SCHEDULE 14A ~~INFORMATION PROXY STATEMENT PURSUANT TO SECTION~~

Proxy Statement Pursuant to Section 14(a) ~~OF THE SECURITIES EXCHANGE ACT OF~~of

the Securities Exchange Act of 1934

Filed by the Registrant ~~[x]~~ x

Filed by a Party other than the Registrant ~~[ ]~~ ¨

Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [x] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Under Rule 14a-12

The Charles Schwab Corporation - -------------------------------------------------------------------------------- (Name or Registrant as Specified in Its Charter) - -------------------------------------------------------------------------------- (Name

(Name of Person(s) Filing Proxy Statement if other than the Registrant)

Payment of ~~filing fee~~Filing Fee (Check the appropriate box): [x] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. (1) Title of each class of securities to which transaction applies: - -------------------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applied: - -------------------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee was calculated and state how it was determined): - -------------------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: - -------------------------------------------------------------------------------- (5) Total fee paid: - -------------------------------------------------------------------------------- [ ] Fee paid previously with preliminary materials: - -------------------------------------------------------------------------------- [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: - -------------------------------------------------------------------------------- (2) Form, Schedule or Registration Statement No.: - -------------------------------------------------------------------------------- (3) Filing Party: - -------------------------------------------------------------------------------- (4) Date Filed: - -------------------------------------------------------------------------------- ~~The Charles Schwab Corporation 2001~~

x	No fee required.

¨	Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1)

Title of each class of securities to which transaction applies:

(2)

Aggregate number of securities to which transaction applies:

(3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

(4)

Proposed maximum aggregate value of transaction:

(5)

Total fee paid:

¨	Fee previously paid with preliminary materials.

¨	Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

(1)

Amount previously paid:

(2)

Form, Schedule or Registration Statement No.:

(3)

Filing Party:

(4)

Date Filed:

THE CHARLES SCHWAB CORPORATION

2004 Proxy Statement

LETTER TO STOCKHOLDERS

March ~~26, 2001~~ 29, 2004

Dear Fellow ~~Stockholders:~~ Stockholders,

We cordially invite you to attend our ~~2001 Annual Meeting~~2004 annual meeting of ~~Stockholders.~~stockholders. The meeting will be held on Monday, May ~~7, 2001,~~17, 2004, at 2:00 p.m., Pacific time, at the ~~Palace Hotel, 2 New Montgomery~~Yerba Buena Center for the Arts Theater, 701 Mission Street, San Francisco, California.

At the meeting we will: * elect four directors for three-year terms, * vote on a proposal to amend the Certificate of Incorporation to increase the number of authorized shares of common stock, * vote on a proposal to approve the 2001 Stock Incentive Plan, * vote on a proposal to approve the Annual Executive Individual Performance Plan, as amended, and * transact any other business properly coming before the meeting.

elect three directors for three-year terms,

vote on the approval of the 2004 Stock Incentive Plan, and

conduct any other business properly coming before the meeting.

We also will report on our corporate performance in ~~2000~~2003 and answer your questions. ~~In view of your interest in the webcast of last year's annual meeting, we will offer a webcast of this year's meeting.~~

We are continuing to make our proxy statement and annual report available over the Internet. Also, all stockholders again will be able to vote on the Internet. WE ENCOURAGE YOU ONCE AGAIN TO TAKE ADVANTAGE OF INTERNET VOTING. IT IS A SIMPLE PROCESS AND THE LEAST EXPENSIVE WAY FOR US TO PROCESS YOUR VOTE. Furthermore, if you vote on the Internet, you will have the option at that time to enroll in Internet delivery. WE ENCOURAGE STOCKHOLDERS WHO HAVE NOT YET DONE SO TO ENROLL IN INTERNET DELIVERY. IT IS THE LEAST EXPENSIVE AND QUICKEST WAY FOR US TO SEND PROXY MATERIALS TO YOU. We wantwish to express our appreciation and gratitude to ~~Dr. Condoleezza Rice who, after 18 months~~Anthony M. Frank for his distinguished service to the company as a director for more than twelve years. Mr. Frank will retire from the Board at the time of ~~valued service, resigned from~~ our ~~Board of Directors in January 2001, after which time she began serving~~annual meeting. We are pleased that Mr. Frank will serve as the ~~National Security Advisor~~first emeritus director of ~~the United States. While performing this governmental service, Dr. Rice is on leave from Stanford University~~The Charles Schwab Corporation after his retirement and has been nominated to serve as a ~~Senior Fellow at the Hoover Institution and distinguished Professor~~director of ~~Political Science.~~ Charles Schwab Bank, N.A.

We look forward to seeing you at ~~the~~our annual meeting. If you cannot attend the meeting in person, we ~~encourage~~hope you towill join us via ~~the Internet broadcast.~~ our Webcast.

Sincerely, /s/ CHARLES R. SCHWAB /s/ DAVID S. POTTRUCK - --------------------- --------------------- CHARLES R. SCHWAB DAVID S. POTTRUCK CHAIRMAN OF THE BOARD AND PRESIDENT AND CO-CHIEF EXECUTIVE OFFICER CO-CHIEF EXECUTIVE OFFICER 1 [side bar] [PHOTO OF CHARLES R. SCHWAB AND DAVID S. POTTRUCK]

LOGO

CHARLES R. SCHWAB

LOGO

DAVID S. POTTRUCK

CHAIRMAN

CHIEF EXECUTIVE OFFICER

TABLE OF CONTENTS


Notice of 2004 Annual Meeting of Stockholders		iii

Proxy Statement		1
Voting Your Shares		1
Proposals To Vote On		2
Item 1: Election of Directors		2
Item 2: Approval of the 2004 Stock Incentive Plan		2
Other Business		2
The Board of Directors		3
Members of the Board of Directors		3
Number of Directors and Terms		5
Board and Committee Meetings		6
Compensation Committee Interlocks and Insider Participation		8
Director Compensation		8
Director Independence		9
Director Nominations		10
Communications with the Board of Directors		12
Independent Auditors		13
Audit Committee Report		13
Auditor Selection and Fees		14
Executive Compensation		16
Compensation Committee Report on Executive Compensation		16
Summary Compensation Table		21
Options Granted in 2003		23
Fiscal Year-End Option Values		24
Securities Authorized for Issuance Under Equity Compensation Plans		25
Material Features of Employee Stock Incentive Plan		26
Long-Term Incentive Plan—Awards in 2003		27
Principal Stockholders		28
Performance Graph		30
Section 16(a) Beneficial Ownership Reporting Compliance		31
Certain Relationships and Related Transactions		31
Information about Voting Procedures		32
How is my vote counted?		32
What if I change my mind after I submit my proxy?		32
How many votes must the director nominees receive to be elected as directors?		32
What happens if a director nominee is unable to stand for election?		32
How many votes are needed for approval of the 2004 Stock Incentive Plan?		32
What is a “broker non-vote”?		32
What is the effect of not providing voting instructions if my shares are held in street name?		33
What is the effect of not submitting my proxy if my shares are held in a retirement plan?		33
What does it mean if I receive more than one proxy card?		33

TABLE OF CONTENTS


Is my vote kept confidential?		33
Where do I find voting results of the meeting?		33
Information about the Proxy Statement and Proposals		34
Who pays the cost for proxy solicitation?		34
How do I submit a stockholder proposal for next year’s annual meeting?		34
What is “householding”?		34
What is meant by “incorporation by reference”?		34
Information about the Annual Meeting		35
How do I obtain tickets to the annual meeting?		35
How do I access the webcast of the annual meeting?		35
Exhibit A: Description of the 2004 Stock Incentive Plan		36
Exhibit B: Description of Charles R. Schwab’s Employment and License Agreements		42
Exhibit C: Description of Lon Gorman’s Employment Agreement		44

NOTICE OF ~~2001~~2004 ANNUAL MEETING OF STOCKHOLDERS..................................3 PROXY STATEMENT................................................................4 Questions and Answers.......................................................5 Proposals To Be Voted On...................................................10 STOCKHOLDERS

The ~~Board~~2004 annual meeting of Directors.....................................................13 Board and Committee Meetings...............................................17 Compensation Committee Interlocks and Insider Participation................18 Director Compensation......................................................19 Principal Stockholders.....................................................20 Performance Graph..........................................................22 Summary Compensation Table.................................................23 Option Grants..............................................................26 Options Exercised..........................................................27 Compensation Committee Report..............................................28 Audit Committee Report.....................................................34 Auditor Independence.......................................................35 Other Information..........................................................36 Certain Transactions..................................................36 Section 16(a) Beneficial Ownership Reporting Compliance...............37 Stockholder Proposals.................................................37 Costs of Proxy Solicitation...........................................37 Incorporation by Reference............................................37 TICKETS AND INTERNET ACCESS TO THE ANNUAL MEETING.............................38 APPENDIX A - - DESCRIPTION OF EMPLOYMENT AND LICENSE AGREEMENTS...............39 APPENDIX B - - DESCRIPTION OF THE 2001 STOCK INCENTIVE PLAN...................42 APPENDIX C - - DESCRIPTION OF THE ANNUAL EXECUTIVE INDIVIDUAL PERFORMANCE PLAN...........................................................47 APPENDIX D - - NEW PLAN BENEFITS TABLE........................................49 APPENDIX E - - AUDIT COMMITTEE CHARTER........................................50 2 ~~NOTICE OF 2001 ANNUAL MEETING OF STOCKHOLDERS The 2001 Annual Meeting of Stockholders~~stockholders of The Charles Schwab Corporation will be held on Monday, May ~~7, 2001,~~17, 2004, at 2:00 p.m., Pacific time, at the ~~Palace Hotel, 2 New Montgomery~~Yerba Buena Center for the Arts Theater, 701 Mission Street, San Francisco, California, to conduct the following items of business: * elect four directors for three-year terms, * vote on a proposal to amend the Certificate of Incorporation to increase the number of authorized shares of common stock, * vote on a proposal to approve the 2001 Stock Incentive Plan, * vote on a proposal to approve the Annual Executive Individual Performance Plan, as amended, and * transact any other business properly coming before the meeting.

elect three directors for three-year terms,

vote on the approval of the 2004 Stock Incentive Plan, and

conduct any other business properly coming before the meeting.

Stockholders who owned shares of our common stock at the close of business on March ~~8, 2001~~18, 2004 are entitled to attend and vote at the meeting and any adjournment or postponement of the meeting. A complete list of registered stockholders will be available prior to the meeting at our principal executive offices at 120 Kearny Street, San Francisco, California 94108.

By Order of the Board of Directors, ~~/s/~~

LOGO

CARRIE E. DWYER ~~- ------------------- CARRIE E. DWYER~~

EXECUTIVE VICE PRESIDENT,

GENERAL COUNSEL AND

CORPORATE SECRETARY ~~3 [side bar] THE 2001 ANNUAL MEETING OF STOCKHOLDERS WILL BE HELD ON MONDAY, MAY 7, 2001, AT 2:00 P.M., AT THE PALACE HOTEL IN SAN FRANCISCO, CALIFORNIA.~~ ~~PROXY STATEMENT As a stockholder~~

iii

VOTING YOUR SHARES

We, the Board of Directors of The Charles Schwab Corporation, ~~you have a right to vote on certain matters affecting the company. This proxy statement discusses the proposals you~~ are voting on this year. Please read this proxy statement carefully because it contains important information for you to consider when deciding how to vote. YOUR VOTE IS IMPORTANT. In this proxy statement, we refer to The Charles Schwab Corporation as the "Company." We also refer to this proxy statement, the proxy card and our 2000 annual report as the "proxy materials." The Board of Directors is sending these proxy materials to you, ~~and all other stockholders~~the stockholder, on or about March 26, 2001. The Board is asking you to vote your shares by completing and returning the proxy card or otherwise submitting your vote in a manner described on pages 5 and 6 of this proxy statement under "Questions and Answers - How Do I Vote?" Unless we state otherwise, all information in this proxy statement concerning Company common stock reflects the May 2000 three-for-two stock split. 29, 2004.

This proxy statement ~~includes summary~~describes the proposals on which we would like you to vote. It contains essential information ~~on the Company's financial performance. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. 4 [side bar] STOCKHOLDERS OWNING COMPANY~~to consider when making your decisions.

Your vote is important.

VOTING YOUR SHARES ~~AT THE CLOSE OF BUSINESS ON MARCH 8, 2001 ARE ENTITLED TO ATTEND AND VOTE AT THE MEETING.~~ ~~QUESTIONS AND ANSWERS Q: WHO CAN VOTE AT THE ANNUAL MEETING? A:~~

Stockholders who owned ~~Company~~the company’s common stock at the close of business on March ~~8, 2001~~18, 2004 may attend and vote at the annual meeting. Each share is entitled to one vote. There were ~~1,386,965,389~~1,363,839,940 shares of ~~Company~~ common stock outstanding on March 8, 2001. Q: WHAT IS IN THIS PROXY STATEMENT? A: This proxy statement describes the proposals on which we would like you, as a stockholder, to vote. It also gives you information on the proposals, as well as other information, so that you can make an informed decision. Q: WHAT IS THE PROXY CARD? A: The proxy card enables you to appoint Charles R. Schwab and David S. Pottruck as your representatives at the annual meeting. By completing and returning the proxy card, you are authorizing Mr. Schwab and Mr. Pottruck to vote your shares at the meeting as you have instructed them on the proxy card. This way, your shares will be voted whether or not you attend the meeting. Even if you plan to attend the meeting, it is a good idea to complete and return your proxy card before the meeting date just in case your plans change. Q: WHAT AM18, 2004.

How do I VOTING ON? A: We are asking you to vote on: * the election of four directors for terms of three years, * a proposal to amend the Certificate of Incorporation to increase the number of authorized shares of common stock, * a proposal to approve the 2001 Stock Incentive Plan, and * a proposal to approve the Annual Executive Individual Performance Plan, as amended. The section entitled "Proposals To Be Voted On," beginning on page 10, gives you more information on these matters. Q: HOW DO I VOTE? A: YOU MAY VOTE BY MAIL. You do this by completing and signing your proxy card and mailing it in the enclosed, prepaid and addressed envelope. If you mark your voting instructions on the proxy card, your shares will be voted: * as you instruct, and * according to the best judgment of Mr. Schwab and Mr. Pottruck if a proposal comes up for a vote at the meeting that is not on the proxy card. If you do not mark your voting instructions on the proxy card, your shares will be voted: * FOR the four named nominees for directors, * FOR approval of the amendment to the Certificate of Incorporation to increase the number of authorized shares of common stock, * FOR approval of the 2001 Stock Incentive Plan, * FOR approval of the Annual Executive Individual Performance Plan, as amended, and 5 [side bar] WHO CAN VOTE AT THE ANNUAL MEETING? WHAT IS IN THIS PROXY STATEMENT? WHAT IS THE PROXY CARD? WHAT AM I VOTING ON? HOW DO I VOTE? QUESTIONS AND ANSWERS * according to the best judgment of Mr. Schwab and Mr.Pottruck if a proposal comes up for a vote at the meeting that is not on the proxy card. YOU MAY VOTE BY TELEPHONE. vote?

You may vote on the Internet.

You do this by following the ~~"Vote~~“Vote by Telephone" instructions that came with your proxy statement. If you vote by telephone, you do not have to mail in your proxy card. YOU MAY VOTE ON THE INTERNET. You do this by following the "Vote by Internet"Internet” instructions that came with your proxy statement. If you vote on the Internet, you do not have to mail in your proxy card. ~~YOU MAY VOTE IN PERSON AT THE MEETING.~~ Voting on the Internet is the least expensive means for us to process your vote.

You may vote by telephone.

You do this by following the “Vote by Telephone” instructions that came with your proxy statement. If you vote by telephone, you do not have to mail in your proxy card.

You may vote by mail.

You do this by completing and signing your proxy card and mailing it in the enclosed prepaid and addressed envelope.Voting by mail is the most expensive means for us to process your vote.

You may vote in person at the meeting.

We will pass out written ballots to anyone who wants to vote in person at the meeting. However, if you hold your shares in street name, you must request a proxy from your stockbroker in order to vote at the meeting. Holding shares in ~~"street name"~~“street name” means you hold them through a brokerage firm, bank or other nominee, and therefore the shares are not held in your individual name. ~~Q: HOW DO~~

What am I ~~VOTE MY DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN SHARES? A: If~~voting on?

We are asking you participate in the Dividend Reinvestment and Stock Purchase Plan managed by our transfer agent, Wells Fargo Bank Minnesota, N.A., the proxy card you receive from Wells Fargo will include your Company shares held under that plan. If you participate in our Dividend Reinvestment and Stock Purchase Plan through the Company's principal brokerage subsidiary, Charles Schwab & Co., Inc., the proxy card you receive from that firm will include Company shares held in your brokerage account and under that plan. If you hold Company shares through the U.S. Trust Corporation Employee Stock Purchase Plan, the proxy card you receive from Wells Fargo will include those shares. WE ENCOURAGE YOU TO EXAMINE YOUR PROXY CARD AND VOTING INSTRUCTIONS CLOSELY TO MAKE SURE YOU ARE VOTING ALL OF YOUR COMPANY SHARES. Q: HOW DO I VOTE MY RETIREMENT PLAN SHARES? A: The proxy card you receive from our transfer agent will include your Company shares, if any, held under The SchwabPlan Retirement Savings and Investment Plan and under the 401(k) Plan and ESOP of United States Trust Company of New York and Affiliated Companies. By completing and returning your proxy card, you provide voting instructions: * to the transfer agent for shares you hold in your individual name at Wells Fargo Bank Minnesota, N.A., and * to these plans' purchasing agents for shares you hold through these plans. Q: WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD? A: It means that you have multiple accounts at the transfer agent or with stockbrokers. Please complete and return all proxy cards to ensure that all your shares are voted. 6 [side bar] HOW DO I VOTE MY DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN SHARES? HOW DO I VOTE MY RETIREMENT PLAN SHARES? WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD? QUESTIONS AND ANSWERS Unless you need multiple accounts for specific purposes, it may be less confusing if you consolidate as many of your transfer agent or brokerage accounts as possible under the same name and address. Q: WHAT IF I CHANGE MY MIND AFTER I RETURN MY PROXY? A: You may revoke your proxy and change your vote by: * signing another proxy card with a later date and returning it before the polls close at the meeting, * voting by telephone or on the Internet before 12:00 p.m., Central time, on May 4, 2001 (your LATEST telephone or Internet vote is counted), or * voting at the meeting. Q: WILL MY SHARES BE VOTED IF I DO NOT RETURN MY PROXY? A: IF YOUR SHARES ARE HELD IN STREET NAME, YOUR BROKERAGE FIRM, UNDER CERTAIN CIRCUMSTANCES, MAY VOTE YOUR SHARES. Brokerage firms have authority under New York Stock Exchange rules to vote customers' unvoted shares on some "routine" matters. The New York Stock Exchange has determined that except for the proposal to approve the 2001 Stock Incentive Plan, all of the proposals described under "Proposals To Be Voted On," beginning on page 10, are considered routine matters. If you do not give a proxy to vote your shares, your brokerage firm may either: * vote your shares on routine matters, or * leave your shares unvoted. As a brokerage firm, Charles Schwab & Co., Inc. may vote its customers' unvoted shares on routine matters. However, as the Company's subsidiary, when it is voting on Company proposals, it must follow a stricter set of New York Stock Exchange rules. Specifically, our brokerage subsidiary can vote unvoted Company shares held in brokerage accounts only in the same proportion as all other stockholders vote. When a brokerage firm votes its customers' unvoted shares on routine matters, these shares are counted to determine if a quorum exists to conduct business at the meeting. A brokerage firm cannot vote customers' unvoted shares on non-routine matters. These shares are considered not entitled to vote on non-routine matters,rather than having the effect of a vote against the matters. We encourage you to provide instructions to your brokerage firm by giving your proxy. This ensures your shares will be voted at the meeting. YOU MAY HAVE GRANTED TO YOUR STOCKBROKER DISCRETIONARY VOTING AUTHORITY OVER YOUR ACCOUNT. Your stockbroker may be able to vote your shares depending on the terms of the agreement you have with your stockbroker. A PURCHASING AGENT UNDER A RETIREMENT PLAN MAY BE ABLEfor:

the election of three directors for terms of three years, and

the approval of the 2004 Stock Incentive Plan.

