of compensation levels for members of the Board, and Mercer Human Resources Consulting to assist management and the Committee with a review of the Company’s Key Employee Continuity Plan.

 

Role of Management

 

Some of our executives are involved in formulating executive compensation recommendations for the Committee and/or the Board. Ms. Gabrielle Toledano, our Executive Vice President of Human Resources, is responsible for conducting an annual analysis of market trends, providing documentation of individual executive performance, and creating initial recommendations of base salary adjustments, potential bonus payments, and potential equity awards for our executive officers. To assist in the development of these initial recommendations, our Human Resources Department participates in several comprehensive executive compensation surveys, including the IPAS Technology Survey and the Radford High Technology Executive Compensation Survey. Mr. Riccitiello reviews and provides input on these recommendations (except with respect to his own compensation) prior to and during review by the Committee.

 

Ms. Toledano also oversees the preparation of the Committee’s meeting materials, works with the Committee Chair to set the meeting agenda, and attends all Committee meetings. In addition, Mr. Riccitiello regularly attends Committee meetings (except when his own compensation is being discussed).

 

Competitive Positioning

 

In fiscal 2008, at the direction of the Committee, Compensia conducted a comprehensive analysis of our executive compensation program. This analysis was developed using data from the IPAS Technology and Radford High Technology Executive Compensation surveys, as well as publicly-available compensation information from a group of peer companies selected by our management with input from the Committee and Compensia. For fiscal 2008, this group of peer companies was updated from the fiscal 2007 peer group to (a) better focus on companies of comparable size, geographic markets, financial performance, and expected growth rates and (b) place a greater emphasis on companies that compete with us for executive talent in the media and entertainment industries.

 

The fiscal 2008 group of peer companies (the “Peer Group”) consisted of:

 

Compensia compared each of our executive-level positions to similar positions as reflected in the survey data and the Peer Group information to establish base salary, target cash and equity incentive awards, and target total cash compensation ranges. This analysis was reviewed by Ms. Toledano and our Human Resources Department with Mr. Riccitiello for each executive-level position, and with the Committee for our Chief Executive Officer and other positions at or above the level of Senior Vice President.

 

The Committee used the survey data and the Peer Group information to validate the range of competitive pay for the business sectors in which we compete for executive talent. Based on its assessment of the competitive marketplace, the Company’s long-term strategic objectives, our need for a strong management team to help us achieve our operating objectives, and our desire to minimize retention risk, the Committee referenced the 50th to 75th percentile of the combined survey data and Peer Group information as the relevant range for base salaries, target bonus opportunities, and total cash compensation on average, and the 75th percentile for equity awards, for our executive officers.

 

During fiscal 2008, these base salary, target bonus opportunity, and target total cash compensation ranges were considered by management in formulating individual compensation recommendations for the Committee to consider. These ranges, together with management’s recommendations, served as a reference point for the Committee in reviewing and approving compensation determinations. Because these decisions were influenced by the Company’s actual financial and operational results, as well as each executive officer’s individual performance, his or her total cash compensation, and any individual compensation component, may be within, below, or above the market range for his or her position.

 

The market ranges established by Compensia also helped the Committee in assessing the competitive placement of our executive officers’ total direct compensation for fiscal 2008. The Committee’s assessment of the placement of an individual executive officer’s compensation relative to market range took into consideration the scope, complexity, and responsibility of the executive’s position in relation to positions in the data sources. In each case, the Committee exercised its judgment in interpreting the market ranges. An executive officer’s actual positioning relative to that market range was a result of the Committee’s assessment of the Company, business, and individual performance factors described below. In setting actual compensation, the Committee also considered each executive officer’s responsibility level, individual performance, and the Company’s actual financial and operational results for the year (as compared to the pre-established objectives and potential performance targets for the subsequent year). In addition, the Committee also compared the compensation of the executive officers with each other, as well as the highest-paid employees at the Company, to monitor internal pay equity. While the Committee does not use fixed ratios when conducting this analysis, typically it tries to ensure that the total compensation paid to each of our executive officers is reasonable when compared to our employees generally.

 

Compensation Elements

 

Our executive compensation program is comprised of three principal components: base salary; an annual cash bonus; and equity awards.

 

Base Salary

 

We believe that a competitive base salary is the essential foundation to providing an attractive total compensation package for our executives. Typically, base salaries are initially set to reflect an executive officer’s position, responsibilities, and experience, with subsequent adjustments based largely on individual performance and other factors as described below.

