Compensation Committee Matters

(Continued)

2007 Executive Compensation Decisions

The assessment of the performance of our named executive officers is discussed below. The compensation paid or awarded to our named executive officers under our compensation programs is included in the compensation tables and, in the case of each executive, was within the ranges specified for each element of compensation discussed above.

- Base Salary Increases

- Annual Incentives

- Long-Term Performance Incentive Awards

- Compensation of the Chairman and Chief Executive Officer

- Compensation of Other Named Executives Officers

Base Salary Increases

The Compensation Committee did not increase Mr. Camilleri’s base salary in 2007. Mr. Camilleri’s base salary was within the 4th quartile of the Compensation Survey Group at approximately the midpoint of his salary range.

The following were the 2007 increases in base salary for our other named executive officers:

• Mr. Calantzopoulos: CHF 1,200,000 to CHF 1,250,080, an increase of 4.2%, effective April 1, 2007
• Mr. Devitre: $780,000 to $900,000, an increase of 15.4%, effective May 1, 2007
• Mr. Parrish: $980,000 to $1,000,000, an increase of 2.0%, effective May 1, 2007
• Mr. Szymanczyk: $1,170,000 to $1,200,000, an increase of 2.6%, effective May 1, 2007
• Mr. Wall: $1,025,000 to $1,080,000, an increase of 5.4%, effective May 1, 2007

These increases took into account Mr. Camilleri’s recommendations, and the factors enumerated in the “Overview” above, and were part of a merit increase program that applied to all employees. Mr. Devitre’s base salary increase also reflected an adjustment to assure both internal and external pay equity.

Annual Incentives

As previously discussed, annual incentive awards are based on a comprehensive assessment of both business and individual performance. Numerical weights and specific objectives are not assigned to the factors used in assessing either individual or business performance. For 2007, the financial performance factors considered by the Compensation Committee included operating company income, discretionary cash flow (defined as net cash provided by operating activities less capital expenditures), net revenue as well as volume and market share. At the corporate level, the performance factors also included net earnings, earnings per share, or EPS, and TSR. The Compensation Committee also evaluated our performance relative to numerous strategic and qualitative factors such as portfolio management, innovation, progress on societal alignment, management of regulatory and legal challenges, compliance and integrity and leadership development.

In 2007, we recorded strong consolidated adjusted earnings growth and took a number of strategic actions to further strengthen our businesses for long-term growth. Operating companies income, net earnings and EPS all exceeded the annual budget. Full-year adjusted diluted EPS from continuing operations rose 8.1% to $4.38 versus $4.05 in 2006. Income growth was predominantly attributable to pricing, currency and overhead cost reductions. TSR at 22.2% exceeded that of the Compensation Survey Group (10.6%), the Altria Peer Group (20.9%) and the S&P 500 (5.5%).

Beyond our financial performance, we took numerous actions to enhance stockholder value and accelerate income growth. These included the spin-off of Kraft in March 2007, the spin-off of PMI in March 2008, the acquisition of John Middleton, Inc., acquisitions in Pakistan and Mexico, the implementation of a global cigarette manufacturing reconfiguration plan including the closure of the Cabarrus cigarette manufacturing facility, the sale of the New York headquarters building and the successful launch of several innovative tobacco products in both the smokeless and cigarette categories.

In a year that was marked by a step-up in Master Settlement Agreement payments and an above-trend erosion in cigarette consumption affecting the U.S. domestic market, PM USA achieved a record market share of 50.6%, driven by the continued strong performance of Marlboro. Operating companies income increased by 1.9% on an adjusted basis versus 2006, but fell marginally short of the annual budget. PM USA introduced several successful innovative products in both the smoking and smokeless categories. A number of cost reduction initiatives were pursued with vigor and PM USA delivered savings of more than $300 million in 2007, resulting in a unit margin gain of 6%.

PMI also generated strong financial results and contributed significantly to our increase in consolidated adjusted earnings. Adjusted operating companies’ income rose 12.5% attributable primarily to pricing and favorable currency. Excluding currency and other items that affected comparability, operating companies’ income rose 6.8%. This performance exceeded the annual budget and was at the high end of the guidance provided to the investment community of like-for-like growth of between 5% and 7%. Market share performance was mixed, with share growth in some markets lagging expectations.

Taking these factors into account, the Compensation Committee assigned the following Annual Incentive ratings for 2007:

These ratings were used to determine the size of the annual incentive award pool.

Long-Term Performance Incentive Awards

The 2007 to 2009 performance cycle of the long-term incentive plan, or LTIP, is predominantly designed to reward growth in TSR, performance relative to the Altria Peer Group, the Compensation Survey Group and the S&P 500. The secondary measures emphasize progress against societal alignment objectives, and key strategic performance factors such as market share, portfolio management and leadership development. These measures were selected as they are intended to focus executives on achieving results that contribute to continued long-term growth in stockholder value.

As the three-year cycle LTIP began on January 1, 2007, no payments would ordinarily have been made for the 2007 fiscal year. However, as a result of the spin-off of PMI, the 2007-2009 LTIP was terminated on December 31, 2007 and participants received a cash payment for the 2007 plan year assuming individual performance of “Achieves” using base salaries in effect on December 31, 2007 and an LTIP business rating of 115. The Compensation Committee awarded an LTIP business rating of 115 as a result of our strong stockholder return as noted above and the attainment of secondary long-term objectives described above. 2007 marked the sixth consecutive year of strong TSR.