PROPOSALS TO VOTE A PARTICIPANT'S UNVOTED SHARES. FOR EXAMPLE, IF YOU ARE A PARTICIPANT IN THE SCHWABPLAN RETIRE- MENT SAVINGS AND INVESTMENT PLAN, THE PLAN'S PURCHASING AGENT, UNDER CERTAIN CIRCUMSTANCES, CAN VOTE YOUR SHARES. 7 [side bar] WHAT IF I CHANGE MY MIND AFTER I RETURN MY PROXY? WILL MY SHARES BE VOTED IF I DO NOT RETURN MY PROXY? QUESTIONS AND ANSWERS Specifically, the purchasing agent will vote shares you hold under the Employee Stock Ownership Plan ("ESOP") component of The SchwabPlan Retirement Savings and Investment Plan if the purchasing agent does not receive voting instructions from you. The purchasing agent will vote your unvoted shares held under the ESOP component of the overall plan in the same proportion as all other plan partici- pants vote their shares held under the ESOP component of the overall plan. Q: HOW MANY SHARES MUST BE PRESENT TO HOLD THE MEETING? A: To hold the meeting and conduct business, a majority of the Company's out- standing shares as of March 8, 2001 must be present at the meeting. This is called a quorum. Shares are counted as present at the meeting if the stockholder either: * is present and votes in person at the meeting, or * has properly submitted a proxy (including voting by telephone or over the Internet). Q: HOW MANY VOTES MUST THE NOMINEES RECEIVE TO BE ELECTED AS DIRECTORS? A: The four nominees receiving the highest number of votes FOR election will be elected as directors. This number is called a plurality. Q: HOW MANY VOTES MUST THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION RECEIVE TO BE APPROVED? A: The amendment will be approved if a majority of the Company's shares out- standing as of March 8, 2001 vote FOR approval. Q: HOW MANY VOTES MUST THE 2001 STOCK INCENTIVE PLAN RECEIVE TO BE APPROVED? A: The 2001 Stock Incentive Plan will be approved if a majority of the shares present at the meeting in person or by proxy vote FOR approval. Q: HOW MANY VOTES MUST THE ANNUAL EXECUTIVE INDIVIDUAL PERFORMANCE PLAN RECEIVE TO BE APPROVED? A: The Annual Executive Individual Performance Plan, as amended, will be approved if a majority of the shares present at the meeting in person or by proxy vote FOR approval. Q: WHAT HAPPENS IF A DIRECTOR NOMINEE IS UNABLE TO STAND FOR ELECTION? A: The Board may reduce the number of directors or select a substitute nominee. In the latter case, if you have completed and returned your proxy card, Charles R. Schwab and David S. Pottruck can vote your shares for a substitute nominee. They cannot vote for more than four nominees. 8 [side bar] HOW MANY SHARES MUST BE PRESENT TO HOLD THE MEETING? HOW MANY VOTES MUST THE NOMINEES RECEIVE TO BE ELECTED AS DIRECTORS? HOW MANY VOTES MUST THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION RECEIVE TO BE APPROVED? HOW MANY VOTES MUST THE 2001 STOCK INCENTIVE PLAN RECEIVE TO BE APPROVED? HOW MANY VOTES MUST THE ANNUAL EXECUTIVE INDIVIDUAL PERFORMANCE PLAN RECEIVE TO BE APPROVED? WHAT HAPPENS IF A DIRECTOR NOMINEE IS UNABLE TO STAND FOR ELECTION? QUESTIONS AND ANSWERS Q: HOW ARE VOTES COUNTED? A: You may vote either "for" each director nominee or withhold your vote from any one or more of the nominees. You may vote "for" or "against" or "abstain" from voting on each of the other three proposals. If you abstain from voting on any proposal, it will have the same effect as a vote "against" the proposal. If you give your proxy without voting instructions, your shares will be counted as a vote FOR each director nominee and FOR each of the other three proposals. Voting results are tabulated and certified by our transfer agent, Wells Fargo Bank Minnesota, N.A. Q: IS MY VOTE KEPT CONFIDENTIAL? A: Proxies, ballots and voting tabulations identifying stockholders are kept confidential by the Company's transfer agent and will not be disclosed except as may be necessary to meet legal requirements. Q: HOW DO I ACCESS THE ANNUAL MEETING ON THE INTERNET? A: For information on how to receive the real-time broadcast of the annual meeting over the Internet, go to WWW.SCHWABEVENTS.COM. Q: WHERE DO I FIND THE VOTING RESULTS OF THE MEETING? A: We will announce preliminary voting results at the meeting. We will publish the final results in our quarterly report on Form 10-Q for the second quarter of 2001. We will file that report with the Securities and Exchange Commission in mid-August, and you can get a copy by contacting our Investor Relations Hotline at (415) 636-2787 or the SEC at (800) SEC-0330 for the location of its nearest public reference room. You can also get a copy on the Internet at WWW.SCHWAB.COM by clicking on "About Schwab" or through the SEC's electronic data system called EDGAR at WWW.SEC.GOV. 9 [side bar] HOW ARE VOTES COUNTED? IS MY VOTE KEPT CONFIDENTIAL? HOW DO I ACCESS THE ANNUAL MEETING ON THE INTERNET? WHERE DO I FIND THE VOTING RESULTS OF THE MEETING? ~~PROPOSALS TO BE VOTED ON~~

ITEM 1. ELECTION OF DIRECTORS

Nominees for directors this year are Donald G. Fisher, ~~Anthony M. Frank, Jeffrey S. Maurer~~Paula A. Sneed and ~~Arun Sarin.~~ David B. Yoffie.

Each nominee is presently a director of the ~~Company~~company and has consented to serve a new three-year term. ~~THE BOARD RECOMMENDS A VOTE FOR THESE NOMINEES.~~

We recommend a vote for these nominees.

ITEM 2. APPROVAL OF ~~AMENDMENT TO CERTIFICATE OF INCORPORATION We are asking~~THE 2004 STOCK INCENTIVE PLAN

The Board has approved the 2004 Stock Incentive Plan, subject to stockholder approval. If approved by stockholders, ~~to approve an amendment to~~ the ~~Company's Certificate of Incorporation to increase~~2004 Plan will be the sole plan for making future stock-based awards, and no further awards will be made under the Employee Stock Incentive Plan, 2001 Stock Incentive Plan and 1992 Stock Incentive Plan. Accordingly, the number of ~~authorized~~ shares ~~of common stock from 2 billion to 3 billion. As of December 31, 2000, 1.507 billion of~~available under the ~~2 billion authorized shares had been used or reserved for use as follows: * 1.386 billion issued and~~2004 Stock Incentive Plan will represent approximately the same percentage of outstanding shares * 97 million shares reserved for stock options that have been granted, * 22 million shares reserved for future grants under incentive plans, and * 2 million shares required for other purposes. Therefore, there are 493 million remaining available authorized shares of common stock. Increasingas the number of ~~authorized~~ shares ~~of common stock will give~~available under the ~~Company greater flexibility for: * stock splits and stock dividends, * grants under employee benefit and employee~~company’s existing stock incentive ~~plans, * financings, corporate mergers~~plans.

All employees, non-employee directors and acquisitions, * issuance of shares under the Company's Dividend Reinvestment and Stock Purchase Plan, and * other general corporate purposes. Having this additional authorized capital stock available for future useconsultants will ~~allow the Company~~be eligible to issue additional shares of common stock without the expense of a special meeting of stockholders. The additional authorized shares will: * be part of the existing class of common stock, * not affect the terms of the common stock or the rights of the holders of common stock, and * have the same rights and privileges as the shares of common stock presently outstanding. Stockholders' current ownership of common stock will not give them automatic rights to purchase any of the additional authorized shares. Any future issuance of additional authorized shares of common stock will decrease the existing stockholders' equity ownership and may have a dilutive effect on earnings per share of common stock and on the equity and voting rights of those holding common stock at the time the additional authorized shares are issued. Although not a factorparticipate in the Board's decision to propose the amendment to the Certificate of Incorporation, one of the effects of the amendment may be to enable 10 [side bar] ELECTION OF DIRECTORS o DONALD G. FISHER o ANTHONY M. FRANK o JEFFREY S. MAURER o ARUN SARIN APPROVAL OF AMENDMENT TO CERTIFICATE OF INCORPORATION PROPOSALS TO BE VOTED ON the Board to make more difficult or to discourage an attempt to obtain control of the Company by means of a merger, tender offer, proxy contest or otherwise, and as a result protect the continuity of present management. The Company is not aware of any effort to accumulate its securities or obtain control of the Company by means of a tender offer, proxy contest or otherwise. The Company is not presently negotiating with anyone concerning the issuance or use of any material amount of shares of common stock. Furthermore, except for the 119 million shares reserved to cover past and future grants under existing incentive plans (as identified above), the Company has no present arrangements, understandings or plans concerning the issuance or use of a material amount of shares of common stock. THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION. 3. APPROVAL OF 2001 STOCK INCENTIVE PLAN We are asking stockholders to approve the 20012004 Stock Incentive Plan. ~~This new plan has been approved by~~As with the ~~Board but will become effective only upon stockholder approval. The new plan will replace~~other plans, the ~~1992~~purpose of the 2004 Stock Incentive Plan which expires in March 2002 (before the next annual meeting of stockholders). The new plan, which has a maximum ten-year term, is substantially the same as the 1992 plan, as amended. Stockholders approved the 1992 plan at the 1992 annual meeting of stockholders and approved various amendments to the 1992 plan in 1994, 1996, 1997, 1998 and 1999. If stockholders approve the new plan, we will be able to issue up to 70 million shares of common stock under the new plan. Non-employee directors and key employees will participate in the new plan. The purpose of the new plan is to promote the long-term success of the ~~Company~~company and increase stockholder value by: *

recruiting, motivating, and retaining the caliber of employees and non-employee directors (and in certain instances consultants) essential for achievement of the company’s success,

linking the interests of employees, non-employee directors and consultants directly to stockholder interests, and

encouraging employees, non-employee directors and consultants to focus on long-term objectives.

If stockholders do not approve the ~~interests of non-employee directors and key employees directly~~2004 Plan, awards will continue to ~~stockholder interests, * encouraging non-employee directors and key employees to focus on long-term objectives, and * attracting and retaining non-employee directors and key employees~~be made under the existing plans in accordance with ~~exceptional qualifications.~~ their terms.

For more information about the ~~new plan,~~2004 Stock Incentive Plan, see the description of its terms in ~~Appendix B. See also the table in Appendix D~~Exhibit A.

We recommend a vote for the amount of stock-based compensation that would have been awarded under the new plan in 2000, based on certain assumptions, had the new plan been in effect in 2000. THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE 2001 STOCK INCENTIVE PLAN. 4. APPROVAL OF ANNUAL EXECUTIVE INDIVIDUAL PERFORMANCE PLAN We are asking stockholders to approve the Annual Executive Individual Performance Plan, as amended. This bonus plan covers certain executive officer participants selected by the Board Compensation Committee, but Co-Chief Executive Officers Charles R. Schwab and David S. 11 [side bar] APPROVAL OF 2001 STOCK INCENTIVE PLAN APPROVAL OF ANNUAL EXECUTIVE INDIVIDUAL PERFORMANCE PLAN PROPOSALS TO BE VOTED ON Pottruck are not eligible to participate. The plan was originally adopted in 1995. In February 2001, the Board approved amendments to the plan to meet certain tax requirements, as explained below. We will be able to achieve the desired tax results for certain bonus payments under the amended plan only if stockholders approve it. Section 162(m)approval of the Internal Revenue Code authorizes tax deductions for certain executive compensation in excess of $1 million only if, among other things, such compensation is based on performance and the plan under which it is paid is approved by stockholders. The aggregate amount of bonuses payable to executive officers, as a group, under the Individual Performance Plan has always been based strictly on our corporate performance. However, because the bonuses of each executive within the group have been based on a subjective determination, those bonuses have not qualified for deduction under Section 162(m). To meet certain requirements of Section 162(m), the amendments to the plan approved by the Board establish objective performance-based criteria (I.E., net revenue growth and pre-tax operating profit margin) for bonus amounts payable to each executive officer. If stockholders approve the Individual Performance Plan, as amended, and the Company complies with certain other requirements of Section 162(m), payments to executive officers under the plan will qualify for deduction under Section 162(m). If stockholders do not approve the amended plan, the amendments will not become effective and bonus payments made to certain executive officers may not qualify for deduction under Section 162(m) to the extent that certain compensation paid to any such executive officer in any calendar year exceeds $1 million. In that case, the Company would not be permitted a tax deduction for certain compensation paid to the affected executive officers. Under the Individual Performance Plan, as amended, the Board Compensation Committee will continue to have the authority to amend the plan without stockholder approval in ways that could increase the cost of the plan or change the allocation of benefits among the participants. For more information about the Individual Performance Plan, as amended, see the description of its terms in Appendix C. See also the table in Appendix D for the bonus amounts that would have been payable under the amended plan in 2000, based on certain assumptions, had the amended plan been in effect in 2000. THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE ANNUAL EXECUTIVE INDIVIDUAL PERFORMANCE PLAN, AS AMENDED. 2004 Stock Incentive Plan.

OTHER BUSINESS ~~The Board knows~~

We know of no other business to be considered at the meeting. However, if: * other matters are properly presented at the meeting, or for any adjourn- ment or postponement of the meeting, and * you have properly submitted your proxy,

other matters are properly presented at the meeting, or at any adjournment or postponement of the meeting, and

you have properly submitted your proxy,

then Charles R. Schwab and David S. Pottruck will vote your shares on those matters according to their best judgment. ~~12 [side bar] OTHER BUSINESS~~

THE BOARD OF DIRECTORS

MEMBERS OF THE BOARD OF DIRECTORS

NANCY H. BECHTLE

DIRECTOR SINCE 1992

Ms. Bechtle, age ~~63, has been~~66, served as President and Chief Executive Officer of the San Francisco Symphony ~~since~~from 1987 until December 2001, and has served as a member of the San Francisco Symphony Board of Governors since 1984. She was a director and Chief Financial Officer of J.R. Bechtle & Co., an international consulting firm, from 1979 to 1998. Ms. Bechtle also has served as Chairman and Chief Executive Officer of Sugar Bowl Ski Resort, and as a director of Sugar Bowl Corporation, since 1998. Ms. ~~Bechtle's~~Bechtle’s term expires in ~~2003.~~ 2006.

C. PRESTON BUTCHER

DIRECTOR SINCE 1988

Mr. Butcher, age ~~62,~~65, has been Chairman and Chief Executive Officer of Legacy Partners (formerly Lincoln Property Company N.C., Inc.), a real estate development and management firm, since 1998. Mr. Butcher served as President, Chief Executive Officer and Regional Partner of Lincoln Property Company N.C., Inc. from 1967 until 1998. Mr. ~~Butcher's~~Butcher’s term expires in ~~2003.~~ 2006.

DONALD G. FISHER

DIRECTOR SINCE 1988

Mr. Fisher, age ~~72,~~75, is ~~Chairman of~~ the ~~Board~~founder of Gap, Inc., a nationwide specialty retail clothing chain. He is a director and Chairman of the Board of Gap, Inc. (he will no longer continue as Chairman after May 2004). He also was ~~also~~ Chief Executive Officer of Gap, Inc. from 1969 to November 1995. Mr. Fisher has been a trustee of the Presidio Trust by appointment of former President Clinton since 1997. He is a member of the California State Board of Education and served on the Advisory Council for the Office of the U.S. Trade Representative from 1987 until 1998. Mr. Fisher is a nominee for election this year.

ANTHONY M. FRANK

DIRECTOR SINCE 1993

Mr. Frank, age ~~69, has been Founding~~72, is Chairman Emeritus and co-founder of Belvedere Capital Partners, a bank holding company and a general partner of an investment fund specializing in financial ~~institutions, since 1993.~~institutions. He served as Chairman of Belvedere Capital Partners from 1993 until 1999. From 1988 until 1992, Mr. Frank served as Postmaster General of the United States. Mr. Frank is a director of Temple-Inland, Inc., a maker of ~~con- tainers,~~containers, cardboard products and building products and a provider of financial services; Cotelligent, Inc., an information technology services company; and Bedford ~~Properties~~Property Investors and Crescent Real Estate Equities, both real estate investment trusts. Mr. Frank previously served as a director of the ~~Company~~company from April 1987 until February 1988 and from March 1992 until April 1993. He rejoined the Board in December 1993. Mr. Frank is retiring from the Board effective as of the annual meeting but will serve a ~~nominee for election this year.~~ three-year term as the first emeritus director of the company. Mr. Frank also has been nominated to serve as a director of Charles Schwab Bank, N.A.

FRANK C. HERRINGER

DIRECTOR SINCE 1996

Mr. Herringer, age ~~58, is~~61, has been Chairman of the Board of Transamerica Corporation, a financial services ~~company. At Transamerica, he has been Chairman~~company, since ~~1996, and he was~~1996. He served as Chief Executive Officer of Transamerica from 1991 to 1999 and President from 1986 to 1999, when Transamerica was acquired by Aegon N.V. From the date of the acquisition until May 2000, Mr. Herringer served on the Executive Board of Aegon N.V. and as Chairman of the ~~13 [side bar] BIOGRAPHIES o NANCY H. BECHTLE o C. PRESTON BUTCHER o DONALD G. FISHER o ANTHONY M. FRANK o FRANK C. HERRINGER~~ ~~THE BOARD OF DIRECTORS~~ Board of Aegon U.S.A. Mr. Herringer is also a director of AT&T Corporation, a voice, video and data communications company; Unocal Corporation, an oil ~~company;~~company (until his term expires in 2004); and Mirapoint, Inc., an Internet message infrastructure equipment developer. He has been nominated as a director of Amgen, Inc., a biotechnology company. Mr. ~~Herringer's~~Herringer’s term expires in 2002. JEFFREY S. MAURER DIRECTOR SINCE May 2000 Mr. Maurer, age 53, has been an Executive Vice President of the Company since May 2000. He also is Chief Executive Officer of U.S. Trust Corporation and United States Trust Company of New York (each of which is a subsidiary of the Company) and is a director of both companies. Mr. Maurer joined United States Trust Company in 1970 and was made manager of the Asset Management and Private Banking Group in 1978. He became Senior Vice President in November 1980, Executive Vice President in May 1986, President in February 1990, Chief Operating Officer in December 1994, and Chief Executive Officer in January 2001. Mr. Maurer is also a director of Forbes.com, an Internet media company; and the Greater New York Mutual Insurance Companies, a property and casualty insurance company. Mr. Maurer is a nominee for election this year. 2005.