 

The Committee reviews and approves the base salaries for our executive officers, including the Named Executive Officers, as part of its annual compensation review, considering a number of factors, including the position’s complexity and level of responsibility, the position’s importance in relation to other executive positions, and an assessment of the executive’s performance. As previously described, Mr. Riccitiello, assisted by Ms. Toledano, annually performs an individual performance review for each executive officer, which is then provided to the Committee. The Nominating and Governance Committee of the Board, with the assistance of Ms. Toledano, reviews Mr. Riccitiello’s performance, which review is then provided to the Committee. In

addition, as noted above, the Committee considers the third quartile of base salaries as reflected in the survey data and Peer Group information.

 

During its May 2007 compensation review, the Committee decided to adjust the base salaries of our executive officers, including the Named Executive Officers (other than Mr. Riccitiello and Mr. Moore), for fiscal 2008. These base salary increases were pro-rated to account for the additional time between the last annual review on February 15, 2006 and the new annual review effective date of June 1, 2007. The increases were, at 4.6% in the aggregate, approximately the same on a percentage basis as the annual base salary increases received by our non-executive employees for the year.

 

In addition, from time to time, the Committee may review and adjust the base salaries of certain executive officers at its discretion, including upon a change in an executive’s role or responsibilities and to ensure internal pay equity with other executive officers at a comparable level in the Company. During fiscal 2008, in connection with the Company’s reorganization, the Committee approved base salary increases for certain executive officers so that their compensation levels would be consistent with their peers in other areas of our business, taking into consideration various factors such as differences in experience.

 

Accordingly, during fiscal 2008 the Committee increased Mr. Jenson’s base salary by 4.5% to $595,204; Dr. Florin’s base salary by 3.1% to 752,281 Swiss francs; and Mr. Gibeau’s base salary to $500,000 which reflected an annual merit increase of 3.2% and a mid-year adjustment of 7.6% after he moved into the position of President of EA Games label. Mr. Riccitiello’s base salary was set at $750,000 when he was appointed Chief Executive Officer, effective April 2, 2007.

 

As part of its May 2008 compensation review, the Committee decided to adjust the base salaries of our executive officers, including the Named Executive Officers, effective June 1, 2008, for fiscal 2009. These adjustments, which were approximately 4% in the aggregate and were approximately the same on a percentage basis as other executives and employees, will be reflected as part of our fiscal 2009 compensation disclosure.

 

Annual Cash Bonus

 

We use cash incentives to deliver competitive total cash compensation to our executive officers that is linked to the achievement of both the Company’s annual financial objectives and individual performance objectives. For fiscal 2008, the Committee reviewed and approved target bonus opportunities for each executive officer, including the Named Executive Officers (expressed as a percentage of that executive’s base salary), intended to deliver target total cash compensation (base salary plus target bonus opportunity) in the third quartile of annual incentive compensation as reflected in the survey and Peer Group data. Mr. Riccitiello’s target bonus opportunity for fiscal 2008, which was 100% of his base salary, was established as part of the terms of his initial employment when he was appointed Chief Executive Officer effective April 2, 2007.

 

As with base salaries, the Committee seeks to deliver total cash compensation at levels within the third quartile to reflect target cash compensation opportunities that it believes are necessary to attract, motivate, reward, and retain highly-qualified executives while also allowing flexibility to recognize executives such as those who have additional responsibilities or skills which are critical to the Company’s success.

 

During fiscal 2008, the annual bonuses for our executive officers were determined in accordance with two separate annual incentive plans, the Electronic Arts Executive Bonus Plan (the “Executive Bonus Plan”) and a discretionary bonus plan in which both executive and non-executive employees were eligible to participate (the “Discretionary Bonus Program”). The Executive Bonus Plan was a cash bonus plan pursuant to which bonuses awarded to participating executive officers are intended to qualify as deductible “performance-based compensation” within the meaning of Section 162(m) of the Internal Revenue Code.

 

The Executive Bonus Plan required that the Company achieve at least 75% of a pre-established corporate financial performance metric in order to fund a pool from which participating executive officers were eligible to receive a bonus payment. Upon funding of the bonus pool, the Committee then determined the actual bonus payment of each participating executive officer, considering his or her individual target bonus opportunity and the factors set out in the Discretionary Bonus Program. Under the Executive Bonus Plan, the Committee could

award a bonus payment at a participating executive officer’s target bonus level or at a lesser amount. However, the Committee could not increase the bonus payment above the target bonus opportunity level.

