lemark international shareholderproposaldiscussion

Shareholder Proposal Discussion

RESOLVED, that the shareholders of Lexmark International, Inc. (“Lexmark” or the “Company”) urge the board of directors to adopt a policy under which shareholders could vote at each annual meeting on an advisory resolution, to be proposed by Lexmark’s management, to ratify the compensation of the named executive officers (“NEOs”) set forth in the proxy statement’s Summary Compensation Table (the “SCT”) and the accompanying narrative disclosure of material factors provided to understand the SCT (but not the Compensation Discussion and Analysis). The proposal submitted to shareholders should make clear that the vote is non-binding and would not affect any compensation paid or awarded to any NEO.

RESOLVED, that the shareholders of Lexmark International, Inc. (“Lexmark” or the “Company”) urge the board of directors to adopt a policy under which shareholders could vote at each annual meeting on an advisory resolution, to be proposed by Lexmark’s management, to ratify the compensation of the named executive officers (“NEOs”) set forth in the proxy statement’s Summary Compensation Table (the “SCT”) and the accompanying narrative disclosure of material factors provided to understand the SCT (but not the Compensation Discussion and Analysis). The proposal submitted to shareholders should make clear that the vote is non-binding and would not affect any compensation paid or awarded to any NEO.

Shareholder Proposal

1

Adoption could put your company at a competitive disadvantage and impact our ability to recruit and retain critical personnel


The Compensation Committee’s compensation practices and programs serve shareholders’ interests


Shareholders already have an effective mechanism for expressing their views to the Compensation Committee or your Board


Advisory vote is not effective for conveying meaningful shareholder opinions to the Compensation Committee or your Board


Board Recommends a Vote Against

2

Competitive Disadvantage

Issue: Perception of Less Compensation OpportunityIssue: Perception of Less Compensation Opportunity

Key Competitors for Talent*Key Competitors for Talent*

*To our knowledge none of these competitors has adopted an advisory vote.

HP Xerox Kodak BrotherBrother

Epson Canon Samsung

Ricoh Oki KyoceraPeer Companies

3

Not an Effective Communication Vehicle

Advisory Vote is Not an Effective Mechanism

Advisory Vote is Not an Effective Mechanism

• Would not provide:– Any clear indication

of the meaning of vote– Shareholder views of

merits, limitations, or preferred enhancements

• Instead, requires Committee to speculate about the meaning of shareholder approval or disapproval

Shareholders Already Have an Effective Mechanism

Shareholders Already Have an Effective Mechanism

• Shareholders already have direct access to their Board

• Allows shareholders to:– Voice specific observations

or concerns– Communicate clearly and

effectively with the Board• An advisory vote does not

provide that communication

4

Lexmark Compensation Practices Do Serve Shareholder Interests

Correct Peer Group for Benchmarking is Very Important

• Needs to Be– Same Industry– Similar Size– Compete for Same Group of Talent

The Lexmark Compensation Committee Believes It Uses the Correct Peer Group*

• Committee Directly Engages Consultants That Are Independent of Management

– Pearl Meyer & Partners– Mellon

• Further Validation by General Surveys

5 *Reference slide 9

Lexmark Compensation is Aligned With Shareholder Interests*

• Market Competitive Opportunity (Attract / Retain Talent)– Opportunity is competitive, not excessive– Generally at or below peer median

• Compensation Opportunity is Significantly “At Risk”– At risk % for 2003 – 2007 CEO compensation opportunity

ranges from 84% to 89%– Only fixed portion is Base Salary

• Pay for Performance That Reflects Shareholder Returns– Measured by a comparison of realized vs. opportunity– Tracks financial results and shareholder returns

*Reference slide 10 on 2003 – 2007 CEO Compensation6

Lexmark Compensation Practices Do Serve Shareholder Interests

“ In a company, many times investors get frustrated because it seems management gets rewarded regardless of financial performance or a firm’s share price. In this case, the board chose not to reward management, and this accurately reflects Lexmark’s struggles the past two years.”Tom Carpenter, vice president and senior equity analyst at Hilliard Lyons, Lexington Herald-Leader, March 19, 2008









Board Recommends a Vote Against

7

Additional Data

8

Executive Compensation Peer Groups

Advanced Micro DevicesAgilent TechnologiesAnalog DevicesApple ComputerApplied MaterialsAvayaComputer SciencesEMCGatewayKLA-TencorLSI LogicMaxtorNational SemiconductorNCRQualcommSanmina-SCIScientific AtlantaSeagate TechnologySilicon GraphicsSolectronSun MicrosystemsTektronixWestern DigitalXeroxXilinx

2006 2007*************************

********

**

****

*

******9

2003-2007 CEO Compensation

10

Notes(1) 2003-2007 stock option grants have a strike price ranging

from $48.05 to $84.80. All grants are unexercised and are currently out of the money.

(2) 2006 performance based RSU retention grant is valued at $1,071K using the March 18, 2008 closing stock price of $32.45. Performance triggers were achieved in 2006. The outstanding RSUs will vest 50% on February 22, 2009 and 50% on February 22, 2010.

Note(1) Compensation opportunity is composed of base salary, short term

incentive, long term incentive and equity incentive.

CEO Total Compensation Opportunity1

% At Risk 88% 84% 84% 89% 86%

Median

75th Percentile

25th Percentile

2003 2004 2005 2006 2007

65th Percentile

Pay For Performance: Realized CEO Compensation vs. Opportunity (as of 3/18/08)

30% 8% - 47% 63% - 52%

18% 22% - 19% 23% - 29%

* Without Restructuring

Total Returnto Shareholders

0%

25%

50%

75%

100%

2003 2004 2005 2006 2007

Op Inc* / Share Change

% O

ppor

tuni

ty

Rea

lized

Compensation Philosophy Serves Shareholder Interests

Aligned with shareholder interests

Put pay significantly

“at risk”

Balance short-term and

long-term objectives

Provide market competitive

opportunities

Pay for performance

11

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