THE BOARD OF DIRECTORS

STEPHEN T. MCLIN

DIRECTOR SINCE 1988

Mr. McLin, age ~~54,~~57, has been Chairman and Chief Executive Officer of STM Holdings LLC, which offers merger and acquisition advice, ~~for technology companies,~~ since 1998. From 1987 until 1998, he was President and Chief Executive Officer of America First Financial Corporation, a finance and investment banking ~~firm.~~firm, and parent of EurekaBank. Before that, he was an Executive Vice President of Bank of America. Mr. McLin is a director of ~~Tuttle Decision Systems, a technology company wholly-owned by Microsoft Corporation; and Your :) Bank.com, a wholly-owned subsidiary of Gateway 2000,~~BCG ValueScience, Inc., a ~~computer company.~~joint venture of the Boston Consulting Group and ValueScience, Inc.; and is an advisory director of Headwaters MB, a merchant bank; and Financial Technology Ventures, a private equity fund. Mr. ~~McLin's~~McLin’s term expires in ~~2002.~~ 2005.

DAVID S. POTTRUCK

DIRECTOR SINCE 1994

Mr. Pottruck, age ~~52, is President and Co-Chief~~55, has been the Chief Executive Officer of the ~~Company.~~company since May 2003. He ~~became President in 1992, and~~served as Co-Chief Executive Officer ~~in January 1998.~~from 1998 until May 2003. He was also the ~~Company's~~company’s Chief Operating Officer from 1994 until September 1998. ~~He became Chief Executive Officer of Charles Schwab & Co., Inc., the Company's principal brokerage subsidiary, in 1992.~~ Mr. Pottruck is currently a director of U.S. Trust Corporation and United States Trust Company of New York ~~(each~~(which are subsidiaries of ~~which is a subsidiary of the Company)~~The Charles Schwab Corporation); and Intel Corporation, a maker of microcomputer components and related products; McKesson HBOC, Inc., a healthcare services company; Dovebid, Inc., a provider of online business-to-business capital asset auctions and valuation services; and Epoch Partners, Inc., an online investment banking firm owned in part by the Company. He serves on the Board of Governors of both the National Association of Securities Dealers, Inc. and the Nasdaq Stock Market. He was a member of the Federal Advisory Commission on Electronic Commerce from 1998 until 1999.products. Mr. ~~Pottruck's~~Pottruck’s term expires in ~~2003. 14 [side bar] BIOGRAPHIES o JEFFREY S. MAURER o STEPHEN T. McLIN o DAVID S. POTTRUCK~~ THE BOARD OF DIRECTORS ARUN SARIN DIRECTOR SINCE December 1998 Mr. Sarin, age 46, was Chief Executive Officer of Infospace, Inc., a provider of Internet infrastructure services, between April 2000 and January 2001. From July 1999 until April 2000, he was Chief Executive Officer of USA/Asia Pacific Region of Vodafone Group Plc, a wireless telecommunications services company. He served as President and Chief Operating Officer of AirTouch Communications, Inc. from 1997 until July 1999, and prior to his appointment to these positions in 1997, Mr. Sarin was President and Chief Executive Officer of AirTouch International. Mr. Sarin joined AirTouch (formerly Pacific Telesis Group) in 1984 and held a variety of positions, including Vice President and General Manager, Vice President - Chief Financial Officer and Controller, and Vice President of Corporate Strategy. Mr. Sarin is a director of Vodafone Group Plc; and Cisco Systems, Inc., a computer networking company. Mr. Sarin is a nominee for election this year. 2006.

CHARLES R. SCHWAB

DIRECTOR SINCE 1986

Mr. Schwab, age ~~63,~~66, was athe founder of Charles Schwab & Co., Inc. in 1971, and has been its Chairman since 1978. He has been Chairman and a director of ~~the Company~~The Charles Schwab Corporation since its incorporation in 1986. He also served as Chief Executive Officer from 1986 until January 1998 ~~when he~~ and ~~David S. Pottruck became~~ Co-Chief Executive ~~Officers.~~Officer from January 1998 until May 2003. Mr. Schwab continues to serve as Chairman of the Board. Mr. Schwab is a director of U.S. Trust Corporation ~~and United~~andUnited States Trust Company of New ~~York (each of which is a subsidiary of~~York; Gap, Inc. (until Mr. Schwab’s term on the ~~Company)~~Gap board expires in May 2004); ~~Gap, Inc.; AudioBase, Inc., a company that provides music~~ and ~~voice to Internet publishers, advertisers and marketers;~~ Siebel Systems, Inc., a company that provides support for software ~~systems; and Xign, Inc., a developer of electronic payment systems using digitally signed electronic check technology.~~systems. He is also Chairman of Charles Schwab Bank, N.A., and a trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios, all registered investment companies. Mr. ~~Schwab's~~Schwab’s term expires in 2002. H. MARSHALL SCHWARZ DIRECTOR SINCE MAY 2000 Mr. Schwarz, age 64, has been an Executive Vice President of the Company since May 2000. He also is Chairman of the Board of U.S. Trust Corporation and United States Trust Company of New York (each of which is a subsidiary of the Company). Mr. Schwarz joined United States Trust Company in 1967 after a seven-year association with Morgan Stanley & Co., Incorporated, an investment banking firm. In 1972, he was elected a Senior Vice President and head of the Banking Division. He was elected Executive Vice President and Chief Operating Officer of United States Trust Company's Bank Group in 1977 and Chief Operating Officer of the Asset Management Group in 1979. Mr. Schwarz served as President of U.S. Trust Corporation and United States Trust Company from June 1986 through January 1990 and became Chairman and Chief Executive Officer effective February 1, 1990. He stepped down as Chief Executive Officer on December 31, 2000. 15 [side bar] BIOGRAPHIES o ARUN SARIN o CHARLES R. SCHWAB o H. MARSHALL SCHWARZ THE BOARD OF DIRECTORS Mr. Schwarz is also a director of Atlantic Mutual Companies, a property and casualty insurance company; and Bowne & Co., Inc., a financial printer and information and document management company. Mr. Schwarz' term expires in 2002. 2005.

GEORGE P. SHULTZ

DIRECTOR SINCE 1997

Dr. Shultz, age ~~80, is~~83, has been Professor Emeritus of International Economics at the Graduate School of Business at Stanford University since 1989, and a Distinguished Fellow at the Hoover ~~Institution.~~Institution since 1991. He has held United States government positions as Secretary of Labor (1969-1970), Director of the Office of Management and Budget (1970-1972), Secretary of the Treasury (1972-1974) and Secretary of State (1982-1989). In 1989, he was awarded the Medal of Freedom, the ~~nation's~~nation’s highest civilian honor. Dr. Shultz is a director of Bechtel Group, Inc., a provider of engineering, construction and related management services; Fremont Group, Inc., an investment company; and Gilead Sciences, Inc., a biotechnology ~~company; and UNext, a provider of business education and training over the Internet.~~company. He is also Chairman of J.P. Morgan ~~Chase's~~Chase’s International Advisory Council and ~~Chairman of the~~Accenture’s Energy Advisory ~~Board of Infrastructure World, an Internet-based intermediary in infrastructure projects.~~Board. He was President of Bechtel Group, Inc. from 1974 to 1982. Dr. ~~Shultz'~~Shultz’s term expires in ~~2003.~~ 2006.

PAULA A. SNEED

DIRECTOR SINCE 2002

Ms. Sneed, age 56, has been Senior Vice President, Global Marketing Resources, of Kraft Foods, Inc., a national food packaging company, since January 2004. She served as Group Vice President and President of E-Commerce and Marketing Services for Kraft Foods North America, part of Kraft Foods, Inc., from 2000 until January 2004. She joined General Foods Corporation (which later

THE BOARD OF DIRECTORS

merged with Kraft Foods) in 1977 and has held a variety of management positions, including Vice President, Consumer Affairs; Vice President and President, Foodservice Division; Executive Vice President and General Manager, Desserts Division; Executive Vice President and General Manager, Dinners and Enhancers Division; Senior Vice President, Marketing Service and Chief Marketing Officer; and Executive Vice President, President E-Commerce Division. Ms. Sneed is a member of the board of directors of Airgas, Inc., a national distributor of industrial, medical and specialty gases and related equipment. Ms. Sneed is a nominee for election this year.

ROGER O. WALTHER

DIRECTOR SINCE 1989

Mr. Walther, age ~~65,~~68, has served as Chairman and Chief Executive Officer of Tusker Corporation, a real estate and business management company, since August 1997. He served as Chairman and Chief Executive Officer of ELS Educational Services, Inc., a provider in the United States of courses in English as a second language, ~~from April~~between 1992 ~~through August~~and 1997. Mr. Walther was President, Chief Executive Officer and a director of AIFS, Inc., which designs and markets educational and cultural programs internationally, from 1964 to February 1993. Since 1985, Mr. Walther has served as Chairman and has been a director of First Republic Bank. Mr. ~~Walther's~~Walther’s term expires in ~~2002.~~ 2005.

ROBERT N. WILSON

DIRECTOR SINCE 2003

Mr. Wilson, age 63, served as Vice Chairman of the board of directors of Johnson & Johnson, a manufacturer of health care products and provider of related services for the consumer, pharmaceutical, medical devices and diagnostics market from 1986 until 2003. Mr. Wilson joined Johnson & Johnson in 1964. He was appointed to Johnson & Johnson’s executivecommittee in 1983 and was elected to its board of directors in 1986. Mr. Wilson is also a director of U.S. Trust Corporation and United States Trust Company of New York; Amerada Hess Corporation, an integrated oil and gas company; and Synta Pharmaceuticals Corp., a bio-pharmaceutical company. Mr. Wilson’s term expires in 2005.

DAVID B. YOFFIE

DIRECTOR SINCE 2003

Professor Yoffie, age 49, has been the Max and Doris Starr Professor of International Business Administration at the Harvard Business School since 1993 and has been a member of the Harvard University faculty since 1981. Professor Yoffie is also a director of the National Bureau of Economic Research; Intel Corporation; E-Ink Corporation, a provider of electronic ink display technology; and Spotfire, Inc., a provider of analytic applications. Mr. Yoffie is a nominee for election this year.

NUMBER OF DIRECTORS AND TERMS

The ~~Company~~authorized number of directors is thirteen, and the company currently has thirteen directors. ~~Four~~After Mr. Frank retires at the time of the annual meeting, the authorized number of directors will be twelve. Three directors are nominees for election this year. ~~The remaining nine~~Nine directors will continue to serve the terms described in their biographies.

Our directors serve staggered terms. This is accomplished as follows: * each director who is elected at an annual meeting of stockholders serves a three-year term, * the directors are divided into three classes, * the classes are as nearly equal in number as possible, and * the term of each class begins on a staggered schedule. 16 [side bar] BIOGRAPHIES o GEORGE P. SHULTZ o ROGER O. WALTHER NUMBER

each director who is elected at an annual meeting of stockholders serves a three-year term,

the directors are divided into three classes,

the classes are as nearly equal in number as possible, and

the term of each class begins on a staggered schedule.

THE BOARD OF DIRECTORS ~~AND TERMS~~

BOARD AND COMMITTEE MEETINGS

The Board held ~~eight~~six regular meetings and ~~three~~four special meetings in ~~2000.~~2003. Each director attended at least 75% of all Board and applicable committee meetings during ~~2000,~~2003, except ~~Donald G. Fisher~~Robert N. Wilson who had a ~~71%~~73% attendance record. Non-management directors meet regularly in executive session. The Chairman of the Nominating and Corporate Governance Committee presides over the executive sessions of non-management directors. As provided in our Corporate Governance Guidelines, we expect directors to attend the annual meeting of stockholders.In 2003, all of the directors attended the annual meeting.

This table describes the ~~Board's~~Board’s committees. ~~The Board does not have a nominating committee or a committee serving a similar function.~~





NAME OF COMMITTEE ~~FUNCTIONS NUMBER OF~~ AND MEMBERS⁽¹⁾	FUNCTIONS OF THE COMMITTEE	NUMBER OF MEETINGS IN ~~2000 - -------------------------------------------------------------------------------------------------~~ ~~2003~~

AUDIT * Stephen T. McLin, Chairman⁽²⁾ Nancy H. Bechtle Donald G. Fisher⁽²⁾ Anthony M. Frank⁽³⁾ David B. Yoffie⁽⁴⁾	· reviews the integrity of the financial 4 reporting process Nancy H. Bechtle * · reviews the ~~adequacy~~qualifications and independence of ~~internal controls C. Preston Butcher * reviews~~ the ~~audit process, including the Donald G. Fisher independence~~independent auditors and performance of the company’s internal ~~Anthony M. Frank~~audit function and ~~external~~independent auditors · retains sole authority to select independent auditors, approve audit fees and establish policies and procedures regarding pre-approval of fees for non-audit services · reviews compliance with legal and regulatory requirements	6

COMPENSATION Roger O. Walther, Chairman C. Preston Butcher Frank C. Herringer * recommends to the Board the selection of Stephen T. McLin * independent auditors Arun Sarin - ------------------------------------------------------------------------------------------------- COMPENSATION * George P. Shultz Paula A. Sneed Robert N. Wilson	· determines the compensation of the ~~Co-Chief 9~~Chief Executive Officers Nancy H. Bechtle Officer and executive officers · reviews and approves: C. Preston Butcher approves executive compensation philosophy, Stephen T. McLin * programs for annual and long-term executive ~~George P. Shultz~~ compensation Roger O. Walther * and other executive programs · has authority to grant options and other equity awards under stock incentive plans and bonus awards under executive incentive plans - ------------------------------------------------------------------------------------------------- CUSTOMER * monitors service quality 2 QUALITY * assesses client satisfaction and reviews ASSURANCE results of Charles Schwab & Co., Inc. client surveys Nancy H. Bechtle * proposes initiatives · has authority to research service Donald G. Fisher quality Anthony M. Frank* make cash awards under long-term incentive plans	10

THE BOARD OF DIRECTORS




NAME OF COMMITTEE AND MEMBERS⁽¹⁾	FUNCTIONS OF THE COMMITTEE	NUMBER OF MEETINGS IN 2003

NOMINATING AND CORPORATE GOVERNANCE Frank C. Herringer, ~~Jeffrey S. Maurer Arun Sarin Charles R. Schwab~~Chairman Nancy H. ~~Marshall Schwarz~~ Bechtle C. Preston Butcher Donald G. Fisher Anthony M. Frank⁽³⁾ Stephen T. McLin George P. Shultz Paula A. Sneed Roger O. Walther * Chairperson Robert N. Wilson David B. Yoffie⁽⁴⁾	· identifies individuals qualified to serve on the Board · recommends nominees to fill vacancies on the Board and each Board committee and recommends a slate of nominees for election or re-election as directors by the stockholders at the annual meeting to fill the seats of directors whose terms are expiring · leads the Board in its annual review of the Board’s performance · develops corporate governance principles, policies and procedures and recommends their adoption by the Board	4

~~17 [side bar] THIS TABLE DESCRIBES~~

(1)

The charters for the Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee are available on the company’s website atwww.aboutschwab.com/corpgov.

(2)

The Board has determined that Mr. McLin and Mr. Fisher are Audit Committee financial experts and “independent” under the listing standards of the New York Stock Exchange.

(3)

Mr. Frank will no longer serve on these committees after he retires as a director at the time of the annual meeting. Immediately upon his retirement from the Board, Mr. Frank will serve under the Director Emeritus Program approved by the Board of Directors. The Board created the program to avail itself of the continuing participation of certain retiring directors who have made a distinct contribution to the deliberations and actions of the Board. Directors who have attained seventy-two years of age or have served a combined total of ten years on the Board may be considered for appointment as an emeritus director. Emeritus directors serve a term of three years.

(4)

Mr. Yoffie is a member of these committees until November 4, 2004. After that time, Mr. Yoffie for part of his term would not qualify as “independent” under New York Stock Exchange listing standards and the independence standards that we adopted in 2004. Mr. Yoffie therefore has agreed to resign his membership on these committees effective November 4, 2004, and we will reconsider his membership when he is again eligible under these independence standards.

THE ~~BOARD'S COMMITTEES.~~ BOARD OF DIRECTORS

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During ~~2000: * none~~2003, no member of the ~~members~~Compensation Committee:

was an officer (or former officer) or employee of the company or any of its subsidiaries, or

entered into (or agreed to enter into) any transaction or series of transactions with the company or any of its subsidiaries with a value in excess of $60,000.

During 2003, no executive officer of our company:

served on the compensation committee (or another board committee with similar functions or, if there was no such committee, the entire board of directors) of another entity where one of that entity’s executive officers served on our Compensation Committee or Board, or

was a director of another entity where one of that entity’s executive officers served on our Compensation Committee.

DIRECTOR COMPENSATION

All Directors

All directors are reimbursed their expenses for attending Board Compensation Committee was an officer (or former officer) or employee of the Company or any of its subsidiaries; * none of the members of the Board Compensation Committee entered into (or agreed to enter into) any transaction or series of transactions with the Company or any of its subsidiaries in which the amount involved exceeds $60,000; * none of the Company's executive officers served on the compensationand committee (or another board committee with similar functions or, if there was no committee like that, the entire board of directors) of another entity where one of that entity's executive officers served on the Company's Board Compensation Committee or otherwise served on the Company's Board; and * none of the Company's executive officers was a director of another entity where one of that entity's executive officers served on the Company's Board Compensation Committee. 18 [side bar] DURING 2000, OUR BOARD COMPENSATION COMMITTEE CONSISTED OF ALL NON-EMPLOYEE DIRECTORS, AND WE DID NOT HAVE ANY COMPENSATION COMMITTEE INTERLOCKS. ~~DIRECTOR COMPENSATION We do not pay directors~~meetings.

Employee Directors

Directors who are also ~~officers of the Company~~employees receive no additional compensation for their service as directors.

Non-Employee Directors

Non-employee directors received the following retainers and fees in 2003:


Non-Employee Director Retainers and Fees


Annual retainer	$	45,000

Attendance fee for each Board meeting	$	2,800

Attendance fee for each Board committee meeting held on the same day as a Board meeting	$	500

Attendance fee for each Board committee meeting held on a day other than a Board meeting	$	2,000

Additional annual retainer for service as a Board committee chairperson	$	10,000

Non-employee directors also are entitled to receive non-discretionary equity grants under an amendment to the 2001 Stock Incentive Plan, which was approved by stockholders in May 2003. In ~~2000, compensation~~2003, those grants were as follows:


Non-Employee Director Equity Grants


Annual grant of options		5,000 options

Annual grant of restricted stock		5,283 shares

Initial grant of options for new directors		5,000 options

Non-employee director equity grants are subject to the following terms and conditions:

Annual grants of options and restricted stock vest over the three-year period following the date of grant and become 100% vested in the event of the non-employee director’s death, disability or retirement. Initial grants of options (when a director joins the board, such as Mr. Wilson and Mr. Yoffie in 2003) are fully vested on the date of the grant.

The number of shares for the annual grant of restricted stock is determined by dividing $50,000 by the average of the high and low market prices of company common stock on the grant date.

THE BOARD OF DIRECTORS

Each stock option is designated as a non-qualified stock option and has an exercise price equal to the fair market value of common stock on the date of the grant.

Each stock option expires on the earlier of (1) the date ten years after the date of grant, (2) the date three months after termination of service for any reason other than death, disability or retirement, (3) the date one year after termination of service because of death or disability, or (4) the date two years after termination of service because of retirement.