 

In May 2007, the Committee established the corporate financial performance metric as a measure of non-GAAP net income, adjusted to reflect, among other things, the impact of foreign exchange fluctuations, stock-based compensation, acquisition-related expenses, restructuring charges, and tax rate fluctuations, and to neutralize the impact of bonus accruals. Consistent with its historical practice, the Committee selected this metric for fiscal 2008 as a key measure of our ability to execute on our operating plan for the year and sustain achievement of the Company’s longer-term financial objectives. The non-GAAP net income fiscal 2008 target level (adjusted as described above) was directly tied to the Company’s fiscal 2008 internal operating plan and corresponded to the high end of the financial guidance for fiscal 2008 that the Company publicly disclosed in May 2007. The Committee set this target at what it considered to be an aggressive level to motivate high business performance and support our attainment of the Company’s longer-term financial objectives. Consequently, this target was designed to be challenging to attain. For fiscal 2008, the Company generated non-GAAP net income, adjusted as described above, sufficient to meet the minimum funding requirement under the Executive Bonus Plan.

 

The Committee then used the factors set forth in the Discretionary Bonus Program to determine the amount of each participating executive officer’s actual bonus payment. Under the Discretionary Bonus Program, bonus payments for fiscal 2008 were determined by taking into consideration:

 

 

In fiscal 2008, the Company exceeded its internal net revenue target and made significant progress on a number of strategic initiatives to help position us for long-term growth, but came in below its non-GAAP net income target. For purposes of determining specific bonus amounts, the Company’s operating performance as a whole was initially assessed using the same non-GAAP net income target level as used in the Executive Bonus Plan but with a higher minimum payment threshold. Although the Company did not achieve the minimum non-GAAP net income performance threshold for the Discretionary Bonus Program in fiscal 2008, the Committee exercised its discretion and decided to award bonuses to our executive officers, including the Named Executive Officers. In reaching this decision, the Committee was influenced by several factors, including the Company’s strong revenue growth, the Company’s progress on its strategic, long-term initiatives such as the reorganization of the Company, the formation of a new leadership team consisting of several new executives, and our decision to delay the launch of several games in order to improve their quality. However, since the bonus payments made to our executive officers were intended to reflect our fiscal 2008 operating performance, they were less than they would have otherwise been had we achieved the non-GAAP net income target that was established in May 2007.

 

In the case of Mr. Riccitiello, the Board, based on the Committee’s recommendation, awarded a cash bonus of $625,350. This payment was based on the Company’s fiscal 2008 operating performance, Mr. Riccitiello’s achievement of his individual performance objectives for fiscal 2008, and his target bonus opportunity of 100% of his base salary.

 

In the case of Mr. Jenson, the Committee approved a cash bonus of $203,024 based on the Company’s fiscal 2008 operating performance, his achievement of his individual performance objectives for fiscal 2008, and his target bonus opportunity of 75% of his base salary.

 

In the case of Dr. Florin, the Committee approved a cash bonus of $349,358 based on the Company’s and European and North America Publishing divisions’ fiscal 2008 operating performance, his achievement of individual performance objectives for fiscal 2008, and his target bonus opportunity of 60% of his base salary.

In the case of Mr. Moore, the Committee approved a cash bonus of $330,000 based on the Company’s and the EA SPORTS label’s fiscal 2008 operating performance, his achievement of individual performance objectives for fiscal 2008, and his target bonus opportunity of 75% of his base salary.

 

In the case of Mr. Gibeau, the Committee approved a cash bonus of $299,542 based on the Company’s and the EA Games label’s fiscal 2008 operating performance, his achievement of individual performance objectives for fiscal 2008, and his target bonus opportunity of 75% of his base salary.

 

Equity Awards

 

We believe that alignment of the interests of our executive officers and our stockholders is significantly advanced through the issuance of equity awards as a portion of their total direct compensation. In this way, we reinforce the link between our stockholders and our executive officers’ focus on personal responsibility, creativity, and stockholder returns. We also believe that delivering a portion of their total direct compensation in the form of long-term equity awards helps encourage a long-term view in an industry that is subject to lengthy business cycles. Equity incentives such as stock options and restricted stock units (“RSUs”) also play an important role in our recruitment and retention strategies, as the competition for creative and technical talent and leadership in our industry is intense.

 

Executive officers are eligible to receive equity awards when they first join the Company, in connection with a significant change in responsibilities, annually to provide incentives for continued performance and retention of employment and, occasionally, to achieve internal parity between different executive positions. The target value granted to each executive is determined by the Committee in its judgment, after considering a number of factors, including the executive’s position and level of responsibility, an assessment of his or her performance, the value of equity awards for similar positions in the external market (as referenced by the 75th percentile in the survey data and Peer Group information), and internal parity among similarly-situated executives.

