Fossil, Inc-Notice and Proxy Statement-2012 Page 27

For fiscal 2011, based on an analysis of our peer group companies, comparative, competitive compensation

packages and our fiscal 2010 operating performance, our CEO recommended to the Compensation Committee
base pay increases of approximately 4.2% to 11.3% for our Named Executive Officers. The Compensation
Committee approved the recommended increases.

In addition to a base salary increase, Mr. Quick received a one-time $100,000 cash bonus in early 2011 to

compensate Mr. Quick for taking on additional responsibilities that were previously handled by our Chief
Operating Officer, who left in December 2010.

Short-Term Annual Cash Incentive Opportunities

We have a performance-based annual cash incentive plan that links cash incentive awards to achieving

pre-established performance goals. For fiscal 2011, award opportunities were determined based upon two
performance-based measures: (i) the Named Executive Officer's overall performance rating based on fiscal 2011
performance, and (ii) achievement of our fiscal 2011 operating income targets. The same criteria were used for
all other employees eligible to participate in the incentive plan.

For fiscal 2011, each Named Executive Officer was eligible for a payout under the plan ranging from 0% of

base salary for a "needs improvement" performance rating to 125% of base salary for our President and 100% of
base salary for our other executive officers for an "outstanding" performance rating. We refer to this as the
"Performance Rating Percentage." Once the Performance Rating Percentage is determined, the actual cash
incentive amounts are paid based on the extent to which our operating income targets are achieved. The actual
cash incentive amounts range from 10% to 100% of the eligibility amount determined by the performance rating.
We refer to this as the "Bonus Payout Percentage." In fiscal 2011, the Compensation Committee did not change
the Performance Rating Percentages nor the Bonus Payout Percentages.

Operating income targets are pre-approved by the Compensation Committee in our first fiscal quarter and

include a threshold for initial payout, midpoint and maximum payment targets. For example, if our President
received an "outstanding" performance rating, he or she would be eligible for a cash incentive award equal to
125% of base salary, but would only be paid 50% of the amount if we achieved operating income levels at the
50% payout level. Cash incentive awards are paid only if our operating income threshold is achieved and the
employee's performance rating is at least a "meets expectations." The calculation of bonus amounts described
above can be summarized by the following formula:

Named Executive Officer Bonus Amount = Named Executive Officer Salary x Bonus Payout Percentage x

Performance Rating Percentage

In fiscal 2011, we exceeded our maximum operating income target. Therefore, 100% of each Named

Executive Officer's eligible bonus amount based on their performance rating was paid in the first quarter of fiscal
2012. Although we achieved the maximum payout target in fiscal years 2010 and 2011, we believe that the
operating income targets set each year are challenging, reflect desired above-market performance and typically
would not be achieved at the maximum level without exceptional performance. In fiscal 2010 and 2011, we
achieved record levels of operating income, resulting in maximum payouts under the plan. The Compensation
Committee recognizes that the likelihood of achievement of a payout in any given year may be different and
believes that the payout should be appropriate for the performance, regardless of how often it may happen.

The Compensation Committee approves the specific payments to the Named Executive Officers under the

annual cash incentive plan. Additionally, the Compensation Committee retains discretion to recommend
additional discretionary bonuses during the year based on factors such as promotions and business segment,
department or individual performance.