If the 2004 Stock Incentive Plan is approved by the stockholders, the annual and initial non-discretionary equity grants to non-employee directors ~~included the following: * an annual retainer of $35,000, * $2,000 for each Board meeting attended, * $500 for each Board committee meeting attended on~~will remain the same ~~day~~ as a Board meeting, and $1,000 for each other Board committee meeting attended, * an annual retainer of $3,000 to committee chairpersons, and * expenses of attending Board and committee meetings. provided in the 2001 Stock Incentive Plan.

Non-employee directors also may participate in the ~~Directors'~~Directors’ Deferred Compensation Plan. ~~Since January 2000, this~~This plan ~~has allowed non-employee directors~~allows them to defer receipt of all or a portion of their ~~directors'~~retainers and fees and, at their election, either: * receive a grant of stock options which: * either to:

(1)

receive stock options that:

have a fair value on the grant date equal to the amount of the deferred amount (as determined under the Black-Scholes option pricing model),

have an option exercise price equal to the fair market value of company common stock on the date the deferred amount would have been paid, and

vest immediately upon grant and generally expire ten years after the grant date,

- or -

(2)

invest the deferred amount in shares of the company’s common stock to be held in a “rabbi” trust and distributed to the director (in shares) when he or she ceases to be a director.

DIRECTOR INDEPENDENCE

We have considered the independence of each member of the deferred fees (as determined under an appropriate options valuation method), * have an option exercise price equal to the fair market value of Company common stock on the date the deferred fee amount would have been paid,Board. To assist us in our determination, we reviewed New York Stock Exchange standards and * vest immediately upon grant and generally expire ten years after the grant date, - or - * invest the amountadopted general guidelines for independence.

A director of the ~~deferred fees in shares of Company common stock to~~company will be ~~held in a trust and distributed to~~considered independent if the director ~~(in shares) when~~has no material relationships with the ~~director leaves~~company and no other relationships that, in the ~~Board. Each~~opinion of the ~~directors has elected to convert fees that were deferred before January 2000 (except for deferred fees already invested in stock options) into Company stock to be held in~~Board, would interfere with the ~~trust~~director’s exercise of independent judgment. The Board will consider broadly all relevant facts and ~~distributed~~circumstances regarding a director’s relationships with the company as ~~described immediately above. In 2000, under the 1992 Stock Incentive Plan, non-employee directors were entitled to an annual, automatic grant~~well as these independence guidelines when making a final determination of ~~either: * options on 2,500 shares of Company common stock if the fair market value of the stock on the grant date was $35~~whether or ~~more, or * options on 3,500 shares of Company common stock if the fair market value of the stock on the grant date was less than $35. "Fair market value"~~not a director is defined in the 1992 Stock Incentive Plan as the closing price of Company common stock on the date the option is granted. The annual, automatic option grant to non-employee directors of 2,500 shares of common stock was made on May 15, 2000 at an exercise price of $43.3750 per share. As a result of the May 2000 three-for-two stock split, this stock option grant was adjusted to 3,750 sharesindependent.

A director with an exercise price of $28.9167. If the 2001 Stock Incentive Plan is approved by stockholders, the number of options non-employee directors will receive in the annual, automatic grant will be determined by dividing $150,000 by the closing price of Company common stock on the grant date. (See "Proposals To Be Voted On," beginning on page 10, and Appendix B.) 19 [side bar] THE COMPANY PAYS ITS DIRECTORS WITH CASH AND EQUITY-BASED COMPENSATION. SINCE THE INITIAL CASH DIVIDEND IN 1989, THE COMPANY HAS PAID 47 CONSECUTIVE QUARTERLY CASH DIVIDENDS AND HAS INCREASED THE CASH DIVIDEND 12 TIMES. SINCE 1989, CASH DIVIDENDS HAVE INCREASED BY A 32% COMPOUNDED ANNUAL GROWTH RATE. THIS PROXY STATEMENT INCLUDES ADDITIONAL SUMMARY INFORMATION ON THE COMPANY'S FINANCIAL PERFORMANCE. PLEASE REMEMBER THAT PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. ~~PRINCIPAL STOCKHOLDERS This table shows how much Company common stock is beneficially owned by the directors, certain executive officers and owners of 5%~~one or more of the ~~Company's outstanding common stock,~~following relationships with the company or its subsidiaries will not be considered independent if, within the last three years:

The director has been an employee or an affiliated person, or an immediate family member has been an executive officer who performs a policy making function.

The director received, or immediate family member (other than an immediate family member employed in a non-executive officer position) received, more than $100,000 per year in direct compensation (other than director and committee fees and pension or other forms of deferred compensation for prior service).

The director has been affiliated with or employed by, or immediate family member has been affiliated with or employed in a professional capacity by, a present or former internal or external auditor.

The director has been employed, or immediate family member has been employed, as an executive officer of another company where any of the present executives

THE BOARD OF DIRECTORS

of the company or its subsidiaries have served on that company’s compensation committee.

The director has been an executive officer or an employee, or immediate family member has been an executive officer, of a company that makes payments to, or receives payments from, the company or its subsidiaries for property or services in an amount which, in any single fiscal year within the last three years, exceeds the greater of $1 million, or 2% of such other company’s consolidated gross revenues.

In addition, a director with one or more of ~~March 8, 2001.~~ the following relationships will not be considered independent if:

AMOUNT AND NATURE OF SHARES BENEFICIALLY OWNED NUMBER OF SHARES RIGHT TO RESTRICTED PERCENT OF OWNED ACQUIRE STOCK OUTSTANDING NAME (#)
·		The director obtains brokerage, banking, or related financial services on terms more favorable to those offered to clients or employees of the company or its subsidiaries.

The director serves on the board of a charitable or not for profit organization that, during the director’s service on the board of the charitable organization, receives donations from the company, its subsidiaries, or the Charles Schwab Foundation that exceeds in a fiscal year the greater of 1% of the organization’s annual operating budget or $100,000.

The director receives a loan from the company or its subsidiaries, unless:

(1) ~~(#) (2) (#) (3) SHARES - -----------------------------------------------------------------------------------------------------~~ CHARLES R. SCHWAB(4) 261,528,402 3,855,000 0 19.1% SCHWABPLAN RETIREMENT SAVINGS AND 68,946,155 0 0 5.0% INVESTMENT PLAN (5) DAVID S. POTTRUCK(6) 6,500,108 6,840,981 0 1.0% NANCY H. BECHTLE 207,405 117,193 0 * C. PRESTON BUTCHER(7) 1,026,066 170,173 0 * DONALD G. FISHER(8) 4,560,561 7,500 0 * ANTHONY M. FRANK 547,500 98,082 0 * FRANK C. HERRINGER(9) 100,236 116,114 0 * JEFFREY S. MAURER 638,034 0 22,500 * STEPHEN T. MCLIN(10) 152,271 91,946 0 * ARUN SARIN 3,000 46,529 0 * H. MARSHALL SCHWARZ(11) 555,277 0 0 * GEORGE P. SHULTZ 67,500 100,484 0 * ROGER O. WALTHER (12) 135,380 95,472 0 * JOHN PHILIP COGHLAN 1,308,021 987,796 150,866 * STEVEN L. SCHEID 239,365 610,257 90,000 * DAWN G. LEPORE(13) 697,258 903,027 90,000 * LINNET F. DEILY 240,469 290,499 78,750 * LON GORMAN 226,109 369,816 106,875 * DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (22 PERSONS) (14) 280,981,746 16,274,472 553,125 21.2% - ----------------------------------------------------------------------------------------------------- *Less

it is a home improvement and manufactured home loan (as defined in Section 5 of the Home Owners’ Loan Act), consumer credit (as defined in Section 103 of the Truth in Lending Act), or any extension of credit under an open end credit plan (as defined in Section 103 of the Truth in Lending Act), or a charge card (as defined in Section 127(c)(4)(E) of the Truth in Lending Act), and such loan is:

_°

made in the ordinary course of the consumer credit business,

_°

of the type that is generally made available to the public, and

_°

made on market terms, or terms that are no more favorable than ~~1% (1) Includes shares~~those to the general public for ~~which~~such extension of credit,

— or —

(2)

it is made or maintained by a subsidiary of the ~~named person: * has sole voting~~company that is an insured depository institution (as defined in Section 3 of the Federal Deposit Insurance Act) if the loan is subject to the insider lending restrictions of Section 22(h) of the Federal Reserve Act.

The director is an Audit Committee member and, ~~investment power, * has shared voting and investment power with~~during his or her ~~spouse,~~service as an Audit Committee member, has accepted any consulting, advisory, or * holds in an account under The SchwabPlan Retirement Savings and Investment Plan or the 401K Plan and ESOP of United States Trust Company of New York and Affiliated Companies, unless otherwise indicated in the footnotes. Excludes shares that: * may be acquired through stock option exercises, or * are restricted stock holdings. (2) Shares that can be acquired through stock option exercises through May 7, 2001. (3) Shares subject to a vesting schedule, forfeiture risk and other restrictions. 20 [side bar] OPERATING INCOME FOR 2000 WAS $849 MILLION, A 27% INCREASE OVER 1999. OPERATING INCOME REPRESENTS AN ADJUSTED OPERATING INCOME MEASURE WHICH IN 2000 EXCLUDES MERGER- AND ACQUISITION-RELATED CHARGES. PRINCIPAL STOCKHOLDERS (4) Includes 7,977,765 shares held by Mr. Schwab's spouse. Includes 45,203,958 shares held by a limited liability company. Includes the following shares for which Mr. Schwab disclaims beneficial ownership: * 15,455,685 shares held by non-profit public benefit corporations. * 87,120 shares held in trusts for which Mr. Schwab acts as trustee. Includes the following shares for which Mr. Schwab may be deemed to have shared voting and investment power, but disclaims beneficial ownership: * 1,831,229 shares held by investment companies and managed by a wholly-owned subsidiary of the Company. Mr. Schwab's address is c/o The Charles Schwab Corporation, 120 Kearny Street, San Francisco, California 94108. (5) As of March 8, 2001, The SchwabPlan Retirement Savings and Investment Plan held a total of 68,946,155 shares, all of which were allocated to participants under the plan. Participants direct the voting and disposition of shares held for their benefit or allocated to their plan accounts. The purchasing agent will vote any plan participants' unvoted shares held under the ESOP component of the overall plan in the same proportion as shares directed by participants in the ESOP component of the overall plan. The address of The SchwabPlan Retirement Savings and Investment Plan is c/o The Charles Schwab Corporation, 101 Montgomery Street, San Francisco, California 94104. (6) Includes 74,578 shares held by Mr. Pottruck's spouse and children. Includes the following shares for which Mr. Pottruck disclaims beneficial ownership: * 612,658 shares held in trusts for which Mr. Pottruck acts as trustee. * 360,936 shares held by a non-profit public benefit corporation. (7) Includes 273,630 shares held by Mr. Butcher's spouse. (8) Includes 780,000 shares held in certain charitable remainder trusts by Mr. Fisher and his spouse. Includes the following shares for which Mr. Fisher has shared voting and investment power, but disclaims beneficial ownership: * 390,000 shares held by a non-profit public benefit corporation. (9) Includes 50,625 shares held by Mr. Herringer's spouse. (10) Includes 13,740 shares held by a non-profit public benefit corporation established by Mr. McLin. (11) Includes 56,385 shares held by a non-profit public benefit corporation established by Mr. Schwarz. (12) Includes 26,687 shares held by Mr. Walther's spouse. (13) Includes 20,994 shares held by Ms. Lepore's spouse. (14) In addition to the officers and directors named in this table, four other executive officers are members of the group.

21 [side bar] FROM YEAR-END 1990 THROUGH YEAR-END 2000, THE MARKET PRICE PER SHARE OF COMPANY COMMON STOCK HAS GROWN AT A COMPOUNDED ANNUAL RATE OF 61%. THIS INCREASE CREATED $39 BILLION IN STOCKHOLDER WEALTH. A FUNDAMENTAL TENET OF THE COMPANY'S COMPENSATION POLICY IS THAT SIGNIFICANT EQUITY PARTICIPATION CREATES A VITAL LONG-TERM PARTNERSHIP BETWEEN MANAGEMENT AND OTHER STOCKHOLDERS. PERFORMANCE GRAPH The following graph shows a five-year comparison of cumulative total returns for Company common stock, the Dow Jones Securities Brokerage Group Index and the Standard & Poor's 500 Index, each of which assumes an initial investment of $100 and reinvestment of dividends. Comparison of Five-Year Cumulative Total Return - -- The Charles Schwab Corporation - -- Dow Jones Securities Brokerage Group Index - -- Standard & Poor's 500 Index GRAPH APPEARS HERE

22 [side bar] ON A DIVIDEND- REINVESTED BASIS, FROM DECEMBER 31, 1995 THROUGH DECEMBER 31, 2000, THE CUMULATIVE TOTAL RETURN FOR COMPANY COMMON STOCK WAS 870% COMPARED TO 522% FOR THE DOW JONES SECURITIES BROKERAGE GROUP INDEX AND 132% FOR THE STANDARD & POOR'S 500 INDEX. SUMMARY COMPENSATION TABLE This table shows, for the last three fiscal years, compensation information for the Company's Co-Chief Executive Officers and the next five most highly compensated executive officers. We refer to each of these officers as a "named executive officer."

(1) For Mr. Schwab, includes amounts paid under his employment agreement dated March 31, 1995. (See "Employment Agreement and Name Assignment" in Appendix A.) 23 SUMMARY COMPENSATION TABLE (2) "Other Annual Compensation" includes payments that are not properly categorized as salary or bonus. The following chart explains payments to the named executive officers listed below arising out of certain restricted stock grants.

SEC regulations exclude from proxy statement reporting requirements a named executive officer's perquisites if their value in any year does not exceed the lesser of (a) $50,000 or (b) 10% of the total of the named executive officer's annual salary and bonus for that year.

Based on ~~these regulations,~~our guidelines, we have ~~reported perquisites only for Ms. Deily for 1998. Ms. Deily's expenses were for relocation from Houston, Texas to San Francisco, California. Because some of~~determined that the relocation expense payments were considered taxable income, Ms. Deily received tax gross-up payments to cover the taxes on that income. 24 [side bar] IN 2000, THE COMPANY ACHIEVED ITS ELEVENTH CONSECUTIVE YEAR OF RECORD REVENUES. SUMMARY COMPENSATION TABLE (4) RESTRICTED STOCK - DATE OF GRANT VALUE. This column shows the market value of restricted stock awards on date of grant. RESTRICTED STOCK - YEAR-END VALUE. The following chart shows the number and year-end value of all shares of unvested restricted stock held on December 31, 2000 by named executive officers (except for Mr. Schwab and Mr. Pottruck,directors, who ~~held none). The year-end value is based~~currently serve on the closing price of Company common stock on that date ($28.375). NUMBER OF YEAR-END NAME SHARES VALUE ---------------------------------------------- MR. COGHLAN 150,866 $4,280,823 MR. SCHEID 180,000 $5,107,500 MS. LEPORE 180,000 $5,107,500 MS. DEILY 167,625 $4,756,359 MR. GORMAN 217,125 $6,160,922 RESTRICTED STOCK - RIGHTS. Restricted stockholders have voting and dividend rights. RESTRICTED STOCK - VESTING SCHEDULE. * 50% of the shares vest three years after the grant date, and * the remaining 50% of the shares vest four years after the grant date. (5) Adjusted for the May 2000 three-for-two stock split of Company common stock. (6) Represents Company contributions under The SchwabPlan Retirement Savings and Investment Plan. 25 [side bar] THE COMPANY AND ITS SUBSIDIARIES PROVIDE SECURITIES BROKERAGE AND RELATED FINANCIAL SERVICES FOR 7.5 MILLION ACTIVE CLIENT ACCOUNTS. CLIENT ASSETS IN THESE ACCOUNTS TOTALED $871.7 BILLION AT DECEMBER 31, 2000, UP 3% OVER YEAR-END 1999. ~~OPTION GRANTS This table shows stock option grants~~Board or who will continue to ~~the named executive officers during the last fiscal year.~~
OPTIONS GRANTED IN 2000 INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION FOR OPTION TERM (2) NAME NUMBER OF % OF TOTAL SECURITIES OPTIONS UNDERLYING GRANTED TO EXERCISE OR OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION DATE GRANTED (#) FISCAL YEAR ($/SH) 5% ($) 10% ($) (1) - -------------------------------------------------------------------------------------------------------------------------------- CHARLES R. SCHWAB 300,000 1.14% $26.375 2/23/2010 $4,650,350 $12,091,738 DAVID S. POTTRUCK 300,000 1.14% $26.375 2/23/2010 $4,650,350 $12,091,738 JOHN PHILIP COGHLAN 120,001 0.46% $26.375 2/23/2010 $1,860,155 $4,836,736 100,000 0.38% $28.750 12/15/2010 $1,772,440 $4,525,271 STEVEN L. SCHEID 120,001 0.46% $26.375 2/23/2010 $1,860,155 $4,836,736 100,000 0.38% $28.750 12/15/2010 $1,772,440 $4,525,271 DAWN G. LEPORE 120,001 0.46% $26.375 2/23/2010 $1,860,155 $4,836,736 100,000 0.38% $28.750 12/15/2010 $1,772,440 $4,525,271 LINNET F. DEILY 120,001 0.46% $26.375 2/23/2010 $1,860,155 $4,836,736 100,000 0.38% $28.750 12/15/2010 $1,772,440 $4,525,271 LON GORMAN 120,001 0.46% $26.375 2/23/2010 $1,860,155 $4,836,736 100,000 0.38% $28.750 12/15/2010 $1,772,440 $4,525,271
(1) These options were granted in February and December 2000 under the 1992 Stock Incentive Plan. The February grants have been adjusted for the May 2000 three-for-two stock split of Company common stock. These options: * were generally granted as 50% non-qualified stock options and 50% incentive stock options (except as limited by tax law and except that the options granted in December were all non-qualified stock options), * were granted at an exercise price equal to 100% of the fair market value of the common stockserve on the ~~date of grant, and * expire ten years from the date of grant, unless otherwise earlier terminated because of certain events related~~Board, to termination of employment. The options granted in February generally vest in 25% increments on each of the first four anniversaries of the date of grant, and the options granted in December vest in 50% increments on the third anniversary and fourth anniversary of the date of grant. (2) Based on the SEC's rules, we use a 5% and 10% assumed rate of appreciation over the ten-year option term. This does not represent the Company's estimate or projection of the future common stock price. If the Company common stock does not appreciate above the exercise price, the named executive officers will receive no benefit from the options. 26 ~~OPTIONS EXERCISED This table shows stock option exercises and the value of unexercised stock options held by the named executive officers during the last fiscal year.~~
AGGREGATED OPTION EXERCISES IN 2000 AND FISCAL YEAR-END OPTION VALUES(1) SHARES ACQUIRED VALUE NUMBER OF SECURITIES VALUE OF UNEXERCISED ON EXERCISE (#) REALIZED UNDERLYING UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS ($)(2) FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)(3) NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ------------------------------------------------------------------------------------------------------------------------------------ CHARLES R. SCHWAB 750,000 $19,122,628 3,600,000 1,875,000 $84,121,876 $34,087,501 DAVID S. POTTRUCK 2,239,500 $63,404,959 6,585,981 6,375,000 $156,323,283 $84,025,000 JOHN PHILIP COGHLAN 1,188,216 $34,411,973 898,738 492,812 $21,905,730 $4,363,008 STEVEN L. SCHEID 310,368 $8,973,712 411,508 540,628 $8,461,076 $5,417,461 DAWN G. LEPORE 632,337 $20,159,180 695,844 549,065 $15,545,069 $5,607,609 LINNET F. DEILY 207,500 $5,620,216 141,816 507,437 $2,564,070 $4,679,461 LON GORMAN 209,560 $6,149,763 221,691 506,879 $4,202,779 $4,649,438
(1) Adjusted for the May 2000 three-for-two stock split of Company common stock. (2) The amounts in this column are calculated as follows: * if upon exercising the stock options, the named executive officer kept the shares he or she acquired, then by averaging the high and low market prices of Company stock on the date of exercise to get the "market price," or * if upon exercising the stock options, the named executive officer sold the shares he or she acquired, then by using the sale price as the "market price," * then subtracting the option exercise price from the market price to get the "value realized per share," and * then multiplying the value realized per share by the number of shares acquired upon exercise. The amounts in this column may not represent amounts actually realized by the named executive officers. (3) The amounts in this column are calculated by: * subtracting the option exercise price from the Company's December 31, 2000 average market price ($28.875) per share, as reported in the New York Stock Exchange Composite Transactions Index) to get the "average value per option," and * then multiplying the average value per option by the number of exercisable or unexercisable options, as applicable. The amounts in this column may not represent amounts that will actually be ~~realized by the named executive officers. 27 [side bar] THE COMPANY'S REVENUES WERE $5.788 BILLION IN 2000, UP 29% OVER 1999.~~ COMPENSATION COMMITTEE REPORT In this section, we describe our executive compensation policies and practices, including the compensation we pay our Co-Chief Executive Officers and the next five most highly compensated executive officers. BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION During 2000, the Compensation Committee of the Company's Board of Directors consisted of Roger O. Walther,independent: Nancy H. Bechtle, C. Preston Butcher, Donald G. Fisher, Anthony M. Frank, Frank C. Herringer, Stephen T. McLin, ~~Condoleezza Rice (who resigned~~George P. Shultz, Paula A. Sneed, Roger O. Walther, and Robert N. Wilson.