 

In February 2006, the Committee began granting target equity awards to our executive officers as a mix of stock options and RSU awards. This mix delivered 70% of the target equity award value in stock options and 30% of the target equity award value in RSUs. This compensation mix reflects the Committee’s belief that stock options are an important vehicle for encouraging equity ownership by executive officers and aligning their interests with the interests of our stockholders, whereas RSUs strengthen the retention of key employees. The Committee also reviews the estimated total pool of stock options and RSU awards to be granted to executive officers and other employees to ensure that share use remains in line with internal targets.

 

During its May 2007 compensation review, the Committee decided to grant equity awards to our executive officers, including the Named Executive Officers (except for Mr. Riccitiello and Mr. Moore) in view of their positions, responsibility, and an assessment of their performance. In August 2007, in connection with the reorganization of the Company, the Committee approved an equity-based retention program pursuant to which RSUs were granted to our executive officers, including the Named Executive Officers (other than Mr. Riccitiello and Mr. Moore). These RSUs first vest as to 50% of the shares on September 16, 2008 and as to the remaining 50% of the shares on October 16, 2009. Also in August 2007, the Committee approved stock option grants to certain executive officers, including certain of the Named Executive Officers, which vest as to 24% of the shares on the first day of the calendar month that includes the one-year anniversary of the option grant date, and as to an additional 2% of the shares on the first calendar day of each month thereafter for 38 months.

 

In the case of Mr. Jenson, the Committee approved: (i) in May 2007, (a) a stock option to purchase 35,000 shares of the Company’s common stock, vesting as to 24% of the shares on the first day of the calendar month that includes the one-year anniversary of the option grant date, and as to an additional 2% of the shares on the first calendar day of each month thereafter for 38 months, and (b) an RSU award of 5,000 shares, vesting as to 25% of the shares on each of the first four anniversaries of the grant date; and (ii) in August 2007, (a) a stock option to purchase 60,000 shares of the Company’s common stock, vesting as described above, and (b) 20,000 RSUs, vesting as noted above.

In the case of Dr. Florin, the Committee approved: (i) in May 2007, (a) a stock option to purchase 35,000 shares of the Company’s common stock, vesting as to 24% of the shares on the first day of the calendar month that includes the one-year anniversary of the option grant date, and as to an additional 2% of the shares on the first calendar day of each month thereafter for 38 months, and (b) an RSU award of 5,000 shares, vesting as to 25% of the shares on each of the first four anniversaries of the grant date; and (ii) in August 2007, 20,000 RSUs, vesting as noted above.

 

In the case of Mr. Gibeau, the Committee approved: (i) in May 2007, (a) a stock option to purchase 35,000 shares of the Company’s common stock, vesting as to 24% of the shares on the first day of the calendar month that includes the one-year anniversary of the option grant date, and as to an additional 2% of the shares on the first calendar day of each month thereafter for 38 months, and (b) an RSU award of 5,000 shares, vesting as to 25% of the shares on each of the first four anniversaries of the grant date; and (ii) in August 2007, (a) a stock option to purchase 100,000 shares of the Company’s common stock, vesting as described above, and (b) 20,000 RSUs, vesting as noted above.

 

Mr. Riccitiello’s equity award for fiscal 2008 was established as part of the terms of his initial employment when he was appointed Chief Executive Officer, effective April 2, 2007. The Committee recommended to the Board, and the Board determined, that Mr. Riccitiello’s initial equity award, in connection with his appointment as Chief Executive Officer, consist solely of stock options.

 

Equity Awards Grant Practices

 

All stock options granted to the Named Executive Officers in fiscal 2008 were granted at the fair market value (i.e., the closing price) of the Company’s common stock on the date of grant and vest as described in the Grants of Plan-Based Awards Table set forth below. RSU awards granted in fiscal 2008 to the Named Executive Officers vest as described in the footnotes to the Summary Compensation Table set forth below. All equity awards granted to executive officers were approved by the Committee in advance of the grant date and were made on the 16th of the month in which they were granted (or on the next NASDAQ trading day thereafter if the 16th of the month fell on a Saturday, Sunday, or holiday).

 

The Committee has delegated limited authority for determining and approving equity grants for non-executive employees, consisting of pre-defined size limits and vesting schedules, to a committee consisting of Mr. Riccitiello and Ms. Toledano, which we refer to as the “Management Committee.” The Management Committee is generally responsible for all equity awards to employees below the Senior Vice President level, up to an annual grant limit of stock options to purchase 30,000 shares and 10,000 RSUs. The Management Committee reports on its activities to the Committee on at least an annual basis.

