Remuneration Committee

Members

Karen Jones (Chair)
Sir Ronald Garrick
Coline McConville
Richard Cousins

The following are the terms of reference of the Remuneration Committee ('the Committee') of HBOS plc ('the Company') in relation to the Company and HBOS Group ('the Group').

1. Membership

1.1      The Committee is a committee of the Board of the Company and will comprise at least three Non-executive Directors of the Company, excluding the Chairman of the Company, who are independent of management and free of any business or other relationship which could interfere with the exercise of their independent judgement.  The quorum of the Committee is any two Committee members.

1.2       Appointments to the Committee are made by the Chairman of the Company.  The composition of the Committee and the Chairman of the Committee are approved by the HBOS Board ("the Board").

1.3       The Secretary to the Committee is appointed by the Chairman of the Committee.

3. Frequency of Meetings

3.1       The Committee meets at least four times a year.  Any Committee member or the Secretary may call additional meetings as necessary.

4. Authority and Process

4.1       The Committee is authorised by the Board to undertake any activity within its terms of reference.

4.2       The Committee is authorised by the Board to seek appropriate professional advice and resource inside and outside the Group as and when it considers this necessary.

4.3       Although normally decisions are reached on a consensus, in the event of a disagreement, decisions on any matter are made by the majority, with the Chairman of the meeting having a second casting vote in the event of a tie.  A Committee member who remains opposed to a proposal after a vote can ask for his or her dissent to be noted in the minutes.

4.4       No person is to be involved in any decisions as to their own remuneration.

4.5       In carrying out its duties under these terms of reference, the Committee will have due regard to any legal requirements, provisions and recommendations in the Combined Code on Corporate Governance and the UK Listing Authority's Listing Rules and associated guidance.

4.6       It is the responsibility of the Chairman of the Committee to develop detailed terms of reference for the Committee and to agree these with the Board and to ensure the effectiveness and efficiency of the Committee.  

5. Principal Duties

In HBOS, colleagues fall into one of nine Levels 1-9, supplemented by the Executive Directors.

The Committee:

5.1       considers and recommends to the Board remuneration policy for Executive Directors and those in Levels 6, 7, 8 and 9 (salary, incentive schemes, pension plans and other benefits and payments to be made on retirement, resignation or dismissal);

5.2       determines the specific remuneration arrangements for Executive Directors and other direct executive reports of the Chief Executive a including their specific salary reviews;

5.3       approves the total costs of the salary reviews for those in Levels 6, 7, 8 and 9;

5.4       considers the pension consequences and associated costs to the Company of basic salary increases and any other changes in pensionable remuneration for Executive Directors and other direct executive reports of the Chief Executive.

5.5       determines targets for any performance-related pay schemes operated by the Company for Executive Directors and other executives who report directly to the Chief Executive;

5.6       considers whether the Executive Directors should be eligible for annual bonuses with appropriate performance conditions and upper limits taken into account;

5.7       considers whether the Executive Directors should be eligible for benefits under long term incentive schemes;

5.8       considers and advises on any major changes in employee benefit structures throughout the Group;

5.9       approves the terms of appointment for and determines the specific remuneration arrangements (including the operation of any appropriate incentive schemes) for the Chairman of the Company; and determines the specific fee for the Deputy Chairman of the Company;

5.10     approves any contract of employment or related contract with any Executive Director or with the Chairman of the Company on behalf of the Company;

5.11     unless otherwise agreed by the Board, acts as the “Committee” (as that term is defined) in respect of, and otherwise operates and administers, the incentive schemes of the Company for the Chairman of the Company, the Executive Directors and those in Levels 6, 7, 8 and 9, or any similar schemes requiring Board approval which may be introduced or approved from time to time;

5.12     periodically has the opportunity to review the overall remuneration of the most highly paid colleagues in the Group;

5.13     periodically has the opportunity to review the ongoing appropriateness and relevance of remuneration policy for all colleagues in the Group;

5.14     determines discretionary payments, if any, and considers other compensation commitments to be made on the retirement, resignation or dismissal of Executive Directors and other executives who report directly to the Chief Executive with the aim of ensuring fairness while avoiding reward for poor performance and with the further aim of fully recognising the duty to mitigate loss;

5.15     provides advice in relation to the fees payable to Non-Executive Directors of the Group companies who are not Non-Executive Directors of the Company;

5.16     determines the specific remuneration (where appropriate) for the Trustees of the Group's Pension Scheme in place from time to time;

5.17     considers and recommends to the Board the contents of the Board’s annual reports to shareholders on Directors’ remuneration to be included in the Annual Report and Accounts and the Summary Financial Statement;

5.18     will be available in the person of the Chairman of the Committee to answer Shareholders’ questions about Directors’ remuneration at the Annual General Meeting;

5.19     considers the policy and approval process for Executive Directors and those in Levels 6, 7, 8 and 9 taking up external non-executive appointments;

5.20     considers the policy and monitoring process for all Directors and those in Levels 6, 7, 8 and 9 holding shares in the Company;

5.21     agrees the policy for authorising claims for expenses from the Chief Executive and the Chairman of the Company; and

5.22     selects, appoints and sets the terms of reference of any remuneration consultants who advise the Committee.

6. Minutes

6.1       Draft minutes of meetings of the Committee are to be provided to the Chairman of the Committee within ten business days of the meeting.

6.2       Minutes of meetings of the Committee are to be circulated to all members of the Committee and to nominated recipients (including the Chairman and the Chief Executive of the Company) with papers for the subsequent meeting.

6.3       Once approved, minutes of meetings of the Committee are to be circulated to all other Non-Executive Directors of the Company within ten business days of approval and are to be made available to all other Executive Directors of the Company with the approval of the Chairman of the Committee.