Prior to joining the board in 2003, David B. Yoffie received compensation as a consultant that temporarily would disqualify him as “independent” under our standards. The New York Stock Exchange listing standards permit us to treat Mr. Yoffie as an “independent” director ~~effective~~for his service on the Audit Committee and Nominating and Corporate Governance Committee until November 4, 2004. Mr. Yoffie will serve on these committees until that time.

DIRECTOR NOMINATIONS

The Nominating and Corporate Governance Committee is composed entirely of “independent directors” as determined by the Board of Directors in ~~January 2001)~~accordance with the listing standards of the New York Stock Exchange.

THE BOARD OF DIRECTORS

The standards that the Board uses to determine whether a director is “independent” are described in the “Director Independence” section.

The Board of Directors has adopted a written Nominating and ~~George P. Shultz. No member~~Corporate Governance Committee charter. The charter is available on our website atwww.aboutschwab.com/corpgov. One of the committee’s responsibilities is to recommend candidates for nomination to the Board.

The Nominating and Corporate Governance Committee recommended all of the nominees in this year’s proxy statement for election for the 2004 annual meeting of stockholders. Mr. Fisher has previously been elected by stockholders as a director. Ms. Sneed and Mr. Yoffie were previously appointed to fill vacancies on the Board, and this is the first year that they are candidates for stockholder election to the Board. A third-party search firm originally recommended Ms. Sneed for consideration as a director. The Chief Executive Officer and a non-management director jointly recommended Mr. Yoffie for consideration as a director.

The Nominating and Corporate Governance Committee will consider candidates nominated by stockholders for next year’s meeting if the nomination is made in writing no later than November 30, 2004. Stockholder nominations must be made in accordance with the procedures outlined in the company’s bylaws and must be addressed to:

Assistant Corporate Secretary

The Charles Schwab Corporation

Mailstop SF120KNY-04

101 Montgomery Street

San Francisco, California 94104

The bylaws are available on our website atwww.aboutschwab.com/corpgov.

Director Qualifications

The qualifications for directors are described in our Corporate Governance Guidelines and the guidelines for evaluating director nominees in the Nominating and Corporate Governance Committee’s charter, each of which is available on our website. In addition, the committee ~~during 2000 was~~believes that the following specific, minimum qualifications must be met by a nominee for the position of director:

the ability to work together with other directors, with full and open discussion and debate as an effective group,

current knowledge and experience in the company’s business or operations, or contacts in the community in which the company does business and in the industries relevant to the company’s business, or substantial business, financial or industry-related experience, and

the willingness and ability to devote adequate time to the company’s business.

The committee also considers the following qualities and skills when making its determination whether a nominee is qualified for the position of director:

relationships that may affect the independence of the director or conflicts of interest that may affect the director’s ability to discharge his or her duties,

diversity of experience and background, including the need for financial, business, academic, public sector and other expertise on the Board or Board committees, and

the fit of the individual’s skills and experience with those of the other directors and potential directors in comparison to the needs of the company.

When evaluating a candidate for nomination, the committee does not assign specific weight to any of these factors or believe that all of the criteria necessarily apply to every candidate.

THE BOARD OF DIRECTORS

Identifying and Evaluating Nominees for Director

The Nominating and Corporate Governance Committee reviews annually the appropriate skills and characteristics required of Board members in the context of the current composition of the Board. Candidates considered for nomination to the Board of Directors may come from several sources, including current and former directors, professional search firms and stockholder nominations. Nominees for director are evaluated, in consultation with the company’s Chairman, by the committee, which may retain the services of a professional search firm to assist it in identifying or evaluating potential nominees.

COMMUNICATIONS WITH THE BOARD OF DIRECTORS

If you wish to communicate with the Board, the Chairman of the Nominating and Corporate Governance Committee, or with the independent directors as a group, you may send your communication in writing to:

Assistant Corporate Secretary

The Charles Schwab Corporation

Mailstop SF120KNY-04

101 Montgomery Street

San Francisco, California 94104

You must include your name and address in the written communication and indicate whether you are a stockholder of the company.

The Assistant Corporate Secretary will compile all communications, summarize lengthy, repetitive or duplicative communications and forward them to the appropriate director or directors. For example, complaints regarding accounting, internal controls or auditing will be forwarded to the chair of the Audit Committee and communications to the independent directors will be forwarded to the chair of the Nominating and Corporate Governance Committee. The Assistant Corporate Secretary will not forward non-substantive communications or communications that pertain to personal grievances, but instead will forward them to the appropriate department within the company for resolution. If this is the case, the Assistant Corporate Secretary will retain a copy of such communication for review by any director upon his or her request.

AUDIT COMMITTEE REPORT

AUDIT COMMITTEE REPORT

The Audit Committee is composed entirely of “independent directors” as determined by the Board of Directors in accordance with the listing standards of the New York Stock Exchange. The standards that the Board uses to determine whether a director is “independent” are described in the “Director Independence” section. None of the directors on this committee has been an employee of ~~the Company~~The Charles Schwab Corporation or any of its subsidiaries. ~~Each member qualifies as a "non-employee director" under Rule 16b-3~~None of the ~~Securities Exchange Act~~committee members simultaneously serves on the audit committees of ~~1934 and as an "outside director" under Section 162(m)~~more than three public companies, including ours. All of the ~~Internal Revenue Code.~~ members of our committee are financially literate. The Board has determined that Donald G. Fisher and Stephen T. McLin are Audit Committee financial experts.

The Board of Directors has adopted a written Audit Committee charter. The charter is available on our website atwww.aboutschwab.com/corpgov. We last attached a copy of the charter to our proxy statement in 2003.

The committee has met and held discussions with management and the independent auditors. As part of this process, the committee has:

reviewed and discussed the audited financial statements with management,

discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees), and

received the written disclosures and the letter from the independent auditors required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and discussed with the auditors their independence.

Based on the review and discussions referred to above, the committee recommended to the Board of Directors that the audited financial statements be included in the company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, for filing with the SEC.

AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

Stephen T. McLin, Chairman

Nancy H. Bechtle

Donald G. Fisher

Anthony M. Frank

David B. Yoffie

INDEPENDENT AUDITORS

AUDITOR SELECTION AND FEES

Auditor Selection

The Audit Committee has selected Deloitte & Touche LLP and the member firms of Deloitte Touche Tohmatsu as the company’s independent auditors for the 2004 fiscal year. Deloitte has served as auditors of our company since its inception. We expect representatives of Deloitte to attend the annual meeting of stockholders. They will respond to appropriate questions from stockholders and have the opportunity to make a statement.

Audit Fees

The aggregate fees for professional services billed by Deloitte in connection with their audit of our consolidated financial statements and reviews of the consolidated financial statements included in our quarterly reports on Form 10-Q were:


Fiscal year ended December 31:


2002	$	4.7 million

2003	$	4.7 million

Audit-Related Fees

“Audit-Related” fees include assurance and related services, such as reports on internal controls, review of Securities and Exchange Commission filings, merger and acquisition due diligence and related services. The aggregate fees billed by Deloitte for such services were:


Fiscal year ended December 31:


2002	$	2.4 million

2003	$	2.8 million

Tax Fees

In 2003, the Audit Committee limited tax fees billed by Deloitte to tax return review, preparation and compliance. The aggregate fees billed by Deloitte for these services were:


Fiscal year ended December 31:


2002	$	0.7 million

2003	$	0.3 million

All Other Fees

All other products and services not included in “audit fees,” “audit-related fees,” and “tax fees” above include services for analysis of our customer relationship management system and assistance with business interruption insurance.The aggregate fees billed by Deloitte for these services were:


Fiscal year ended December 31:


2002	$	0.3 million

2003	$	0.3 million

Pre-Approval Policies and Procedures

The Audit Committee has adopted a policy regarding pre-approval of non-audit services performed by Deloitte. The Audit Committee’s pre-approval policy prohibits engaging Deloitte to perform the following services:

bookkeeping or other services relating to the accounting records or financial statements,

broker-dealer services,

actuarial services,

management and human resource functions, including executive search services,

legal services and expert services unrelated to the audit,

appraisal and valuation services, fairness opinions or contribution-in-kind reports,

internal audit outsourcing,

financial information systems design and implementation, and

tax consulting.

INDEPENDENT AUDITORS

The policy requires the pre-approval of the Audit Committee for other non-audit services performed by Deloitte. The policy contains lists of non-audit services, contained in three separate categories, that the Audit Committee has pre-approved subject to an annual aggregate dollar limit for each category. Once the dollar limit in each of these three categories is reached, the Audit Committee will decide whether to establish an additional spending limit for the category or specifically pre-approve each additional service in the category for the remainder of the year. Those three categories are:

accounting theory consultation (includes services such as guidance on the application of Generally Accepted Accounting Principles to various transactions and guidance on the effects of new accounting pronouncements),

assurance and due diligence (includes services such as reports on internal controls, review of Securities and Exchange Commission filings, merger and acquisition due diligence, employee benefit plan audits, and foreign statutory audits and regulatory reports), and

tax return review, preparation and compliance.

Services not listed in one of the categories above require specific pre-approval from the Audit Committee. On an annual basis, the policy limits the fees related to other non-audit services performed by Deloitte to 50% of the combination of audit fees, audit-related fees and tax fees.

The policy permits the Audit Committee to delegate pre-approval authority to one or more members of the Audit Committee, provided that the member or members report to the entire Audit Committee pre-approval actions taken since the last Audit Committee meeting. The policy expressly prohibits delegation of pre-approval authority to management.

In fiscal year 2003, the Audit Committee pre-approved 100% of the services performed by Deloitte relating to “audit-related fees,” “tax fees,” and “all other fees.”

COMPENSATION COMMITTEE REPORT

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

A. Membership and Responsibilities

The Compensation Committee is composed entirely of “independent directors” as determined by the Board of Directors in accordance with the listing standards of the New York Stock Exchange. The standards that the Board uses to determine whether a director is “independent” are described in the “Director Independence” section.

Our committee ~~has overall responsibility~~is responsible for overseeing and administering the ~~Company's~~company’s executive compensation ~~policies~~programs and practices. Our committee's functions include: * determining the compensation of the ~~Co-Chief Executive Officers, Charles R. Schwab and David S. Pottruck, * on recommendation~~company’s Chairman of the ~~Co-Chief Executive Officers, reviewing~~Board, CEO and ~~approving the~~all other executive ~~officers'~~officers. We report regularly to the Board on our activities. In carrying out our responsibilities, we have direct access to independent and experienced compensation ~~including salary~~consultants who provide advice on existing and ~~payments under the annual~~new executive ~~bonus plans,~~compensation packages, programs and * granting awards under the Company's stock incentive plans. Our committeepolicies. If you would like further information about our composition and membership, authority, meetings and responsibilities, please consult our charter, which is ~~providing the following report~~available on the ~~Company's executive compensation policies, the relationship of the Company's performance to executive compensation, and the Co-Chief Executive Officers' compensation. COMPENSATION POLICIES~~ company’s website atwww.aboutschwab.com/corpgov.

B. Compensation Policies

The ~~Company's~~company’s executive compensation policies are designed to ~~address a number of objectives, including rewarding financial~~link pay with performance and ~~motivating executive officers~~stockholder returns over the long-term and to ~~achieve significant~~attract and retain key executives who are critical to the company’s long-term success.

We link pay to stockholder returns ~~for stockholders. The Company's policies rely on two principles: * first,~~by requiring that a significant portion of ~~executive officers'~~an executive’s total compensation ~~should~~package be in the form of stock and stock-based ~~incentives,~~incentives. Stock-based compensation is further described in Part F of this report. We also link pay to individual performance and * second,the company’s financial performance by requiring that executives’ cash incentive compensation be subject to performance-based criteriawith significant upside potential and downside risk. Our salary, bonus and long-term incentive programs are described in Parts C, D and E of this report.

In 2003, our emphasis with regard to long-term compensation shifted from stock-based awards to a ~~large portion~~combination of ~~their~~ cash and stock-based awards. The Long-Term Incentive Plan, as further described in Part E of this report, incorporates a cash component into our overall long-term compensation ~~should be at risk and vary, depending on meeting stated financial objectives.~~ program.

When establishing salaries, bonus levels and long-term incentive and stock-based awards for executive officers, ~~our committee considers~~we consider the ~~individual's~~individual’s role, responsibilities and performance during the past year, and the amount of compensation paid to executive officers in similar positions of ~~comparable~~peer group companies.

A fundamental objective is to provide our executive officers with the opportunity to earn total compensation that is competitive with total compensation that peer companies ~~based~~provide to similarly situated executives. In making competitive comparisons, we engage an independent consultant to assist us in selecting the peer group of companies. The selection process for the peer group takes into account multiple factors including industry (with an emphasis on ~~periodic reviews of competitive data obtained from independent consultants. Our committee reviews companies whose~~financial services), size, rates of growth and financial returns that are similar to the Company's, including some of the companies in the Dow Jones Securities Brokerage Group Index. Our committee selects companies outside the financial services industry for inclusion 28 [side bar] IN THIS SECTION, WE DESCRIBE THE COMPENSATION WE PAY OUR CO-CHIEF EXECUTIVE OFFICERS AND THE NEXT FIVE MOST HIGHLY COMPENSATED EXECUTIVE OFFICERS. COMPENSATION POLICIES ~~COMPENSATION COMMITTEE REPORT in the review based on the extent to which they satisfy a list of selection criteria, including size, growth rates, similar financial performance,~~our company’s, leadership status in their industry, reputation for innovation and the extent to which ~~they compete~~the peer company competes with ~~the Company~~our company for ~~executives. Not all~~executive talent. In 2003, our peer group companies consisted of ~~these criteria will necessarily be satisfied~~21 companies, primarily in any particular case. Our committee includes in its review companies other than those included in the Dow Jones Securities Brokerage Group Index because the Company frequently recruits executives from outside the financial services ~~industry, depending on the specific skills required for the position. Our committee uses comparative~~sector.

To further link pay with performance, we consider peer group data provided by our independent consultant to ~~set~~establish compensation targets (as described further in Parts D, E and F of this report) that ~~will~~ provide executive officers with total compensation that: *

exceeds the average amounts paid to similar executives of comparable companies in years in which the company achieves superior performance, and

COMPENSATION COMMITTEE REPORT

falls below the average amounts paid to similar executives of comparable companies in years in which the company fails to achieve superior performance.

C. Base Salary

Base salary is frequently a significant factor in attracting, motivating and retaining key executive officers. Accordingly, we annually review executive officers’ base salaries and make appropriate adjustments based on performance in the previous year and average base salaries paid to executives of peer group companies. Overall, our executive officers’ base salaries are near the average ~~amounts~~base salaries paid to ~~similar~~ executives of ~~comparable companies~~peer group companies. Please refer to Part B of this report regarding the selection of peer group companies.

D. Bonus

Bonuses are calculated and paid in ~~years~~accordance with the company’s Corporate Executive Bonus Plan (CEBP). In 2003, we merged the company’s Annual Executive Individual Performance Plan into the CEBP, so that a single bonus will be paid under the CEBP. We select the executive officers who are eligible to participate in ~~which~~ the Company achieves superior performance, and * falls below the average amounts paid to similar executives of comparable companies in years in which the Company fails to achieve superior performance. However, our committee also makes discretionary and subjective determinations of appropriate compensation amounts to reflect, for example, the Company's philosophy of compensating executives for the success they achieve in managing specific enterprises. In Mr. Pottruck's case, our committee places considerable weight on the recommendations ofCEBP. Mr. Schwab ~~and~~is not covered under the CEBP because his bonuses are separately determined under his employment agreement, which is described in Part G of this report.

Under the CEBP, we set a target bonus for each participant in the ~~case~~first quarter of ~~executive officers other than Mr. Schwab~~each year expressed as a percentage of his or her base salary. The target bonus is based on competitive market data, internal equity considerations and ~~Mr. Pottruck, our committee places considerable weight on~~ the recommendations of Mr. Schwab and Mr. Pottruck. ~~THE IMPORTANCE OF OWNERSHIP~~ Mr. Pottruck’s target is based on the recommendation of Mr. Schwab only. Awards may range from 0% to 350% of the target bonus based on a corporate performance matrix that we adopt when we establish target bonuses for participants. In 2003, we used consolidated after-tax operating profit margin andnet revenue growth to determine corporate performance under the matrix.

For 2003, corporate performance as determined under the matrix was below the company’s goals, which resulted in the payment of bonuses that were less than half of the full annual target bonuses of all participants (other than Mr. Pottruck who declined his bonus altogether). The amount of annual bonus paid to each of the company’s named executive officers is set forth in the Summary Compensation Table, which follows this report.

Lon Gorman, the Vice Chairman and President – Schwab Institutional and Asset Management, is also eligible to participate in the Schwab Capital Markets Incentive Plan (SCMIP), which was approved by stockholders in 2003. The objective of the SCMIP is to link a significant portion of Mr. Gorman’s compensation to the success of Schwab Capital Markets and the related capital markets businesses for which he is responsible. Specifically, the amount of compensation under the SCMIP is determined on the basis of the financial performance of Schwab Capital Markets as measured by the adjusted pre-tax contribution margin of the capital markets-related businesses that report to Mr. Gorman (subject to further adjustment). For those businesses in 2003, the company achieved actual adjusted pre-tax contribution margin of $119.1 million, resulting in a funded bonus of $1.2 million, which Mr. Gorman agreed to reduce to $900,000.

E. Long-Term Incentive Plan

In 2003, the company adopted, and the stockholders approved, a new Long-Term Incentive Plan (LTIP). The LTIP is designed to provide cash incentives to officers based strictly on the company’s corporate performance, as discussed below.