 

Benefits and Retirement Plans

 

We provide a comprehensive benefits package to all of our regular, full-time employees, including the Named Executive Officers, which includes medical, dental, prescription drug, vision care, disability insurance, life insurance, a flexible spending plan, a tax-qualified Section 401(k) savings plan (or, in the case of Dr. Florin, a defined contribution plan for which all of the Company’s Swiss employees are eligible), an educational reimbursement program, an employee assistance program, an employee stock purchase plan, and holidays and personal time off, including vacation, sick, or personal days off.

 

We do not offer a retirement plan to our executive officers, including the Named Executive Officers, other than through participation in our tax-qualified Section 401(k) savings plan we offer to all eligible employees or a comparable savings plan in locations outside of the United States.

 

We maintain a nonqualified deferred compensation plan (the “DCP”) that allows certain employees, including the Named Executive Officers, and our directors to defer receipt of their base salary and annual cash bonus or director fees, as the case may be, into cash accounts that mirror the gains and/or losses of a variety of different investment funds. These investment funds correspond to the funds that we offer to participants in the tax-qualified Section 401(k) plan. Eligible employee-participants may defer receipt of up to 75% of their base salary and up to 100% of their bonus and/or commissions until a date or dates they specify. We are not

required to make any contributions to the DCP and did not do so in fiscal 2008. None of the Named Executive Officers participated in the DCP during fiscal 2008.

 

Perquisites and Other Personal Benefits

 

Historically, we believe we have taken a conservative approach with respect to providing perquisites and other personal benefits to our executive officers, including the Named Executive Officers. While our executive officers generally receive the same benefits that are available to our other regular, full-time employees, they also receive certain other benefits, including access to a company-paid executive physical program, company-paid supplemental long-term disability insurance, and paid parking at locations where free parking is not available. We consider these benefits to be standard components of a competitive executive compensation package. In the case of the supplemental long-term disability insurance, our primary objective is to provide the same level of coverage as is available to all other regular, full-time employees but that is limited under our general policy due to covered earnings caps. In addition, company-provided air and ground transportation is limited solely to business travel.

 

We also provide certain benefits in connection with international and domestic assignments and relocations, including a housing allowance, a car allowance, and tax protection to offset costs incurred by our executives as a result of these assignments. In fiscal 2008, Dr. Florin and Mr. Moore received certain of these assignment-related benefits, which have been reported in the All Other Compensation column of the Summary Compensation Table set forth below.

 

Executive Changes

 

Appointment of New Chief Executive Officer

 

In February 2007, we entered into an agreement with Mr. Riccitiello, under which he was appointed as our Chief Executive Officer, effective April 2, 2007. Taking into consideration Mr. Riccitiello’s prior association with the Company as well as his more recent experience, the Committee viewed him as an individual with the requisite experience, skills, and acumen needed to assume this role. Accordingly, the Committee developed a total compensation package that it considered to be competitive for the chief executive officer of a large interactive entertainment company. At the same time, the Committee was sensitive to the need to integrate Mr. Riccitiello into our existing executive compensation structure, balancing both competitive and internal equity considerations.

 

Ultimately, the Committee settled on an employment offer comprising two principal pay components: regular ongoing and annual cash compensation and an equity award. The annual cash component was designed to be consistent with the Company’s compensation philosophy that a significant portion of cash compensation should be at risk and dependent on the Company’s financial and operational performance and the executive’s individual performance. The equity component, which is reflected below, was designed to ensure that Mr. Riccitiello received a long-term incentive that was appropriate for his role and responsibilities as Chief Executive Officer.

 

The material terms of Mr. Riccitiello’s compensation package in connection with his appointment as Chief Executive Officer of the Company were as follows:

 

 

 

 

Services Agreement with Former Chief Financial Officer

 

In March 2008, we entered into an agreement with Mr. Jenson concerning his departure from the Company. The material terms of Mr. Jenson’s ongoing employment during this transition period were as follows:

 

 

Fiscal 2009 Compensation Program Changes

 

During fiscal 2008, based on the results of the Committee’s comprehensive review of our executive compensation program and taking into consideration the recommendations of Ms. Toledano and Mr. Riccitiello, the Committee approved changes to the program. The Committee believes that the restructured program, which is effective in fiscal 2009, will better support the ongoing reorganization of our business. These changes, which are designed to ensure that our executive officers’ total direct compensation (the sum of base salary, annual cash bonus payments, and equity awards) is competitive and tied to performance, will result in two significant changes to our executive compensation program.

