Compensation Committee Matters

(Continued)

- Our New Compensation Survey Group 

- Compensation and Benefit Changes for 2008

Our New Compensation Survey Group

In connection with the spin-off of PMI and the resulting decrease in the size and scope of our business, a review was conducted with the assistance of Hewitt Associates and Towers Perrin to determine an appropriate Compensation Survey Group for us. The review focused on companies that compete with us for talent and:

• are direct competitors; or
• have similar market capitalization; or
• are primarily focused on consumer products (excluding high technology and financial services); and
• have business generally focused within the U.S.

Using these characteristics as our guide, the Compensation Committee has selected the following 19 companies as our new Compensation Survey Group following the spin-off:

3M Company, Abbott Laboratories, Anheuser-Busch Companies, Inc., Bristol-Myers Squibb Company, Colgate-Palmolive Company, ConAgra Foods, Inc., Eli Lilly and Company, Fortune Brands, Inc., General Mills, Inc., The Hershey Company, Kellogg Company, Kimberley-Clark Corporation, Kraft Foods Inc., Loews Corporation, McDonald’s Corporation, Merck & Co., Inc., Reynolds American Inc., Sara Lee Corporation and UST Inc.

This survey group is comprised of companies that are based in the U.S. and, as a group, have median revenue that is 30% smaller than our previous Compensation Survey Group. As a result, we expect that the data we use to review our programs better reflects our size and scope after the spin-off of PMI.

Compensation and Benefit Changes for 2008

Taking into account our compensation objectives described above, our performance metrics and our new Compensation Survey Group, we have established the following salary ranges for 2008 for our band B through D executives which are lower than the 2007 salary ranges (we no longer have any Swiss-based executives following the spin-off of PMI):

(1)	A new salary range has not been established for salary band A.

Annual incentive, equity and long-term incentive target award ranges have not been modified for 2008. The LTIP will continue to include TSR performance versus the Compensation Survey Group, Altria Peer Group and the S&P 500 as a key measure. However, the measures will be expanded to include diluted EPS relative to the Compensation Survey Group, Altria Peer Group and the S&P 500 and multiyear strategic objectives that we believe will contribute to TSR. This change in measures will ensure that the compensation of our senior executives is fully aligned with our most critical business objectives.

The resulting design mix of pay of compensation and benefits relative to the Compensation Survey Group for salary bands B through D is as follows:

Altria 2008 Design Mix of Compensation and Benefits
versus the Compensation Survey Group

(1)

The benefit percentages represent the average annual value of retirement, healthcare, disability and death benefits and are based on the methodology employed by Hewitt Associates in its Total Compensation Measurement Study. The actual value for any given year will vary based on, among other things, each employee’s age and years of covered service. These benefit percentages are not intended to represent the total value of benefits earned over a career and payable upon retirement.

(2)

75th percentile of the Compensation Survey Group as provided by Hewitt Associates.

To maximize alignment with the interests of stockholders, we generally provide a greater percentage of total compensation in the form of long-term incentive compensation than do the new Compensation Survey Group companies, as follows: salary band B, 56% versus 43%; salary band C, 48% versus 33% and salary band D, 41% versus 30%.

The Compensation Committee has not established a target equity award for Mr. Szymanczyk; consequently no design mix is shown for salary band A.

In addition, the compensation formula established by the Compensation Committee to determine the award pool used to establish the maximum amount that could be paid to officers under Section 162(m) has been modified as a result of the spin-off and the resulting reduction in adjusted net earnings for 2008. The percentages of adjusted net earnings used for the annual incentive, long-term incentive and annual equity award programs have been increased to 0.7%, 0.5% and 1.0% of adjusted net earnings, respectively. Otherwise, the formula is unchanged.

Finally, the Compensation Committee has limited retirement benefits for Mr. Szymanczyk beginning in 2008. The present value of Mr. Szymanczyk’s pension, calculated as if he had continued to participate in the Benefit Equalization Plan, or BEP, and the Supplemental Management Employee’s Retirement Plan, or SERP, cannot exceed $30,000,000.