The LTIP is part of our overall long-term incentive compensation program, whose objectives for 2003 included the following:

COMPENSATION COMMITTEE REPORT

providing financial incentives to selected executives and other officers to contribute to the long-term success of the company; and

in conjunction with grants under the company’s stock-based incentive programs (as described further in Part F of this report), changing the way the company delivers potential long-term compensation to most officers from grants made entirely in stock-based awards (primarily stock options) to grants made 50% in cash incentive payments under the LTIP and 50% in restricted shares of common stock under the company’s stock incentive plans.

Our long-term incentive compensation program is subject to change in future years.

We established an initial four-year performance period under the LTIP, beginning January 1, 2003. We determined that cash incentive payments for the initial performance period will be based on the company’s cumulative earnings per share over that four-year period. If cumulative earnings per share exceed $1.18, the amount of cash incentive payments over the initial performance period would range between 50% of each officer’s target cash award (where cumulative earnings per share reach $1.19) and 400% of the officer’s target cash award (where cumulative earnings per share reach $2.77). On the other hand, if cumulative earnings per share do not exceed $1.18 over the initial performance period, officers will only be eligible to receive cash incentive payments (which may not exceed 49% of each officer’s target cash award) solely in our discretion. In that case, such payments may not be deductible for certain executive officers. We have discretion to make equitable adjustments to the performance goal, i.e., cumulative earnings per share, to reflect unusual or non-recurring events affecting the company or its shares and any stock split, declaration of stock dividend or other similar event.

The LTIP award granted to each of the company’s named executive officers in 2003 is set forth in the Long-Term Incentive Plan table, which follows this report.

F. Stock-Based Incentives and Stock Ownership

A fundamental tenet of the ~~Company's~~company’s compensation policy is that significant equity participation creates a vital long-term partnership between management and other stockholders. Through the company’s various ~~stock incentive~~ plans, ~~The SchwabPlan Retirement Savings and Investment Plan, and~~ the ~~401(k) Plan and ESOP of United States Trust Company of New York and Affiliated Companies, the benefits~~incentives of equity ownership are extended to ~~non-employee directors, executive officers and~~ employees of the ~~Company~~company and its subsidiaries. As of March 8, 2001, the directors and executive officers of the Company owned an aggregate of 281,534,871 shares (including restricted shares) and had the right to acquire an additional 16,274,472 shares upon the exercise (on or before May 7, 2001) of stock options. As of March 8, 2001, The SchwabPlan Retirement Savings and Investment Plan and the 401(k) Plan and ESOP of United States Trust Company of New York and Affiliated Companies held an aggregate of 82,881,145 shares that had been allocated to participants' accounts. The Company intends to continue its strategy of encouraging its employees to become stockholders. 29 [side bar] THE IMPORTANCE OF OWNERSHIP COMPENSATION COMMITTEE REPORT The performance graph on page 22 of this proxy statement compares changes in the Company's cumulative total returns with those of the Dow Jones Securities Brokerage Group Index and the Standard & Poor's 500 Index. From December 31, 1995 through December 31, 2000, the cumulative total return for Company stock was 870%. By comparison, in the same period the Dow Jones Securities Brokerage Group Index grew 522% and the Standard & Poor's 500 Index grew 132%. Our committee believes employees' equity participation in the Company is a meaningful factor contributing to the Company's success. ANNUAL BASE SALARY The Company believes that base salary is frequently a significant factor in attracting, motivating and retaining skilled executive officers. Accordingly, our committee reviews base salaries of executive officers annually and generally sets the base salary of executive officers at or near the average of the levels paid by the other companies it reviews. (See "Compensation Policies" earlier in this report.) VARIABLE COMPENSATION CORPORATE EXECUTIVE BONUS PLAN The Corporate Executive Bonus Plan covers certain executive officer participants selected by our committee, but Mr. Schwab is not eligible to participate. (Mr. Schwab is covered under an employment agreement with the Company. See "Co-Chief Executive Officers' Compensation" later in this report.) This bonus plan pays bonuses each year based on corporate performance. Depending on the Company's pre-tax operating profit margin and net revenue growth, this bonus plan is paid out at a percentage of each participant's bonus target. (The pre-tax operating profit margin represents an adjusted operating income measure which in 2000 excludes merger- and acquisition-related charges.) Targets are expressed as a percentage of base salary, which our committee determines based on the factors discussed earlier in this report. (See "Compensation Policies.") Our committee sets target bonuses in the first quarter of each year based on the recommendations of Mr. Schwab and Mr. Pottruck (except that Mr. Pottruck's target bonus is based on the recommendation of Mr. Schwab only). In the case of Mr. Pottruck, who receives all of his annual incentive compensation under this bonus plan, our committee determined that it would be appropriate to set a target bonus for 2000 that would result in an annual bonus payment to Mr. Pottruck equal to the annual bonus payable to Mr. Schwab under his employment agreement, depending on our corporate performance. (See "Co-Chief Executive Officers' Compensation" later in this report.) In the case of the remaining executive officers whoparticipate in this bonus plan, the target bonuses for 2000 under this bonus plan could be up to 100% of base salary. These remaining executive officers also participate in the Annual Executive Individual Performance Plan (discussed later in this report). The target bonus is adjusted upward or downward, according to a payout matrix our committee adopted when we set the target bonus. This results in a payout of a 30 [side bar] ANNUAL BASE SALARY VARIABLE COMPENSATION COMPENSATION COMMITTEE REPORT multiple (or fraction) of the target bonus depending on our corporate performance. The factors determining bonuses in the matrix are pre-tax operating profit margin and net revenue growth. In general, a given percentage change in pre-tax operating profit margin will have a greater impact on the determination of bonus payments than the same percentage change in the net revenue growth rate. In 2000, the Company achieved a pre-tax operating profit margin of 24% and net revenue growth of 29%. Based on this performance, executive officers who participate in this bonus plan received bonuses exceeding their target bonus amounts in 2000. ANNUAL EXECUTIVE INDIVIDUAL PERFORMANCE PLAN The Annual Executive Individual Performance Plan covers certain executive officer participants selected by our committee, but Mr. Schwab and Mr. Pottruck are not eligible to participate. The Individual Performance Plan presently pays bonuses based on a subjective determination of each officer's individual contribution to the attainment of corporate performance objectives. Our committee makes this determination based on the recommendations of Mr. Schwab and Mr. Pottruck. In general, their recommendations are based in significant part on the officer's success in achieving specific goals identified in the officer's business plan. The amount available for payments under the Individual Performance Plan is generally calculated by multiplying the amounts payable to the participants under the Corporate Executive Bonus Plan by a fixed amount. Individual bonuses under the Individual Performance Plan may vary, depending on individual achievements. However, the aggregate amount of bonuses payable to executive officers, as a group, under the Individual Performance Plan is based strictly on our corporate performance. 1992 STOCK INCENTIVE PLAN In 1992, the Board approved the 1992 Stock Incentive Plan, which was approved by the Company's stockholders at the 1992 annual meeting and became effective on May 8, 1992.

Under the ~~plan our committee grants~~company’s existing stock incentive plans, we grant stock options and restricted stock to executive officers, based on the factors discussed ~~earlier~~ in Part B of this report. ~~(See "Compensation Policies.") Our committee has~~We maintain a policy of ~~granting annual stock options and occasional restricted stock awards~~making long-term compensation grants to executive officers each year because of our ~~belief that an~~ emphasis on ~~annual awards provides a powerful incentive to~~aligning executive interests with stockholders and motivating executive

officers to obtain superior performance ~~results. Our committee intends that stock-based incentives will be~~results over the ~~sole long-term incentives payable to executive officers.~~long term. During ~~2000,~~2003, our committee granted restricted shares, stock options and LTIP awards to ~~each~~certain of the ~~Company's~~company’s executive officers. To determine the size of the grants, ~~our committee~~we reviewed competitive market data obtained from anour independent consultant concerning levels of long-term compensation for executive officers of ~~selected financial services companies~~peer group companies.

In July 2003, we reviewed outstanding stock-based awards held by senior executive officers and ~~companies~~determined that supplemental stock-based awards to these officers were necessary to enhance the retention and motivation value of ~~comparable size, rates~~the compensation program. These awards were made subject to a vesting schedule that is longer and more stringent than the four-year vesting schedule that typically is used for other stock-based awards.

As of ~~growth, and/or financial returns. 31 [side bar] VARIABLE COMPENSATION~~ March 18, 2004, directors and executive officers owned an aggregate of 270,937,420 shares (including

COMPENSATION COMMITTEE REPORT ~~CO-CHIEF EXECUTIVE OFFICERS' COMPENSATION CHARLES~~

restricted shares) and had the right to acquire an additional 20,865,035 shares upon the exercise of vested stock options. We intend to continue our strategy of encouraging executive officers, as well as all other employees, to be stockholders. We believe that executive officers’ equity participation in the company is a meaningful factor contributing to the company’s success.

G. Compensation of Charles R. ~~SCHWAB~~Schwab

At the beginning of 2003, Mr. Schwab was Chairman and Co-Chief Executive Officer. In May 2003, Mr. Schwab ceased to be Co-Chief Executive Officer and Mr. Pottruck became the sole Chief Executive Officer of the company. Mr. Schwab remains Chairman of the company. Mr. Schwab is compensated based on an employment agreement that was entered into between the Company and Mr. Schwab and approved by the stockholders, effective March 31, 1995. (See "Employment Agreement and Name Assignment" in Appendix A.) Under the terms ofaccording to his employment agreement (see Exhibit B), which was approved by stockholders in 2003, as follows:

Annual salary of $900,000 subject to our annual review.

Annual bonus based on pre-established performance targets and a formula-based matrix. Mr. Schwab’s bonus is computed as the amount of total cash compensation earned pursuant to the formula-based matrix, which we adopt in the first quarter of each year, minus his actual base salary paid during that year. The formula-based matrix is the sole basis for determining Mr. Schwab’s annual bonus. For 2003, Mr. Schwab earned a bonus of $3,289,000 according to the formula-based matrix. However, Mr. Schwab declined his bonus for 2003 so that the amount would be available for other employees.

In recognition of his performance in 2003, the committee awarded Mr. Schwab ~~receives~~ a ~~base salary~~special stock option grant on 300,000 shares of ~~$800,004.~~company stock in January 2004. For the three-year period following the date of grant, the stock options cannot be exercised (except if Mr. ~~Schwab's annual bonus, if any, is a multiple of his base salary. The multiple is based on our corporate pre-tax operating profit margin~~Schwab retires, in which case the options becomefully exercisable) and ~~net revenue growth for~~ the ~~year, and is determined~~shares purchased under ~~a matrix adopted by our committee. Our committee has~~ the ~~authority to adjust the matrix from time to time (provided that for any year we may not change the matrix more than 90 days after the beginning of the year). Our committee believes~~options cannot be sold.

We believe that Mr. ~~Schwab's~~Schwab’s leadership is a vital factor into our corporate success. Specifically, ~~our committee believes~~we believe that: * MR. SCHWAB PROVIDES THE LEADERSHIP, VISION AND INSPIRATION FOR INNOVATION THAT HAS GENERATED CORPORATE GROWTH AND SUPERIOR PERFORMANCE, * THE OVERALL STRATEGIC DIRECTION DEVELOPED BY MR. SCHWAB IS CRITICAL TO ENHANCING THE FUTURE LONG-TERM VALUE OF THE COMPANY FOR ITS STOCKHOLDERS, AND * MR. SCHWAB'S LEADERSHIP HAS ENABLED THE COMPANY, ON THE WHOLE, TO SUBSTANTIALLY OUTPERFORM BOTH THE DOW JONES SECURITIES BROKERAGE GROUP INDEX AND THE STANDARD & POOR'S 500 INDEX OVER THE PAST FIVE YEARS.

Mr. Schwab provides the leadership, vision and inspiration for innovation that has generated corporate growth and superior performance, and

The overall strategic direction developed by Mr. Schwab is critical to enhancing the future long-term value of the company for its stockholders.

H. Compensation of David S. Pottruck

The ~~Company attained a pre-tax operating profit margin~~compensation of 24% and net revenue growth of 29% in 2000, which resulted in pre-tax operating profit of $1.388 billion. The amount of the annual bonus for 2000 paid to Mr. Schwab under his employment agreement was $8,100,000. DAVID S. POTTRUCK Mr. Pottruck, ~~President and Co-Chief~~Chief Executive Officer, is ~~compensated~~ in the form of a base salary and ~~an annual~~ bonus payable under the ~~Corporate Executive Bonus Plan~~CEBP that is ~~dependent~~based on ~~our~~the company’s corporate ~~pre-tax~~after-tax operating profit margin and net revenue growth. ~~(See "Corporate Executive Bonus Plan" earlier~~Mr. Pottruck’s bonus is computed as the amount of total cash compensation earned pursuant to the formula-based matrix, which we adopt in ~~this report.) For 2000, our committee determined~~the first quarter of each year, minus his actual base salary paid during that ~~based on~~year. The formula-based matrix is the ~~relative responsibilities of~~sole basis for determining Mr. ~~Schwab and~~Pottruck’s annual bonus. Mr. Pottruck itis also eligible for LTIP and stock-based awards.

In determining Mr. Pottruck’s compensation for 2003, we took into account his increased responsibilities that resulted from his becoming sole Chief Executive Officer in May 2003 and competitive compensation levels of chief executive officers of peer companies. Mr. Pottruck’s annual base salary was ~~appropriate for~~increased to $1 million in 2003. For 2003, Mr. Pottruck ~~to receive~~earned a ~~base salary equal~~bonus of $4,751,500 according to the ~~base salary payable~~formula-based matrix. However, Mr. Pottruck declined his bonus for 2003 so that the amount would be available for other employees. In 2003, we also awarded to Mr. ~~Schwab under~~Pottruck restricted stock, stock options and LTIP awards, as described in the Executive Compensation tables that follow this report.

COMPENSATION COMMITTEE REPORT

In recognition of his ~~employment agreement.~~leadership and performance in 2003, the committee awarded to Mr. Pottruck a special stock option grant of 425,000 shares of company stock in January 2004. For the ~~same reason, we determined it to~~three-year period following the date of grant, the stock options cannot be ~~appropriate to set a target bonus for~~exercised (except if Mr. Pottruck retires, in which case the options become fully exercisable) and the shares purchased under the ~~Corporate~~options cannot be sold.

We believe that:

Mr. Pottruck provides strategic and day-to-day leadership that has contributed and continues to contribute significantly to the company’s growth and superior performance, and

Mr. Pottruck guides the company in the delivery of highly competitive products and services to its clients and this ability to compete is imperative to building future long-term value for stockholders.

I. Tax Limits on Executive Bonus Plan that would cause Mr. Pottruck to receive an annual bonus equal to the annual bonus payable to Mr. Schwab under his employment agreement, depending on our corporate performance. Specifically, our committee believes that: * MR. POTTRUCK PROVIDES STRATEGIC AND DAY-TO-DAY LEADERSHIP THAT HAS CONTRI- BUTED AND CONTINUES TO CONTRIBUTE SIGNIFICANTLY TO THE COMPANY'S GROWTH AND SUPERIOR PERFORMANCE, 32 [side bar] CO-CHIEF EXECUTIVE OFFICERS' COMPENSATION COMPENSATION COMMITTEE REPORT * MR. POTTRUCK GUIDES THE COMPANY IN THE DELIVERY OF HIGHLY COMPETITIVE PRO- DUCTS AND SERVICES TO ITS CLIENTS, AND THIS ABILITY TO COMPETE IS IMPERATIVE TO BUILDING FUTURE LONG-TERM VALUE FOR STOCKHOLDERS, AND * OVER THE PAST FIVE YEARS, THE COMBINATION OF MR.POTTRUCK'S AND MR. SCHWAB'S LEADERSHIP HAS ENABLED THE COMPANY, ON THE WHOLE, TO SUBSTANTIALLY OUTPERFORM BOTH THE DOW JONES SECURITIES BROKERAGE GROUP INDEX AND THE STANDARD & POOR'S 500 INDEX. TAX LAW LIMITS ON EXECUTIVE COMPENSATION Compensation

Section 162(m) of the Internal Revenue Code limits tax deductions for certain executive compensation over $1 million. Certain types of compensation are deductible only if ~~performance criteria are specified in detail,~~performance-based and ~~stockholders have~~ approved by the ~~compensation arrangements. The Company believes~~stockholders. We believe that it is generally in the best interests of its stockholders to structure compensation plans so that compensation is performance-based and therefore deductible under ~~Section~~section 162(m).

Accordingly, the ~~Company's Corporate Executive Bonus Plan,~~CEBP, the SCMIP, the LTIP, the company’s 1992 ~~Stock Incentive Plan,~~and 2001 stock incentive plans and Mr. ~~Schwab's~~Schwab’s employment agreement, as amended, are designed to provide performance-based compensation and have been approved by stockholders. ~~In addition, stockholders are being asked to approve the 2001~~The 2004 Stock Incentive Plan also is intended to provide performance-based compensation and ~~the Annual Executive Individual Performance Plan, as amended, at~~is being submitted for stockholder approval this ~~year's annual meeting of stockholders. (See "Proposals To Be Voted On," beginning on page 10, and Appendices B and C.)~~year. However, ~~the Company believes~~we believe that there may be times when the benefit of the deduction would be outweighed by other corporate objectives, such as the need for flexibility. ~~Our committee~~

We will continue to monitor issues concerning the tax deductibility of executive compensation and will take appropriate action if we believe it is warranted. Since corporate objectives may not always be consistent with the requirements for full deductibility, ~~our committee is~~we are prepared, if we believe it is appropriate, to enter into compensation arrangements or provide compensation under which payments may not be deductible under ~~Section~~section 162(m). ~~Tax deductibility will not be the sole factor we consider in determining appropriate levels or types of compensation.~~

COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS

Roger O. Walther, Chairman ~~Nancy H. Bechtle~~

C. Preston Butcher ~~Stephen T. McLin~~

Frank C. Herringer

George P. Shultz ~~33 [side bar] TAX LAW LIMITS ON~~

Paula A. Sneed

Robert N. Wilson

EXECUTIVE COMPENSATION ~~AUDIT COMMITTEE REPORT The Audit Committee~~

SUMMARY COMPENSATION TABLE

This table shows, for the last three fiscal years, compensation information for the company’s Chairman, who served as Co-Chief Executive Officer of the ~~Company's Board~~company until May 2003, the Chief Executive Officer and the next four most highly compensated executive officers during 2003. We refer to each of ~~Directors consists~~these officers as a “named executive officer.”