 

First, the Discretionary Bonus Program (renamed the “Annual Bonus Plan”) in which executive officers participate, has been updated. Actual bonus payouts will be determined based on (i) the Company’s performance as a whole, (ii) in certain cases where appropriate, the performance of an executive’s individual business unit, and (iii) the executive’s individual performance. The achievement of the objectives for each component will be determined independently based on the actual level of performance and results achieved for each objective. The component relating to the Company’s performance as a whole will be based on the achievement of a combination of the Company’s fiscal 2009 non-GAAP revenue and non-GAAP earnings per share. We also have implemented another bonus program for fiscal 2009, the Label Incentive Program. The Label Incentive Program is intended primarily for members of our label development teams. The Label Incentive Program rewards development employees based on the profitability of their labels, studios, and the products on which they work.

 

Second, to further strengthen the link between our executive compensation program and our operating performance, our executive officers, including the Named Executive Officers, were granted performance-based RSUs. These performance-based RSUs are designed to vest in three equal amounts, with the vesting of each amount being contingent upon our achievement of one of three progressively higher non-GAAP net income targets, the highest of which corresponds to our long-term non-GAAP financial income objectives for fiscal 2011. These performance-based RSUs were granted to our executive officers in lieu of the annual stock option grants they would have otherwise been eligible to receive in fiscal 2009 and fiscal 2010 had we not implemented the performance-based RSU program. Consistent with our compensation philosophy, certain of these executive officers were also granted service-based RSUs vesting over a four-year period. The size of these service-based RSU grants corresponded to 30% of the total equity award value for fiscal 2009 that each executive officer would have received had we continued to grant stock options (instead of the performance-based RSUs). We believe this combination of performance-based and service-based RSUs will motivate our executive officers to help us achieve our long-term business objectives and, secondarily, will serve to strengthen our retention of these individuals.

Post-Employment Arrangements

 

Change of Control Plan

 

In February 2008, our Board of Directors approved a “double-trigger” change of control plan, entitled the Electronic Arts Inc. Key Employee Continuity Plan (the “CoC Plan”). Pursuant to the CoC Plan, any eligible employee, including the Named Executive Officers, may receive certain benefits if his or her employment is terminated either without “cause” (as defined in the CoC Plan) or if he or she resigns for “good reason” (as defined in the CoC Plan) during the 12-month period following a change of control of the company or if his or her employment is terminated “without cause” during the two-month period preceding a change of control of the company. Eligible employees include all employees at the level of vice president and above.

 

The CoC Plan benefits include:

 

 

The cash severance payment that Mr. Riccitiello, company-level presidents (including the presidents of our labels and our president of publishing), and executive vice presidents (including Mr. Brown, our Chief Financial Officer) are entitled to receive upon a qualifying termination of employment under the CoC Plan is equal to 150% of the sum of that executive’s annual base salary and target annual bonus or incentive opportunity. We believe that this level of severance benefits will assist us in recruiting talented individuals to join and remain a part of our management team. From time to time, we may recruit executives from other companies where they have job security, tenure and career opportunities. In accepting a position with us, an executive is often giving up his or her current job stability for the challenges and potential risks of a new position. This severance benefit mitigates the harm that the executive would suffer if he or she were terminated by the Company for reasons beyond his or her control in conjunction with a change of control of the Company. Severance benefits also allow existing executives to focus on the Company’s business without being unduly distracted by concerns about their job security in the event of a change of control. Finally, we expect that these severance benefits will act as an additional incentive for eligible participants to comply with their post-termination covenants, such as the non-solicitation requirement described below, and confidentiality obligations.

 

Upon a change of control of the Company, an executive may be subject to certain excise taxes imposed under Section 280G of the Internal Revenue Code (“Section 280G”). The CoC Plan does not provide for any additional payments (for example, tax gross-ups or reimbursements) in the event that the benefits under the CoC Plan and other arrangements offered by the Company or its affiliates cause an executive to owe an excise tax under Section 280G. However, the CoC Plan provides that, if an executive would receive a greater net after-tax benefit by having CoC Plan benefits reduced to an amount that would avoid the imposition of the Section 280G excise tax, his or her cash severance payment will be reduced accordingly.

 

As a condition to each executive’s right to receive the benefits provided under the CoC Plan, the executive is required to execute a waiver of claims against the Company and will be bound by the terms of a non-solicitation agreement prohibiting the executive, for a one-year period following his or her termination of employment, from soliciting our employees to leave the Company.

