THE READER'S DIGEST ASSOCIATION, INC.
 
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                        SENIOR MANAGEMENT INCENTIVE PLAN
 
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                                    ARTICLE I
                               Purpose of the Plan
 
     1.1 The purpose of the Senior Management Incentive Plan (the "Plan") of The
Reader's Digest Association, Inc. (the "Company") is to advance the interests of
the Company by  providing  executive  officers  and other key  employees  of the
Company  and  its  designated   Subsidiaries  (defined  below)  with  additional
incentive to promote the success of the  business  and to increase  their vested
interest in the success of the business and to increase their vested interest in
the success of the Company,  and to encourage them to remain employees,  through
the  making  of  certain  incentive  cash  bonus  awards  ("awards")  linked  to
performance goals.
 
                                   ARTICLE II
                           Administration of the Plan
 
     2.1 The Plan shall be  administered  and  interpreted  by a committee  (the
"Committee")  appointed  from  time to time by the  Board  of  Directors  of the
Company (the "Board") and consisting of three or more Directors.  Members of the
Committee shall not be eligible to participate in the Plan.
 
     2.2 The Committee shall have full authority to make or withhold awards,  to
construe and interpret  the terms and  provisions of the Plan and any award made
hereunder,  to adopt, alter and repeal such administrative rules, guidelines and
practices governing this Plan and perform all acts,  including the delegation of
its  administrative  responsibilities,  as it  shall,  from  time to time,  deem
advisable, and to otherwise supervise the administration of this Plan.
 
     2.3 The Committee may correct any defect,  supply any omission or reconcile
any inconsistency in the Plan, or in any award made hereunder, in the manner and
to the extent it shall deem necessary to carry the Plan into effect.
 
     2.4 Any  decision,  interpretation  or other  action  made or taken in good
faith by or at the direction of the Board or the Committee  arising out of or in
connection with the Plan shall be within the absolute discretion of all and each
of them, as the case may be, and shall be final,  binding and  conclusive on the
Company  and  all  employees  and  Participants  and  their  respective   heirs,
executors, administrators, successors and assigns.
 
     2.5 No member of the Board, no employee of the Company and no member of the
Committee  (nor the  Committee  itself)  shall be  liable  for any act or action
hereunder, whether of omission or commission, by any other member or employee or
by any agent to whom duties in connection  with the  administration  of the Plan
have been delegated or, except in circumstances  involving his bad faith,  gross
negligence  or fraud,  for anything  done or omitted to be done by himself.  The
Company or the Committee may consult with legal counsel,  who may be counsel for
the  Company  or other  counsel,  with  respect  to its  obligations  or  duties
hereunder,  or with respect to any action or  proceeding or any question of law,
and shall not be liable  with  respect to any  action  taken or omitted by it in
good faith pursuant to the advice of such counsel.
 
     2.6 For purposes of this Plan,  "designated  Subsidiaries"  shall mean such
subsidiaries  of the Company,  80 percent or more of the voting capital stock of
which is owned,  directly or  indirectly,  by the Company,  which are designated
from time to time by the Committee.
 
                                   ARTICLE III
                                   Eligibility
 
     3.1 Eligible  employees include employees of the Company and the designated
Subsidiaries who are executive officers and other key employees.  "Participants"
shall mean all such eligible employees designated by the Committee.
 
     3.2 A Participant  who ceases to be employed by the Company or a designated
Subsidiary by reason of:
 
                (i) transfer at the Company's request to an Affiliate (as
         defined in Section 414 of the Internal Revenue Code of 1986, as
         amended);
 
                (ii) death;
 
                (iii) disability (as defined under the terms of The Reader's
         Digest Association, Inc. Long Term Disability Plan); or
 
                (iv) "early" or "normal" retirement (as defined under the terms
         of The Reader's Digest Association, Inc. Retirement Plan) (in each
         case, whether or not such Participant is covered by such plan);
 
shall be eligible for an award (or portion thereof) for the fiscal year in which
the transfer, death or disability occurs, only if and to the extent the goals
described in Article IV have been met and the Committee shall decide in its sole
discretion; provided, however, that the award will be for the portion of the
year the Participant was employed determined by multiplying the final award by a
fraction the numerator or which is the number of months the Participant is
employed and the denominator of which is the number of months in the applicable
performance cycle.
 
