Each fall, we conduct an anonymous companywide survey to gain the valuable opinions of our employees on a variety of workplace topics - from the way we run our business to how we reward our people. Our learnings help us understand what we do well and identify possible improvements to keep REI as a great place to work. The survey is designed to give an indication of how engaged the employee team is in their work and relationship with the company. The level of employee engagement is tracked through questions that examine a combination of satisfaction, commitment, pride and loyalty to the company. The following five questions are analyzed to determine our overall employee index.

• Overall, I am extremely satisfied with REI as a place to work.
• I would gladly refer a good friend or family member to REI for employment.
• I rarely think about looking for a new job with another company.
• My job is satisfying to me.
• I have fun working at REI.

We are proud to report that 79 percent of REI employees indicate they are strongly engaged in their work — the norm for the retail industry stands at 55 percent. The following chart shows results against these questions over the past two years.

Opportunities

While overall engagement is indexed by the responses to five key engagement questions, the core survey consists of 60 questions that measure 13 dimensions of the employee experience. With an engagement score of 79 percent, there are many dimensions in which the company excels. In addition to reinforcing areas of strength, each division is accountable for working on its areas of opportunities.

One of the company's priorities is employee growth and development, and individual managers are encouraged to address opportunities within their teams. In 2007 managers across the company will identify supporting resources needed to ensure that employees continue to have the opportunity to meet their personal and professional goals at the co-op and pursue work that makes good use of their talents and abilities.

Compensation is often viewed in employee surveys as an area of opportunity, and this is no different for REI. REI follows a total compensation philosophy that includes a competitive base pay set at the market median; an incentive pay system that rewards based on company, work group and personal performance; healthcare benefits; and a retirement and profit-sharing plan for eligible employees. The only positions in the company that are set above the market median are REI's retail store managers. These positions are set at 75 percent of market in recognition of the high demand the co-op places on store managers to be business owners for the operation of their stores.

Base pay is carefully reviewed annually and adjusted as required to attract and retain the talent REI needs to serve its members and customers. Every job in the company has a grade based on responsibilities and competencies, and pay ranges are assigned on the basis of a mix of market surveys to ensure market competitiveness.

Based on feedback from a prior employee survey, REI's retail and distribution center divisions changed their pay structure in 2006 to allow new employees the opportunity for a base wage increase within their first six months of their employment. Through STEP!, employees were able to add significantly to their base wages based on their individual performance. This is one of an ongoing series of efforts to ensure competitive pay for our employees.

After the initial STEP! review, store and distribution center employees become eligible to participate in the company incentive plan. Employees at retail have two pay-out opportunities per year. REI is unique as a retailer in offering incentive pay to virtually all employees. Based on REI's strong performance over the past three years, companywide incentive payouts have been above market.

REI's retirement and profit sharing plan and benefit plans are also a significant part of the company's total compensation.

REI's executive leadership is compensated in line with the company's overall philosophy. REI makes executive and board compensation available at http://www.rei.com/aboutrei/financial.html.