 

Severance Plan

 

We maintain an ERISA-governed severance plan (the “Severance Plan”) that applies to (a) all of our U.S.-based employees whose jobs are terminated due to a reduction in force and (b) any other employee we select to participate in the plan upon his or her termination of employment. Under the Severance Plan, eligible

employees may receive a cash severance payment equal to two weeks of pay, with any additional payments to be determined solely at our discretion. In addition, under the Severance Plan, we will pay the premiums for continued health benefits, if such benefits are continued pursuant to COBRA, for a time period equal to the number of weeks of cash severance paid.

 

Any severance arrangements with our executive officers, including the Named Executive Officers, whether paid pursuant to the Severance Plan or otherwise, require the prior approval of the Committee. In the event of a change of control of the Company, the cash severance payment payable under the Severance Plan may be reduced, in whole or in part, by any amount paid under the CoC Plan.

 

On September 26, 2006, in connection with the establishment of our international publishing headquarters in Geneva, Switzerland, we entered into an employment agreement with Dr. Florin setting forth the terms and conditions of his employment with the Company in recognition of his relocation to Geneva. The agreement provides for:

 

 

Treatment of Stock Options Upon Retirement

 

In May 2004, we implemented a special retirement provision in connection with the exercise of outstanding vested stock options following a qualifying termination of employment. All stock option grants made after April 2004 to employees, including the Named Executive Officers, contain this provision. Under the standard provisions of our employee stock option plans, an optionee generally has three months following his or her termination of employment to exercise his or her stock options that had vested as of his or her termination date. After three months, these options expire. For an optionee whose length of service to the Company plus age equals 60, and whose length of service is at least 10 years, this special retirement provision extends this post-termination exercise period up to 60 months following termination of employment (but in no event beyond the original term of the stock option).

 

Non-Competition and Non-Solicitation Agreements

 

Each of our newly-hired employees, including our executive officers, must enter into a standard proprietary information agreement, which includes a provision that prohibits for one year after termination solicitation of our employees to leave the Company. In addition, payouts under our CoC Plan are conditioned upon an executive officer’s acceptance of a non-solicitation provision for a period of one year from the date of his or her termination of employment.

 

Dr. Florin’s employment agreement contains the following additional restrictions, which apply for a six-month period following the termination of his employment:

 

 

 

Stock Ownership Requirements

 

In fiscal 2004, the Board implemented stock ownership requirements for all of our executive officers who are subject to Section 16 of the Securities Exchange Act of 1934. These requirements are based on multiples of the executive officer’s base salary, and range from one to six times an individual’s annual base salary depending on his or her level within the Company. In some cases, these requirements are phased in on the basis of the executive officer’s tenure.

 

The Committee monitors these stock ownership requirements and believes that they further align the interests of our executive officers with those of our stockholders. As of March 31, 2008, each of our executive officers, including the Named Executive Officers, had either met his or her then-applicable ownership requirements or had not yet reached the date on which he or she is required to meet his or her ownership requirement.

 

Stock Trading Policy

 

We have adopted a policy designed to promote compliance by all of our employees with both federal and state insider trading laws. Under this policy, certain employees (including all of our executive officers) who regularly have access to material, non-public information about the Company are prohibited from buying or selling shares of the Company’s common stock during periods when the Company’s trading window is closed (unless such transactions are made pursuant to a pre-approved Exchange Act Rule 10b5-1 trading plan). When the trading window is open, these employees (including all of our executive officers) are prohibited from buying or selling shares of the Company’s common stock while in possession of material, non-public information about the Company and must request a trading clearance from our General Counsel prior to engaging in a trading transaction (unless such transaction is made pursuant to a pre-approved Exchange Act Rule 10b5-1 trading plan).

 

In addition, we believe it is improper and inappropriate for any of our employees to engage in any transaction designed to result in a benefit from a decline in the trading price of the Company’s common stock. As such, our directors, executive officers, and other employees may not engage in short sales of shares of the Company’s common stock under any circumstances, including trading in puts and calls that increase in value from a decline in the trading price of our stock.

 

Tax and Accounting Policies

 

Section 162(m)

 

Section 162(m) of the Internal Revenue Code limits the ability of a public company to deduct the remuneration of its chief executive officer and each of the next three most highly compensated executive officers other than its chief financial officer (the “covered employees”) in excess of $1 million, except for certain compensation which qualifies as “performance-based compensation.” Under this exception, certain types of compensation are deductible by the Company without regard to the $1 million limitation if certain conditions are satisfied and the plan or arrangement is approved by stockholders. We have endeavored to structure our executive compensation plans and arrangements to maximize deductibility under Section 162(m) with minimal sacrifices of flexibility and impact on corporate objectives. The Executive Bonus Plan is designed to operate consistent with this strategy.