     3.3 A Participant  who ceases to be employed by the Company or a designated
Subsidiary  for any reason  other than those  enumerated  in Section  3.2 above,
shall not be  eligible  for an award in respect of the fiscal year in which such
termination of employment by the Company or a designated  Subsidiary occurs. For
the  purposes of this  Section,  it shall not be  considered  a  termination  of
employment  when a Participant is  transferred  from the Company or a designated
Subsidiary  to  another  designated  Subsidiary  or to  the  Company  or to  any
affiliate  as defined in Section 414 of the Internal  Revenue  Code of 1986,  as
amended.
 
                                   ARTICLE IV
                              Awards Under the Plan
 
     4.1 For each fiscal  year,  the  Committee  shall  establish a  performance
threshold based on one or more of the performance goals set forth in Section 4.3
which must be attained in order for any awards to be paid.
 
     4.2  For  each  fiscal  year,  the  Committee  shall  establish  individual
incentive  targets  for awards  under the Plan and shall  establish  performance
goals  relating  to (a)  financial  performance  based  on one  or  more  of the
performance  goals set forth in  Section  4.3,  and (b)  individual  performance
during that fiscal year.
 
     4.3 For purposes of Sections 4.1 and 4.2,  the  performance  goals shall be
based on any one or more of the  following  business  criteria  relating  to the
Company or any subsidiary,  division or other unit of the Company:  revenue, net
income, net income per share,  operating income,  earnings per share, cash flow,
EBITDA,  total shareholder  return,  total shareholder return relative to peers,
financial returns (including  without  limitation,  return on assets,  return on
equity and return on investment), cost reduction targets, customer satisfaction,
customer  growth and employee  satisfaction.  The formula for any such award may
include or exclude items to measure the specific objectives, such as losses from
discontinued  operations,  extraordinary,  unusual  or  nonrecurring  gains  and
losses,   the  cumulative   effect  of  accounting   changes,   acquisitions  or
divestitures, core process redesigns,  structural  changes/outsourcing,  foreign
exchange impacts.
 
     4.4 For each  fiscal  year,  the  Committee  shall  establish a formula for
funding an incentive pool consisting of the maximum  aggregate awards that would
be available to all Participants under the Plan pursuant to the individual award
targets.
 
     4.5 No later than 90 days after the  commencement  of the fiscal year,  the
Committee  shall  establish the  individual  awards targets (by grade level) and
performance  goals  pursuant to Sections  4.1,  4.2,  and 4.3 and shall,  in its
discretion,  approve an incentive pool based on the funding formula  pursuant to
Section 4.2.
 
     4.6 Promptly after the end of a fiscal year, the Committee  shall determine
the extent to which  performance  goals for that fiscal year have been  achieved
and shall determine the allocation of individual  awards to  Participants,  with
the amount based on Section  4.2(a) above;  provided that 50% of such amount may
be reduced by the Committee in its discretion based on Section 4.2(b).
 
     4.7 The Committee  shall review and, in its  discretion,  shall certify the
achievement of the  applicable  financial  performance  goals and the individual
performance goals of each executive officer of the Company who is a Participant.
 
     4.8 The  Committee  may,  but  need  not,  pay out the full  amount  of the
incentive  pool for any fiscal year.  Any reduction of any award to an executive
officer  will not  result  in an  increase  in the  amount  payable  to  another
executive officer.
 
     4.9 Each award made  under the Plan shall be paid or  allocated  as soon as
practicable  after the close of the fiscal year, except as provided in Article V
and unless  otherwise  determined by the Committee.  The Committee,  in its sole
discretion,  may permit a  Participant  to defer  payment of his award under The
Reader's Digest Association,  Inc. Deferred  Compensation Plan, as such plan may
be modified from time to time, or any other plan applicable to the Participant.
 
