McLouth's contract also includes a performance bonus for an All-Star Game appearance, Silver Slugger award and Gold Glove that can increase his salary by $500,000 in 2010 and 2011. If the option is exercised in 2012, those bonuses can be up to $750,000.
"We are very pleased to have reached an agreement with Nate on a multi-year contract that gives us the ability to keep him in a Pirates uniform through at least the 2012 season," said Pirates GM Neal Huntington. "Nate is a quality person off the field and a talented, intelligent player that plays the game the right way on the field. His dedication, work ethic and commitment should serve as an example on how to approach the game."
McLouth and the Pirates had been scheduled for an arbitration hearing on Tuesday in Phoenix. McLouth was the last unsigned player in Pirates camp.
The 27-year-old McLouth enjoyed a breakout 2008 campaign, as he hit .276 with 26 home runs and 94 RBI. He also won a Gold Glove, while making his first All- Star appearance.
"We really believe in Nate," manager John Russell said. "He's a great addition and a great person to be around in the organization. He did some great things last year. It's good to know that he's ours."
"It is a part of our plan," Huntington said of this approach to buy out players' years of arbitration and free agency. "That said, it has to be the right player, the right contract, the right time."
For his career, spanning parts of four seasons with the Pirates, McLouth has a .261 batting average, 51 homers and 160 RBI.