 

Further, the Committee has structured our use of stock options in a manner intended to ensure deductibility of the amounts realized upon an option exercise. While the Committee has had the ability to grant performance-based RSUs that would qualify for the “performance-based compensation” exception to Section 162(m), it had not done so prior to May 2008, when the Committee granted the performance-based RSUs described above.

With respect to non-equity compensation arrangements, the Committee has reviewed the terms of those arrangements most likely to be subject to the $1 million limitation of Section 162(m). In fiscal 2008, the compensation paid to Peter Moore, which included a signing bonus and relocation-related financial assistance, exceeded the Section 162(m) deductibility threshold by approximately $926,000. Pursuant to guidance from the

Internal Revenue Service, Mr. Jenson, our former Chief Financial Officer, was not considered a covered employee for purposes of Section 162(m) during fiscal 2008.

 

While the Committee will continue to consider deductibility under Section 162(m) with respect to future compensation arrangements with our executive officers, deductibility will not be the only, or necessarily the primary, factor in determining appropriate levels or modes of compensation. Since corporate objectives may not always be consistent with the requirements for full deductibility, it is possible that we may, if consistent with our compensation philosophy, enter into compensation arrangements in the future under which payments are not fully deductible under Section 162(m).

 

Accounting for Stock-Based Compensation

 

In fiscal 2007, we began accounting for stock-based compensation awards in accordance with the requirements of SFAS No. 123(R), “Share-Based Payment”. The comparable compensation expense of RSUs and stock options under SFAS No. 123(R) has removed a financial reporting disincentive to use RSUs that existed before we began expensing stock options under that accounting standard. As such, in anticipation of the adoption of SFAS No. 123(R), we began granting RSUs to certain overtime-eligible employees during calendar year 2005. In calendar year 2006, we expanded the use of RSUs to all employee groups, including our executive officers.

 

The following Compensation Committee Report on Executive Compensation shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission nor shall this information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that EA specifically incorporates it by reference into a filing.

 

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis. Based on its review and discussions with management, the Compensation Committee recommended to our Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

 

COMPENSATION COMMITTEE

 

Linda J. Srere (Chair)

 

Leonard S. Coleman, Jr.

 

Richard Simonson

 

The following table shows information concerning the compensation earned during fiscal 2008 by our Chief Executive Officer, our Chief Financial and Administrative Officer and our next three most highly compensated executive officers. We refer to these individuals collectively as the “Named Executive Officers”. The following table also includes information for those Named Executive Officers whose compensation was included in our 2007 proxy statement.

 

 

 

 

 

The following table shows information regarding equity and non-equity plan-based awards granted to the Named Executive Officers during fiscal 2008.

 

 

 

 

The following table shows information regarding all outstanding equity awards held by the Named Executive Officers as of the end of fiscal 2008.

 

 

 

 

 

The following table shows all stock options exercised and value realized upon exercise and all restricted stock units vested and value realized upon vesting by the Named Executive Officers during fiscal 2008.

 

 

 

 

 

The following table sets forth potential payments under the CoC Plan to the Named Executive Officers upon termination without “cause” or resignation for “good reason” occurring during the two-month period before or the twelve-month period after a change in control of the company. Under the CoC Plan, an eligible employee is not entitled to any payments or benefits in the event he or she voluntary resigns or is terminated for cause. For purposes of the table below, we have assumed a termination date of March 28, 2008, the last NASDAQ trading day of fiscal 2008. For further information on the CoC Plan, see “Post-Employment Arrangements” in the Compensation Discussion and Analysis above.

 

 

 

 

We have four equity incentive plans (excluding plans assumed or adopted by EA in connection with acquisitions, as described in the footnotes below) that have been approved by our stockholders and under which our common stock is or has been authorized for issuance to employees or directors: the 1991 Stock Option Plan; the 1998 Directors’ Stock Option Plan; the 2000 Equity Incentive Plan; and the 2000 Employee Stock Purchase Plan.

 

In the past, we have granted options to certain individuals (not employees or directors) under our Celebrity and Artist Stock Option Plan. This plan was not approved by our stockholders, has since expired, and no future grants will be made under it. We have also granted restricted stock units and notes payable solely in

shares of our common stock to certain employees in connection with our acquisition of VG Holding Corp. (“VGH”) without stockholder approval in accordance with applicable NASDAQ listing standards.

 

The following table and related footnotes gives aggregate information regarding grants under all of our equity incentive plans as of the end of fiscal 2008, including the 2000 Equity Incentive and 2000 Employee Stock Purchase Plans, which are proposed to be amended at the 2008 Annual Meeting as described in “Proposals to Be Voted On” above and in Appendices A and B to this proxy statement.