Compensation of the Chairman and Chief Executive Officer

Louis C. Camilleri: Mr. Camilleri’s awards for 2007 reflected his responsibility for and major contribution to our overall results, including a marked increase in stockholder value. In determining his awards, the Compensation Committee also took into consideration Mr. Camilleri’s leadership role in the restructuring of Altria, the sustained positive evolution of the litigation environment, progress on societal alignment initiatives, product innovation, our solid financial results including the strength of our balance sheet, leadership development and progress against our longer term plan.

For 2007, Mr. Camilleri was awarded an annual incentive of $4,750,000, or 271% of his annual base salary. This award is at the high end of his award range reflecting the Compensation Committee’s assessment of his performance. In addition, he received an LTIP award of $5,031,250 reflecting his target award at the LTIP business rating of 115. Mr. Camilleri also received an annual equity award of 130,280 shares of deferred stock.

In addition, the Compensation Committee awarded Mr. Camilleri a special deferred stock award of 200,000 shares in recognition of his successful efforts during his tenure as our Chief Executive Officer to execute against the strategy, first announced in 2004, to separate Altria into three component parts to significantly enhance stockholder value and growth. This award further recognized that the Compensation Committee and the Board of Directors asked Mr. Camilleri to assume the role of Chairman and Chief Executive Officer of PMI, while accepting a reduction in his compensation at PMI. On January 30, 2008, the Compensation Committee decreased Mr. Camilleri’s base salary from $1,750,000 to $1,500,000 effective upon his transfer to PMI.

Compensation of Other Named Executives Officers

André Calantzopoulos. Mr. Calantzopoulos served as President and Chief Executive Officer of PMI and, following the PMI spin-off, now serves as Chief Operating Officer of PMI. Mr. Calantzopoulos’s 2007 awards were all within pre-established ranges and reflected his significant contributions to PMI’s strong operating results and strategic initiatives. Particularly noteworthy were Mr. Calantzopoulos’s contributions to PMI’s product innovation strategy including the launch of Marlboro Filter Plus, Marlboro Ice Mint and other menthol line extensions, Parliament Platinum and Virginia Slims Uno, his relentless pursuit of cost reduction opportunities that exceeded PMI’s productivity targets and contributed to PMI’s strong financial results, management development, societal alignment, 2007 acquisitions and business development initiatives. His awards also reflected his instrumental role in restructuring PMI to accelerate decision-making and speed-to-market and recognized his critical role in developing PMI’s strategic partnership with the China National Tobacco Company.

Dinyar S. Devitre. Mr. Devitre served as our Senior Vice President and Chief Financial Officer. He elected to retire upon completion of the PMI spin-off, after more than 33 years of exemplary service to our company and its subsidiaries, and now serves on our Board of Directors. Mr. Devitre’s awards for 2007 reflected his contributions to our overall financial results, our strategic initiatives and shareholder value performance. These notably included the strong results achieved by Philip Morris Capital Corporation, his significant contributions to the Kraft spin-off and reaching executional readiness for the PMI spin-off, effective tax planning and a strong internal control environment, as well as the effective management of our strong balance sheet. Furthermore, the awards were granted in recognition of his key role in assuring clear, effective and comprehensive communications of our strategies and results to the investment community.

Steven C. Parrish. Mr. Parrish served as our Senior Vice President, Corporate Affairs. He elected to retire upon the completion of the PMI spin-off, after an exemplary and successful 18 year career with us and our subsidiaries. Mr. Parrish’s awards for 2007 reflected his contributions to our comprehensive societal alignment initiatives, his leadership role in pursuing strong and fair worldwide regulation of tobacco and numerous successful initiatives on the legislative and regulatory front, including fair and equitable excise tax reform. They also recognized his role in ensuring a flawless transition of his responsibilities to his functional successors at both Altria and PMI.

Michael E. Szymanczyk. Mr. Szymanczyk served as Chairman and Chief Executive Officer of Philip Morris USA Inc., and began serving as our Chairman and Chief Executive Officer on March 28, 2008, the date of the spin-off of PMI. Mr. Szymanczyk’s 2007 awards recognize his successful leadership of PM USA and his significant contribution to its overall results, including a relentless pursuit of several major cost reduction initiatives, the successful launch of Marlboro Smooth and Marlboro Virginia Blend, as well as the introduction of Marlboro Snus and Marlboro Moist Smokeless Tobacco in furtherance of PM USA’s adjacency strategy. The awards also recognize the instrumental role that Mr. Szymanczyk personally played in the acquisition of John Middleton, Inc. and his significant contributions to reaching executional and organizational readiness for the corporate restructuring.

Charles R. Wall. Mr. Wall served as our Senior Vice President and General Counsel and, following the spin-off, assumed the position of Vice Chairman of PMI. His 2007 awards, which were all within pre-established ranges, recognized his invaluable contributions to total stockholder value through the critical role he played in successfully managing the complex litigation challenges faced by us and our subsidiaries. They also reflected his role in assuring the successful execution of the Kraft and PMI spin-offs.