	ANNUAL COMPENSATION					LONG-TERM COMPENSATION AWARDS⁽¹⁾
NAME AND PRINCIPAL POSITION	YEAR	SALARY ⁽²⁾	BONUS		OTHER ANNUAL COMPEN- SATION ⁽³⁾	RESTRICTED STOCK AWARDS ⁽⁴⁾	SECURITIES UNDERLYING OPTIONS		ALL OTHER COMPEN- SATION ⁽⁵⁾

Charles R. Schwab ⁽⁶⁾ CHAIRMAN	2003 2002 2001	$900,000 $883,334 $650,003	0 0 0	⁽⁷⁾	— — —	0 0 0	0 1,300,000 1,116,000	⁽⁸⁾ ⁽⁸⁾	0 $10,250 $8,750

David S. Pottruck CHIEF EXECUTIVE OFFICER	2003 2002 2001	$983,333 $883,334 $650,003	0 0 0	⁽⁷⁾	$138,703 $149,934 —	$2,500,006 0 0	1,417,100 1,300,000 1,116,000	⁽⁸⁾ ⁽⁸⁾	0 $10,250 $8,750

Lon Gorman ⁽⁹⁾ VICE CHAIRMAN AND PRESIDENT—SCHWAB INSTITUTIONAL AND ASSET MANAGEMENT	2003 2002 2001	$590,000 $586,017 $499,125	$1,220,917 $1,000,000 0		— — —	$2,787,491 0 0	0 300,000 340,000		0 $10,250 $8,750

Alan J. Weber ⁽¹⁰⁾ EXECUTIVE VICE PRESIDENT AND CHAIRMAN AND CHIEF EXECUTIVE OFFICER, U.S. TRUST CORPORATION	2003 2002	$625,000 $156,250	$468,750 $468,750		— —	$2,272,521 $932,000	0 325,000		0 0

Dawn G. Lepore VICE CHAIRMAN—ACTIVE TRADER, TECHNOLOGY, OPERATIONS, ADMINISTRATION AND BUSINESS STRATEGY	2003 2002 2001	$618,333 $613,617 $526,388	$409,066 $400,942 0		— — —	$3,033,781 0 0	0 300,000 340,000		0 $10,250 $8,750

William L. Atwell EXECUTIVE VICE PRESIDENT AND PRESIDENT—CLIENT SALES AND SERVICE AND BANKING	2003 2002 2001	$560,833 $512,000 $398,125	$412,929 $250,000 0		$292,041 — —	$2,908,786 0 0	0 220,000 199,400		0 $10,250 $8,750

(1)

The company’s Long-Term Incentive Plan was adopted and approved by stockholders in 2003. As a result, no payments were made under the plan in 2003.

(2)

This column reflects a reduction in the salary originally established for 2001 for each named executive officer. The reduction, which was for a five-month period, was part of the company’s cost containment measures during 2001. For that five-month period, Mr. Schwab’s and Mr. Pottruck’s salaries were reduced by approximately 50%, Mr. Gorman’s and Ms. Lepore’s salaries were reduced by approximately 25%, and Mr. Atwell’s salary was reduced by approximately 20%.

(3)

In 2003, Mr. Pottruck’s other annual compensation included $60,870 for personal travel aboard company aircraft and $59,131 as a related tax gross-up. For 2002, Mr. Pottruck’s other annual compensation included $82,717 for personal travel aboard company aircraft, $27,621 as a related tax gross-up, and $35,342 for financial planning. Amounts for personal travel on board company aircraft are calculated using their marginal operating cost.

In 2003, Mr. Atwell’s other annual compensation included $279,036 for relocation expenses.

EXECUTIVE COMPENSATION

(4)

This column shows the market value of performance share and restricted stock awards on date of grant. An award of performance shares is a promise by the company to deliver a specified number of shares of stock at a future date (in the case of Mr. Pottruck, on the date of his termination of employment for any reason) subject to certain service or time-based vesting requirements.

The following chart shows the cumulative number and year-end value of shares of unvested performance shares held by Mr. Pottruck, and unvested restricted stock held by Mr. Gorman, Mr. Weber, Ms. Lepore and Mr. Atwell on December 31, 2003. The year-end value is based on the closing price of company common stock on that date ($11.84).


	Number of Shares	Year-End Value


Mr. Pottruck	365,498	$	4,327,496

Mr. Gorman	281,010	$	3,327,158

Mr. Weber	335,010	$	3,966,518

Ms. Lepore	303,010	$	3,587,638

Mr. Atwell	299,099	$	3,541,332

Holders of restricted stock have voting and dividend rights.

Mr. Pottruck’s performance shares have zero vesting for four years and then vest 100% on March 14, 2008, which is five years from the grant date. These shares will vest earlier, either three or four years after the grant date in 2006 or 2007, respectively, only if certain performance criteria are met.

Restricted stock at the company generally vests evenly over 4 years. However, the restricted stock awarded in 2003 to Ms. Lepore and Messrs. Gorman, Weber and Atwell was granted for retention purposes and therefore is subject to a longer and more stringent vesting schedule, with zero vesting for two years, 25% of the shares vesting on each of the third and fourth anniversary of the grant date and the remaining 50% on the fifth anniversary of the grant date. None of these retention grants provide for accelerated vesting upon retirement.

(5)

401(k) Plan Contributions. For Messrs. Schwab, Pottruck, Gorman and Atwell and Ms. Lepore, the amounts in this column represent contributions under The SchwabPlan Retirement Savings and Investment Plan.

(6)

Mr. Schwab has had an employment contract with the company since 1987. His current employment contract is described in Exhibit B to this proxy statement.

(7)

Mr. Schwab and Mr. Pottruck each declined a recommended bonus for 2003 so that the amount declined would be available for bonuses for other employees.

(8)

In 2002, Mr. Schwab and Mr. Pottruck voluntarily relinquished all stock option grants granted to them in 2000, 2001 and 2002, a combined total of 5,432,000 underlying shares. Consequently, all of the options shown in the “Securities Underlying Options” column for 2001 and 2002 have been canceled. The purpose of Mr. Schwab’s and Mr. Pottruck’s action was to support grants to other employees in an effort to motivate key employees and retain talent in the face of unprecedented business uncertainties, while minimizing the effect of dilution to stockholders.

(9)

Mr. Gorman has an employment contract with the company, as described in Exhibit C to this proxy statement.

(10)

Mr. Weber joined the company on October 1, 2002.

EXECUTIVE COMPENSATION

OPTIONS GRANTED IN 2003

This table shows stock option grants to the named executive officers during 2003. No named executive officer received a stock option grant in 2003, with the exception of ~~seven directors who~~Mr. Pottruck.


	INDIVIDUAL GRANTS						POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION FOR OPTION TERM⁽²⁾
	NUMBER OF SECURITIES UNDERLYING OPTIONS GRANTED ⁽¹⁾	% OF TOTAL OPTIONS GRANTED TO EMPLOYEES IN FISCAL YEAR⁽³⁾		EXERCISE OR BASE PRICE PER SHARE		EXPIRATION DATE	5%		10%


David S. Pottruck	1,417,100	62.28	%	$	8.88	5/9/2013	$	7,902,373	$	20,037,035

(1)

These options were granted on May 9, 2003, the date of the company’s annual meeting where Mr. Pottruck was named sole Chief Executive Officer. They are part of the company’s 2001 Stock Incentive Plan and fully vest on the fifth anniversary of the grant date. However, if certain performance goals are met or exceeded on either the third or fourth anniversary of the grant date, the vesting of the shares will accelerate and the shares will then fully vest.

(2)

Based on SEC rules, we use a 5% and 10% assumed rate of appreciation over the option term. This does not represent the company’s estimate or projection of the future common stock price. If company common stock does not appreciate above the exercise price, Mr. Pottruck will receive no benefit from the options.

(3)

In 2003 the company used a combination of cash (through the Long-Term Incentive Plan) and restricted stock instead of stock options as the primary long-term compensation incentive for employees. Accordingly, the only grants of stock options to employees in 2003 were made to Mr. Pottruck and to certain new hires.

Mr. Pottruck’s stock options and performance shares (described in footnote 4 to the Summary Compensation Table) represent 13% of the equity grants (including stock options, restricted stock and performance shares) made to all employees in 2003. Mr. Pottruck’s stock options, granted in recognition of his promotion to sole Chief Executive Officer in 2003 and designed to encourage a focus on long-term stockholder value, are not exercisable until 2008 or earlier if certain performance measures are exceeded. When exercised, Mr. Pottruck can only sell prior to his retirement the number of shares required to pay taxes and commissions resulting from the exercise of the options.

EXECUTIVE COMPENSATION

FISCAL YEAR-END OPTION VALUES

During 2003, none of the ~~Company or any~~named executive officers exercised company stock options. This table shows the value of ~~its subsidiaries.~~unexercised stock options held by the named executive officers as of December 31, 2003.


	NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS AT FISCAL YEAR-END		VALUE OF UNEXERCISED IN-THE-MONEY OPTIONS AT FISCAL YEAR-END ⁽¹⁾
	Exercisable	Unexercisable	Exercisable	Unexercisable


Charles R. Schwab	4,837,500	0	$26,322,439	0

David S. Pottruck	10,560,981	3,217,100	$47,133,750	$4,116,676

Lon Gorman	767,002	489,501	$833,582	$330,270

Alan J. Weber	62,500	262,500	$154,063	$617,813

Dawn G. Lepore	1,120,405	489,501	$2,712,328	$330,270

William L. Atwell	209,790	297,610	$43,921	$327,010

(1)

The amounts in this column are calculated by:

subtracting the option exercise price from the company’s December 31, 2003 average market price ($11.785) per share (as reported in the New York Stock Exchange Composite Transactions Index) to get the “average value per option,” and

multiplying the average value per option by the number of exercisable or unexercisable options, as applicable.

The amounts in this column may not represent amounts that will actually be realized by the named executive officers.

EXECUTIVE COMPENSATION

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

The following table summarizes information as of December 31, 2003 with respect to equity compensation plans approved and not approved by stockholders (shares in millions):


PLAN CATEGORY	(A) SHARES TO BE ISSUED UPON EXERCISE OF OUTSTANDING OPTIONS		(B) WEIGHTED-AVERAGE EXERCISE PRICE OF OUTSTANDING OPTIONS		(C) SHARES AVAILABLE FOR FUTURE ISSUANCE (EXCLUDING SHARES IN COLUMN A)


Equity compensation plans approved by stockholders	97	⁽¹⁾	$	14.1447	35

Equity compensation plans not approved by stockholders ⁽²⁾	39	⁽³⁾	$	17.9913	9

Total	136		$	15.2498	44	⁽⁴⁾

(1)

Represents shares of common stock issuable upon exercise of outstanding options under the company’s 1987 Stock Option Plan, 1987 Executive Officer Stock Option Plan and the 1992 and 2001 Stock Incentive Plans, which are generally used for grants to officers and directors. Although stock and stock-based awards are still outstanding under the 1987 Stock Option Plan and 1987 Executive Officer Stock Option Plan, no new shares are available under these plans for future grants.

(2)

In connection with its acquisition of CyBerCorp, Inc. in 2000, the company assumed options granted under the CyBerCorp, Inc. 1996 Stock Incentive Plan. The company did not reserve the right to make further grants under that plan. As of December 31, 2003, 40,788 shares were issuable upon exercise of these assumed options, and the assumed options had a weighted-average exercise price of $12.3559.

(3)

Represents shares of common stock issuable upon exercise of outstanding options under the company’s Employee Stock Incentive Plan. Grants under this plan are used for employees other than officers and directors and, accordingly, did not require stockholder approval prior to amendments to the New York Stock Exchange listing standards that were finalized in 2003. The material features of this plan are described in the next section.

(4)

In addition to options, restricted shares may be granted under the 1992 and 2001 Stock Incentive Plans and the Employee Stock Incentive Plan, and performance based shares may be granted under the 1992 and 2001 Stock Incentive Plans.

EXECUTIVE COMPENSATION

MATERIAL FEATURES OF EMPLOYEE STOCK INCENTIVE PLAN

Purpose. The Board ~~believes that all~~approved the Employee Stock Incentive Plan to promote the long-term success of the ~~members~~company and the creation of ~~our committee are "independent directors" as defined under applicable listing standards.~~incremental stockholder value by (a) encouraging employees to focus on long-range objectives, (b) encouraging the attraction and retention of employees with exceptional qualifications and (c) linking employee and stockholder interests. The ~~Board~~plan seeks to achieve this objective by providing for grants of ~~Directors has adopted~~options and restricted stock to employees. All or a ~~written Audit Committee Charter. A copy~~portion of the ~~Charter is attached as Appendix E. Our committee has met and held discussions with management and~~shares issuable under the ~~independent auditors. As part~~plan may be granted in the form of ~~this process, we have: * reviewed and discussed~~options or restricted stock.

Option Grants. Options granted under the ~~audited financial statements with management, * discussed with~~plan allow employees to purchase shares of company common stock at an exercise price of not less than 100% of the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees), and * received the written disclosures and the letter from the independent auditors required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and discussed with the independent auditors the independent auditors' independence. Basedfair market value of a share on the ~~review~~grant date. Options become exercisable and ~~discussions referred~~expire within the times and upon the events determined by the CompensationCommittee or by persons to ~~above, our~~whom the committee ~~recommended~~may delegate such responsibility. The exercise price of options must be paid in cash or, if permitted by the committee or its delegates, by the surrender of shares of company common stock valued at their fair market value on the date when the new shares are purchased, or by the proceeds from a “same-day sale” commitment.

Restricted Stock Grants. Restricted stock becomes vested, in full or in installments, upon the satisfaction of certain conditions established by the Compensation Committee or its delegates.

Effect of Change in Control. At the time of granting options or restricted stock, the Compensation Committee or its delegates may determine that the options or restricted stock shall become fully exercisable or vested if a change in control occurs with respect to the ~~Board~~company.

EXECUTIVE COMPENSATION

LONG-TERM INCENTIVE PLAN—AWARDS IN 2003

This table shows awards made under the company’s Long-Term Incentive Plan to the named executive officers during the last fiscal year.


			ESTIMATED FUTURE PAYOUTS UNDER NON-STOCK PRICE-BASED PLANS⁽¹⁾⁽²⁾

NAME	NUMBER OF SHARES, UNITS OR OTHER RIGHTS	PERFORMANCE OR OTHER PERIOD UNTIL MATURATION OR PAYOUT	THRESHOLD	TARGET	MAXIMUM


Charles R. Schwab	0	—	—	—	—

David S. Pottruck	1,500,000	2003 - 2006	$750,000	$1,500,000	$6,000,000

Lon Gorman	750,000	2003 - 2006	$375,000	$750,000	$3,000,000

Alan J. Weber	750,000	2003 - 2006	$375,000	$750,000	$3,000,000

Dawn G. Lepore	750,000	2003 - 2006	$375,000	$750,000	$3,000,000

William L. Atwell	625,000	2003 - 2006	$312,500	$625,000	$2,500,000

(1)

The above table shows cash amounts that would be payable after the four-year performance period from January 1, 2003 through December 31, 2006 with respect to the cash component of long-term compensation awards for 2003, assuming the company’s cumulative earnings per share over that period reach a level that would result, alternatively, in threshold awards, target awards or maximum awards under the Long-Term Incentive Plan.

(2)

After the end of the four-year performance period, units are valued according to a pre-established table that refers to the company’s cumulative earnings per share over the performance period. Units are paid in cash and vest over a four-year period of continuous employment. Units may become 100% vested upon retirement and may be paid on a pro-rated basis prior to the expiration of the four-year performance period in the event of death or disability.

PRINCIPAL STOCKHOLDERS

This table shows company common stock that is beneficially owned by the directors, the named executive officers and owners of Directors that the audited financial statements be included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000, for filing with the SEC. AUDIT COMMITTEE OF THE BOARD OF DIRECTORS Stephen T. McLin, Chairman Nancy H. Bechtle C. Preston Butcher Donald G. Fisher Anthony M. Frank Frank C. Herringer Arun Sarin 34 [side bar] BOARD AUDIT COMMITTEE REPORT AUDITOR INDEPENDENCE SELECTION Our Board has selected Deloitte & Touche LLP as the Company's independent auditors for the current fiscal year. They have served as auditors for Charles Schwab & Co., Inc.5% or the Company since 1976. We expect representatives of Deloitte & Touche to attend the meeting in order to respond to questions from stockholders, and they will have the opportunity to make a statement. AUDIT FEES The aggregate fees for professional services rendered by Deloitte & Touche in connection with their audit of our consolidated financial statements and reviewsmore of the consolidated financial statements included in our quarterly reports on Form 10-Q for the fiscal year ended December 31, 2000 were $3.7 million. FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES The aggregate fees for information technology services rendered by Deloitte & Touche relating to financial information systems design and implementation for the fiscal year ended December 31, 2000 were $0.7 million. ALL OTHER FEES The aggregate fees for all other services rendered by Deloitte & Touche for the fiscal year ended December 31, 2000 were $6.0 million and can be sub-categorized as follows: ATTESTATION FEES The aggregate fees for attestation services for matters such as SEC regis- tration statements, comfort letters, Statement on Auditing Standards No.70 reports, employee benefit plan audits, and agreed-upon procedures were $1.0 million. OTHER FEES The aggregate fees for all other services, including due diligence related to acquisitions, business and operational process improvement, tax consulting and regulatory matters, were $5.0 million. REVIEW OF AUDITOR INDEPENDENCE The Board Audit Committee has considered whether the provision of non-audit services by Deloitte & Touche, as described above in "Financial Information Systems Design and Implementation Fees" and "All Other Fees," is compatible with maintaining Deloitte & Touche's independence as the Company's principal auditor. 35 [side bar] SELECTION AUDIT FEES FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES ALL OTHER FEES REVIEW OF AUDITOR INDEPENDENCE OTHER INFORMATION CERTAIN TRANSACTIONS Directors and executive officers may maintain margin trading accounts with Charles Schwab & Co., Inc. Extensions of credit in such accounts: * are made in the ordinary course of business, * are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unaffiliated persons, and * do not involve more than the normal risk of collectibility or present other unfavorable features. Employees and directors of the Company who engage in brokerage transactions at Charles Schwab & Co., Inc. receive a 20% discount from its standard commission rates for brokerage transactions. In addition,outstanding company common stock, as of March ~~16, 2001,~~18, 2004.

AMOUNT AND NATURE OF SHARES BENEFICIALLY OWNED


NAME	SHARES OWNED ⁽¹⁾	RIGHT TO ACQUIRE ⁽²⁾	RESTRICTED STOCK ⁽³⁾	PERCENT OF OUTSTANDING SHARES


Charles R. Schwab⁽⁴⁾	253,585,079	4,837,500	0	18.9	%

Fidelity Management and Research Company⁽⁵⁾	115,593,647	0	0	8.5	%

The TCW Group, Inc.⁽⁶⁾	78,818,084	0	0	5.8	%

David S. Pottruck⁽⁷⁾	6,005,625	10,586,163	365,498	1.2	%

Nancy H. Bechtle	220,374	120,224	5,283	*

C. Preston Butcher⁽⁸⁾	1,089,794	181,265	5,283	*

Donald G. Fisher⁽⁹⁾	4,560,561	41,210	5,283	*

Anthony M. Frank	567,750	128,159	5,283	*

Frank C. Herringer⁽¹⁰⁾	95,536	110,158	5,283	*

Stephen T. McLin⁽¹¹⁾	154,135	116,134	5,283	*

George P. Shultz	67,500	150,993	5,283	*

Paula A. Sneed	9,006	35,462	5,283	*

Roger O. Walther⁽¹²⁾	219,938	96,661	5,283	*

Robert N. Wilson	65,816	41,243	5,283	*

David B. Yoffie	2,000	6,250	5,283	*

Lon Gorman	205,455	872,003	256,258	*

Alan J. Weber	24,752	62,500	310,258	*

Dawn G. Lepore	485,428	1,225,406	278,258	*

William L. Atwell	70,252	226,040	278,382	*

Directors and Current Executive Officers as a Group (22 Persons)⁽¹³⁾	268,194,748	20,865,035	2,742,672	21.1	%

Directors, Executive Officers, and Employees⁽¹⁴⁾	367,623,477	90,467,525	14,285,323	32.5	%

Less than 1%

PRINCIPAL STOCKHOLDERS

(1)

Includes shares for which the named person:

has sole voting and investment power,

has shared voting and investment power with his or her spouse, or

holds in an account under The SchwabPlan Retirement Savings and Investment Plan.

Excludes shares that:

may be acquired through stock option exercises, or

are restricted stock holdings.