     4.10 In the event of the  death of a  Participant  after the  making of the
award but prior to the payment of his award hereunder,  payment shall be made to
such  beneficiary or  beneficiaries  as the  Participant  shall have  previously
designated in writing. Such designation shall not be effective unless filed with
the Company.  If there is no effective  designation of a beneficiary at the time
of the  Participant's  death,  or in the  event  that the  designated  person or
persons shall predecease such Participant,  any such award payable shall be made
to the Participant's estate or legal representative.
 
     4.11 The amount paid to any  employee  with  respect to any award shall not
exceed $2,500,000.
 
                                    ARTICLE V
                      Amendment or Termination of the Plan
 
     5.1  Notwithstanding any other provision of this Plan, the Board may at any
time,  and from  time to  time,  amend,  in whole or in part,  any or all of the
provisions  of the Plan, or suspend or terminate it entirely,  retroactively  or
otherwise; provided, however, that any such amendment, suspension or termination
may not, without the Participant's  consent,  adversely affect any of the awards
theretofore made to him under the Plan.
 
                                   ARTICLE VI
                                  Miscellaneous
 
     6.1 No person  shall have any claim or right to be made an award  under the
Plan, and neither this Plan, the establishment of any goals or standards nor the
making of an award under this Plan shall give any  Participant or other employee
any right with  respect  to  continuance  of  employment  by the  Company or any
subsidiary,  nor  shall  there be a  limitation  in any way on the  right of the
Company or any  subsidiary  by which an employee is  employed to  terminate  his
employment at any time.
 
     6.2 Except by will or the laws of  descent  and  distribution,  no right or
interest in any award made under this Plan shall be assignable or  transferable,
and no right or interest of any  Participant  hereunder  shall be subject to any
lien, obligation or liability of such Participant.
 
     6.3 The Company will bear all expenses incurred in administering this Plan.
 
     6.4 This Plan and the obligations of the Company hereunder shall be subject
to all  applicable  Federal and state laws,  rules and  regulations  and to such
approvals by any  governmental or regulatory  agency as may from time to time be
required.  The Board may make such  changes in this Plan as may be  necessary or
desirable,  in the  opinion of the  Board,  to comply  with the laws,  rules and
regulations of any governmental or regulatory  authority,  or to be eligible for
tax benefits  under the Code, or any other laws or  regulations  of any Federal,
state, local or foreign government.
 
     6.5 The Company  shall have the right to deduct from any payment to be made
pursuant  to this Plan,  or to  otherwise  require  prior to the  payment of any
amount  hereunder,  payment by the Participant  of, any Federal,  state or local
taxes required by law to be withheld.
 
     6.6 No assets  shall be  segregated  or  earmarked  in respect of any award
hereunder and no Participant shall have any right to assign, transfer, pledge or
hypothecate his interest, or any portion thereof, in his award. The Plan and the
making of awards hereunder shall not constitute a trust.
 
     6.7 This Plan and actions  taken in connection  herewith  shall be governed
and construed in accordance  with the laws of the State of New York  (regardless
of the law that might otherwise  govern under  applicable New York principles of
conflict of laws).
 
     6.8 Wherever any words are used in this Plan in the  masculine  gender they
shall be construed  as though they were also used in the feminine  gender in all
cases where they would so apply,  and  wherever any words are used herein in the
singular  form they  shall be  construed  as  though  they were also used in the
plural  form in all cases  where they would so apply.  The titles to Articles of
this Plan are intended  solely as a convenience  and shall not be used as an aid
in construction of any provisions thereof.
 
     6.9 This Plan  shall be known as "The  Reader's  Digest  Association,  Inc.
Senior Management Incentive Plan."
 
     6.10 The  material  terms  consisting  of the  business  criteria,  maximum
amount,  and  eligible  employees  shall  be  subject  to  the  approval  of the
stockholders before payments may be made.