Remuneration Committee

Reference to "the Committee" shall mean the Remuneration Committee.
Reference to "the Board" shall mean the Board of Directors.

1. Duties

The Committee shall:

1.1. determine and agree with the Board the framework or broad policy for the remuneration of the Society's Chief Executive, Executive Directors, Group Directors, Divisional Directors, Secretary, and any other individual employees identified as Code Staff under the provisions of the FSA Remuneration Code (collectively "Code Staff") and of its Chairman. The remuneration of non-executive directors shall be a matter for the Chairman and the executive members of the Board. No director or manager shall be involved in any decisions as to his/her own remuneration;

1.2. in determining such policy, take into account all factors which it deems necessary, including applicable legal and regulatory requirements, the FSA's Code on Remuneration Practices and the UK Corporate Governance Code. The objective of such policy shall be to ensure that Code Staff are provided with appropriate incentives to encourage enhanced performance and are, in a fair and responsible manner, rewarded for their individual contributions to the success of the Society;

1.3. review the ongoing appropriateness and relevance of the remuneration policy across the entire Group;

1.4. when setting remuneration policy for Code Staff, have due regard to the remuneration trends across rest of the Group;

1.5. determine the policy, term, objectives and content of, Code Staff's service contracts and regularly review these contracts to ensure that they remain aligned to the Committee's overarching remuneration policy and best practice guidance;

1.6. approve the design of, and determine targets for, any performance related pay schemes operated by the Group for the benefit of Code Staff and approve the total annual payments under such schemes;

1.7. determine the policy for, and scope of, pension arrangements for each member of Code Staff;

1.8. ensure that in relation to Executive Directors, contractual terms on termination, and any payments made, are fair to the individual, and the Society, that failure is not rewarded, that the duty to mitigate loss is fully recognised and that severance payments are fully disclosed in the Directors' Remuneration Report;

1.9. within the terms of the agreed policy and in consultation with the Chairman and/or Chief Executive as appropriate, determine the total individual remuneration package of each member of Code Staff, including bonuses and incentive payments. In the case of the Chief Risk Officer and the Divisional Director, Business Protection the Board Risk Committee will be asked to review performance agreements and proposed incentive payments prior to consideration by the Remuneration Committee;

1.10. in determining such packages and arrangements, give due regard to any relevant legal and regulatory requirements, including the FSA's Treating Customers Fairly Guidance, the FSA's Remuneration Code of Practice, the UK Listing Authority's Listing Rules and Disclosure and Transparency Rules and the recommendations in the UK Corporate Governance Code. This includes seeking appropriate authorisation from the relevant governing bodies, as required;

1.11. oversee remuneration policy throughout the Society, noting the risks posed by remuneration policies;

1.12. oversee the proportion of risk-adjusted profits that should be accrued, and paid out, in the form of variable remuneration on an annual basis;

1.13. oversee any major changes in employee benefits structures throughout the Group;

1.14. agree the policy for authorising claims for expenses from the Chairman, Chief Executive and the Executive Directors;

1.15. ensure that all provisions regarding disclosure of remuneration including pensions, as set out in Part 15 of the Companies Act 2006 and the UK Corporate Governance Code, are fulfilled;

1.16. be exclusively responsible for establishing the selection criteria, selecting, appointing and setting the terms of reference for any remuneration consultants who advise the committee; and

1.17 obtain reliable, up-to-date information about remuneration in other organisations operating in the same market as the Society. The Committee shall have full authority to commission any reports or surveys which it deems necessary to help it fulfil its obligations.

2. Reporting Responsibilities

2.1. The Committee Chairman shall report formally to the Board on its proceedings after each meeting on all matters within its duties and responsibilities.

2.2. The Committee shall make whatever recommendations to the Board it deems appropriate on any area within its remit where action or improvement is needed.

2.3. The Committee shall produce an annual report of the Society's remuneration policy and practices which will form part of the Society's Annual Report and ensure each year that it is put to members for approval at the AGM.

2.4 The Committee shall provide the FSA with a statement of the Society's remuneration policy from time to time, as required.

3. Other

3.1. The Committee shall, at least once a year, review its own performance, constitution and terms of reference to ensure it is operating at maximum effectiveness and in line with FSA requirements, and recommend any changes it considers necessary to the Board for approval.

3.2 The Committee shall give due regard to applicable laws and regulations, including the FSA's Principles and Rules, the FSA's Code on Remuneration Practices, the UK Listing Authority's Listing Rules and Disclosure and Transparency Rules and to the recommendations in the UK Corporate Governance Code, as appropriate.

4. Authority

4.1. The Committee is authorised by the Board to seek any information it requires from any employee of the Society in order to perform its duties. In particular, the Committee shall seek appropriate input from the Risk and Compliance functions when determining remuneration policy.

4.2. In connection with its duties the Committee is authorised by the Board to obtain, at the Society's expense, any external legal or other professional advice.

4.3 The Committee shall have access to sufficient resources in order to carry out its duties, including access to the Society's Secretariat for assistance as required.

Remuneration Committee Composition

1. Membership

1.1. Members of the Committee shall be appointed by the Board, on the recommendation of the Nomination Committee in consultation with the Chairman of the Remuneration Committee. The Committee shall be made up of independent non-executive directors.

1.2. Only members of the Committee have the right to attend Committee meetings. However, other individuals such as the Chairman of the Board, Chief Executive and Group Director, HR & Corporate Affairs and external advisers may be invited to attend all or part of any meeting as and when appropriate.

1.3. Appointments to the Committee shall be for a period of up to three years, which may be extended for a further three year period (or, in exceptional circumstances, two such periods), provided the director remains independent.

1.4. The Board shall appoint the Committee Chairman who shall be an independent non-executive director. In the absence of the Committee Chairman and/or an appointed deputy, the remaining members present shall elect one of themselves to chair the meeting.

Remuneration Committee Quorum and Meetings

1. Secretary

1.1. The Secretary of the Society or his/her nominee shall act as the Secretary of the Committee.

2. Quorum

2.1. The quorum necessary for the transaction of business shall be two members. A duly convened meeting of the Committee at which a quorum is present shall be competent to exercise all or any of the authorities, powers and discretions vested in or exercisable by the Committee.

3. Frequency of Meetings

3.1. The Committee shall meet at least four times a year and otherwise as required.

4. Notice of Meetings

4.1. Meetings of the Committee shall be summoned by the Secretary of the Committee at the request of any of its members or at the request of external or internal auditors if they consider it necessary.

4.2. Unless otherwise agreed, notice of each meeting confirming the venue, time and date together with an agenda of items to be discussed, shall be forwarded to each member of the Committee and any other person required to attend no later than 5 working days before the date of the meeting. Supporting papers shall be sent to Committee members and to other attendees as appropriate, at the same time.

5. Minutes of Meetings

5.1. The Secretary shall minute the proceedings and resolutions of all meetings of the Committee, including recording the names of those present and in attendance.

5.2. The Secretary shall record any conflicts of interest divulged at the meeting.

5.3. Minutes of Committee meetings shall be circulated promptly to all members of the Committee and, once agreed, to all members of the Board (unless it would be inappropriate to do so).

6. Annual General Meeting

6.1. The Chairman of the Committee shall attend the Annual General Meeting prepared to respond to any member questions on the Committee's activities.

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