(2)

Shares that can be acquired through stock option exercises through May 17, 2004, or shares that were acquired under the terms of Directors’ Deferred Compensation Plan in connection with service on the Board of Directors of the company or U.S. Trust Corporation.

(3)

Performance shares or shares subject to a vesting schedule, forfeiture risk and other restrictions.

(4)

Includes 7,977,765 shares held by Mr. Schwab’s spouse, 45,203,958 shares held by a limited liability company and the following shares for which Mr. Schwab disclaims beneficial ownership: 13,211,185 shares held by a non-profit public benefit corporation established by Mr. Schwab, and 6,000 shares held in a trust for which Mr. Schwab acts as trustee.

Includes the following shares for which Mr. Schwab may be deemed to have shared voting and investment power but for which he disclaims beneficial ownership: 1,999,672 shares held by investment companies and managed by a wholly-owned subsidiary of the company.

Mr. Schwab’s address is c/o The Charles Schwab Corporation, 101 Montgomery Street, San Francisco, California 94104.

(5)

Includes shares held by Fidelity Management and Research Company and other subsidiaries of FMR Corp as of February 28, 2004. The address of FMR Corp. is 92 Devonshire Street, Boston, Massachusetts 02109.

(6)

Includes shares held by direct and indirect subsidiaries of The TCW Group, Inc. The address of TCW Group is 8655 Figueroa Street, Suite 1800, Los Angeles, California 90017.

(7)

Includes 24,677 shares held in trust for Mr. Pottruck’s spouse, 278,902 shares held in trusts for which Mr. Pottruck acts as trustee, and the following shares for which Mr. Pottruck disclaims beneficial ownership: 250,936 shares held by a non-profit public benefit corporation established by Mr. Pottruck.

(8)

Includes 276,608 shares held by Mr. Butcher’s spouse.

(9)

Includes 390,000 shares held by a non-profit public benefit corporation for which Mr. Fisher has shared voting and investment power, but for which he disclaims beneficial ownership.

(10)

Includes 50,625 shares held by Mr. Herringer’s spouse.

(11)

Includes 13,908 shares held by a non-profit public benefit corporation established by Mr. McLin, but for which he disclaims beneficial ownership.

(12)

Includes 27,040 shares held by Mr. Walther’s spouse.

(13)

In addition to the officers and directors named in this table, five other executive officers are members of this group.

(14)

Includes amounts owned by directors, executive officers and employees as of December 31, 2003.

PERFORMANCE GRAPH

The following graph shows a five-year comparison of cumulative total returns for company common stock, the ~~executive officers listed below had outstanding loans made by~~Dow Jones Securities Brokerage Group Index and the ~~Company, as specified below. The Company made these loans to encourage the executives to continue holding shares~~Standard & Poor’s 500 Index, each of ~~Company restricted stock after vesting by providing funds to satisfy the income tax liability resulting from the vesting~~which assumes an initial investment of the shares. These loans do not bear interest. However, under Internal Revenue Code regulations, the executives will be taxed on imputed income in amounts based on required IRS interest rates. These loans were made in the fiscal year which began January 1, 2001.
LARGEST AMOUNT AMOUNT OUTSTANDING OUTSTANDING AS OF NAME AND TITLE AT ANY TIME 3/16/01 -------------- -------------- ----------------- Linnet F. Deily $638,499 $638,499 Vice Chairman and Executive Vice President Lon Gorman $813,564 $813,564 Vice Chairman and Executive Vice President Daniel O. Leemon $566,713 $566,713 Executive Vice President and Chief Strategy Officer Dawn G. Lepore $647,672 $647,672 Vice Chairman, Executive Vice President and Chief Information Officer Steven L. Scheid $647,672 $647,672 Vice Chairman and Executive Vice President
~~36 [side bar] CERTAIN~~$100 and reinvestment of dividends.

COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN

LOGO


	12/31/98		12/31/99		12/31/00		12/31/01		12/31/02		12/31/03

The Charles Schwab Corporation	$	100	$	136	$	152	$	83	$	58	$	64

Dow Jones Securities Brokerage Group Index	$	100	$	156	$	193	$	148	$	109	$	154

Standard & Poor’s 500 Index	$	100	$	121	$	110	$	97	$	76	$	97

SECTION 16(a) COMPLIANCE / RELATED TRANSACTIONS ~~OTHER INFORMATION~~

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE ~~The Company~~

Based on its records and other information, the company believes that during ~~2000~~2003 all filings with the SEC by its officers, directors and 10% stockholders timely complied with requirements for reporting ownership and changes in ownership of ~~Company~~company common stock under Section 16(a) of the Securities Exchange Act of ~~1934, except that~~1934.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The directors identified below had the ~~January 2000 transaction~~following relationships with the company in 2003:

Stephen T. McLin, a director, has a son, Stephen D. McLin, who was employed in a non-officer position of Specialist, Technical Product Development during 2003 (and presently). Mr. McLin’s son earned aggregate cash compensation of approximately $63,000 during 2003.

Charles R. Schwab, the company’s Chairman, has a daughter, Carolyn (“Carrie”) Schwab Pomerantz, who was employed as President of the Charles Schwab Foundation during 2003 (and presently). Mr. Schwab’s daughter earned aggregate cash compensation of approximately $160,000 during 2003. She also received a grant of 6,601 restricted shares and an award of long-term incentive plan units with a target value of $50,000 during the year.

In 2003, prior to his service as a director, David B. Yoffie received $66,000 in consulting fees.

INFORMATION ABOUT VOTING PROCEDURES

How is my vote counted?

You may vote either “for” each director nominee or withhold your vote from any one or more of ~~Karen Chang, Executive Vice President, was inadvertently reported late.~~ the nominees.

You may vote “for” or “against” or “abstain” from voting on the proposal for the approval of the 2004 Stock Incentive Plan. If you abstain from voting on this proposal, it will have the same effect as a vote “against” the proposal.

If you provide your voting instructions on your proxy, your shares will be voted:

as you instruct, and

according to the best judgment of Mr. Schwab and Mr. Pottruck if a proposal comes up for a vote at the meeting that is not on the proxy.

If you do not indicate a specific choice on the proxy you submit, your shares will be voted:

for the three named nominees for directors,

for the approval of the 2004 Stock Incentive Plan, and

according to the best judgment of Mr. Schwab and Mr. Pottruck if a proposal comes up for a vote at the meeting that is not on the proxy.

What if I change my mind after I submit my proxy?

You may revoke your proxy and change your vote by:

signing a proxy card with a later date and returning it before the polls close at the meeting,

voting by telephone or on the Internet before 12:00 p.m., Central time, on May 14, 2004, or

voting at the meeting.

How many votes must the director nominees receive to be elected as directors?

Because three directors are to be elected at the annual meeting, the three individuals receiving the highest number of votes for election will be elected.

What happens if a director nominee is unable to stand for election?

The ~~transaction involved only~~Board may reduce the ~~exercise~~number of ~~stock options. Ms. Chang did not sell~~directors or select a substitute nominee. In the latter case, if you have submitted your proxy, Charles R. Schwab and David S. Pottruck can vote your shares for a substitute nominee. They cannot vote for more than three nominees.

How many votes are needed for the approval of the 2004 Stock Incentive Plan?

The 2004 Stock Incentive Plan will be approved if a majority of the shares present at the meeting in person or by proxy and entitled to vote on the proposal vote for approval. An abstention will have the effect of ~~common stock acquired~~a vote against the proposal. A broker non-vote will be treated as not being entitled to vote on the proposal and will not be counted for purposes of determining whether the proposal has been approved.

What is a “broker non-vote”?

A broker non-vote occurs when a brokerage firm holding shares in street name for a beneficial owner does not vote on a proposal because the broker has not received instructions from the beneficial owner and does not have discretionary voting power with respect to the proposal.

INFORMATION ABOUT VOTING PROCEDURES

What is the effect of not providing voting instructions if my shares are held in street name?

Brokerage firms have authority under New York Stock Exchange rules to vote clients’ unvoted shares on some “routine” matters. When a brokerage firm votes its clients’ unvoted shares on routine matters, these shares are counted to determine if a quorum exists to conduct business at the meeting. A brokerage firm cannot vote clients’ unvoted shares on non-routine matters and this results in a broker non-vote.

The company’s proposal concerning the election of directors is considered a routine matter, but the proposal concerning the approval of the 2004 Stock Incentive Plan is not.

As a brokerage firm, Charles Schwab & Co., Inc. may vote its clients’ unvoted shares on routine matters. However, as the company’s subsidiary, when it is voting on company proposals, it must follow a stricter set of New York Stock Exchange rules. Specifically, our brokerage subsidiary can vote unvoted company shares held in brokerage accounts only in the ~~exercise.~~same proportion as all other stockholders vote.

If you have a stockbroker or investment advisor, they may be able to vote your shares depending on the terms of the agreement you have with them.

What is the effect of not submitting my proxy if my shares are held in a retirement plan?

A purchasing agent under a retirement plan also may be able to vote a participant’s unvoted shares. For example, if you are a participant in The SchwabPlan Retirement Savings and Investment Plan, the plan’s purchasing agent, under certain circumstances, can vote your shares. Specifically, the purchasing agent will vote shares you hold under the Employee Stock Ownership Plan(“ESOP”) component of The SchwabPlan Retirement Savings and Investment Plan if the purchasing agent does not receive voting instructions from you. The purchasing agent will vote your unvoted shares held under the ESOP component of the overall plan in the same proportion as all other plan participants vote their shares held under the ESOP component of the overall plan.

What does it mean if I receive more than one proxy card?

It means that you have multiple accounts at the transfer agent or with stockbrokers. Please complete and submit all proxies to ensure that all your shares are voted.

Unless you need multiple accounts for specific purposes, it may be less confusing if you consolidate as many of your transfer agent or brokerage accounts as possible under the same name and address.

Is my vote kept confidential?

Proxies, ballots and voting tabulations identifying stockholders are kept confidential by our transfer agent and will not be disclosed except as may be necessary to meet legal requirements.

Where do I find voting results of the meeting?

We will announce preliminary voting results at the annual meeting. We will publish the final results in our quarterly report ~~which was due~~on Form 10-Q for the second quarter of 2004. You may access a copy electronically on our website atwww.aboutschwab.com/irelations by clicking on “Financials” or through the SEC’s electronic data system called EDGAR atwww.sec.gov. You may also obtain a copy by contacting our Investor Relations Hotline at (415) 636-2787.

Voting results are tabulated and certified by our transfer agent, Wells Fargo Bank, N.A.

INFORMATION ABOUT THE PROXY STATEMENT AND PROPOSALS

Who pays the cost for proxy solicitation?

Our company is paying for distributing and soliciting proxies. As a part of this process, the company reimburses brokers, nominees, fiduciaries and other custodians for reasonable fees and expenses in ~~February 2000, was filed in March 2000. STOCKHOLDER PROPOSALS~~ forwarding proxy materials to stockholders. The company is not using an outside proxy solicitation firm this year, but employees of the company or its subsidiaries may solicit proxies through mail, telephone, the Internet or other means. Employees do not receive additional compensation for soliciting proxies.

How do I submit a stockholder proposal for next year’s annual meeting?

If you want us to consider including a proposal in our proxy statement next year, you must deliver it to the ~~Company's~~ Corporate Secretary at our principal executive office no later than November ~~26, 2001.~~30, 2004. The ~~Company's~~company’s bylaws contain specific procedural requirements regarding a ~~stockholder's~~stockholder’s ability to nominate a director or submit a proposal to be considered at a meeting of stockholders. IfThe bylaws are available on our website atwww.aboutschwab.com/corpgov. In addition, you ~~would like~~may obtain a copy of ~~the procedures contained in~~ our bylaws ~~please contact:~~ by contacting:

Assistant Corporate Secretary

The Charles Schwab Corporation

Mailstop SF120KNY-04

101 Montgomery Street ~~(88/5)~~

San Francisco, California 94104

(415) ~~636-1337~~ 636-3087

For next ~~year's~~year’s annual meeting of stockholders, the persons appointed by proxy to vote ~~stockholders'~~stockholders’ shares will vote those shares according to their best judgment on any stockholder proposal the ~~Company~~company receives after March ~~8, 2002. COSTS OF PROXY SOLICITATION The Company~~18, 2005.

What is ~~paying for distributing and soliciting proxies. As~~“householding”?

“Householding” means that we deliver a ~~part~~single set of ~~this process, the Company reimburses brokers, nominees, fiduciaries and other custodians reasonable fees and expenses in forwarding~~ proxy materials to ~~stockholders. The Company~~households with multiplestockholders, provided such stockholders give their affirmative or implied consent and certain other conditions are met.

Some households with multiple stockholders already may have provided the company with their affirmative consent or given a general consent to householding. We will provide only one set of proxy materials to each such household, unless we receive contrary instructions.

We will promptly deliver separate copies of our proxy statement and annual report at the request of any stockholder who is ~~not using an outside proxy solicitation firm this year, but employees~~in a household that participates in the householding of the ~~Company~~company’s proxy materials. You may call the Assistant Corporate Secretary at (415) 636-3087 or ~~its subsidiaries may solicit proxies through mail, telephone or other means. Employees do not~~send your request to:

Assistant Corporate Secretary

The Charles Schwab Corporation

Mailstop SF120KNY-04

101 Montgomery Street

San Francisco, California 94104

If you currently receive ~~additional compensation for soliciting proxies. INCORPORATION BY REFERENCE The Company's filings with~~multiple copies of the ~~SEC sometimes "incorporate information~~company’s proxy materials and would like to participate in householding, please contact the Assistant Corporate Secretary at the above address.

What is meant by ~~reference." This~~“incorporation by reference”?

“Incorporation by reference” means that ~~the Company is referring you~~we refer to information that previously has ~~previously~~ been filed with the SEC, so the information should be considered as part of the filing you are reading. Based on ~~the SEC's~~SEC rules, the ~~performance graph~~sections entitled “Audit Committee Report,” “Compensation Committee Report on ~~page 22 of this proxy statement, the "Compensation Committee Report" on page 28-33, the "Audit Committee Report" on page 34,~~Executive Compensation,” and ~~the "Audit Committee Charter" (Appendix E) on pages 50-52~~“Performance Graph” specifically are not incorporated by reference into any other filings with the SEC.

You ~~are receiving~~receive this proxy statement as part of the proxy materials for the annual meeting of stockholders. You may not consider this proxy statement as material for soliciting the purchase or sale of ~~Company~~our company’s common stock. ~~37 [side bar] SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE STOCKHOLDER PROPOSALS COSTS OF PROXY SOLICITATION INCORPORATION BY REFERENCE~~ ~~TICKETS AND INTERNET ACCESS TO~~

INFORMATION ABOUT THE ANNUAL MEETING ~~TICKETS AND INTERNET ACCESS TO THE ANNUAL MEETING~~

How do I obtain tickets to the annual meeting?

Seating is limited and, therefore, admission to the annual meeting is by ticket only on a first-come, first-served basis. To request a ticket, you may either: ~~* go to WWW.SCHWABEVENTS.COM, *~~

go towww.schwabevents.com,

write the ~~Assistant Corporate Secretary at this address:~~ Assistant Corporate Secretary at this address:

Assistant Corporate Secretary

The Charles Schwab Corporation

Mailstop SF120KNY-04

101 Montgomery Street ~~(88/5)~~

San Francisco, CA 94104,

- or - *

call the Assistant Corporate Secretary at (415) 636-3087.

How do I access the ~~Assistant Corporate Secretary at (415) 636-1337. We also will broadcast~~webcast of the annual ~~meeting over the Internet.~~ meeting?

For information on how to ~~receive~~access the real-time ~~webcast,~~Webcast of the annual meeting, go to ~~WWW.SCHWABEVENTS.COM.~~ www.schwabevents.com.

By Order of the Board of Directors, ~~/s/~~

LOGO

CARRIE E. DWYER ~~- ------------------------ CARRIE E. DWYER~~

EXECUTIVE VICE PRESIDENT,

GENERAL COUNSEL AND

CORPORATE SECRETARY ~~March 26, 2001 San Francisco, California 38 [side bar] ADMISSION TO THE ANNUAL MEETING IS BY TICKET ONLY ON~~

MARCH 29, 2004

SAN FRANCISCO, CALIFORNIA

EXHIBIT A ~~FIRST- COME, FIRST SERVED BASIS. YOU MAY ALSO JOIN US VIA THE REAL- TIME WEBCAST~~

DESCRIPTION OF THE ~~ANNUAL MEETING.~~ ~~APPENDIX~~2004 STOCK INCENTIVE PLAN

The Board has adopted the 2004 Stock Incentive Plan and recommends that stockholders approve the 2004 Plan at the annual meeting. The 2004 Plan is critical to our company’s compensation strategies and programs. It will provide the flexibility that the company needs to keep pace with its competitors and effectively recruit, motivate, and retain the caliber of employees essential for achievement of the company’s success.

The existing stock incentive plans do not provide sufficient flexibility for market-competitive kinds of awards such as restricted stock units and stock appreciation rights. To ease administration, it is desirable to consolidate all of our existing stock plans into a single plan for making all future stock-based awards.

The 2004 Plan will permit the grant of stock options, restricted stock, restricted stock units, performance shares, performance units, stock appreciation rights and other stock and cash awards. Stockholder approval will permit the company to receive a federal income tax deduction for certain compensation paid under the plan under section 162(m) of the Internal Revenue Code and for qualifying certain stock options for special tax treatment under section 422 of the code.

It is anticipated that the 2004 Plan will not materially increase the potential dilution of stockholders. The total number of shares available under the plan, if approved, will represent approximately 14% of the outstanding shares of common stock on December 31, 2003, which is substantially the same percentage that is available and currently outstanding under the company’s existing plans.

The Company’s Existing Plans

As of December 31, 2003, approximately 44 million shares were available for new grants under the company’s 2001 Stock Incentive Plan, 1992 Stock Incentive Plan and Employee Stock Incentive Plan and there were approximately 150 million shares subject to outstanding benefits under these and other predecessor plans.

If the 2004 Plan is approved by stockholders, it will be the sole plan for making future stock-based awards, and no further awards will be made under the company’s existing plans.

If the 2004 Plan is not approved by stockholders, awards will continue to be made under the company’s 2001 Stock Incentive Plan and 1992 Stock Incentive Plan in accordance with their terms.

Shares Available for Issuance

The aggregate number of shares of company common stock that may be issued under the 2004 Plan will not exceed:

45 million shares of common stock, plus

any shares of common stock subject to outstanding awards under the prior plans as of the date the 2004 Plan is approved by stockholders that on or after such date cease for any reason to be subject to such awards (other than by reason of exercise or settlement of the awards to the extent they are exercised for or settled in shares), plus

any shares of common stock that were issued under the prior plans and are reacquired by the company after the date the 2004 Plan is approved by stockholders.

The aggregate maximum number of shares of common stock available under the last two bullet points above is 150 million. The Compensation Committee may adjust these limits for any stock split, stock dividend, recapitalization or other similar event.

EXHIBIT A

Eligibility and Administration

Employees, non-employee directors and consultants of the company and its subsidiaries are eligible for awards under the 2004 Plan. Non-employee directors also are eligible for an annual grant of restricted stock and non-qualified stock options.

The plan is administered by our Compensation Committee. The committee will approve the aggregate benefits and the individual benefits for the most senior elected officers and non-employee directors. The committee may delegate its authority for certain other matters under the 2004 Plan in accordance with its terms.

TYPES OF AWARDS

Awards under the 2004 Plan are described below.

Stock Options

Stock options provide a right to acquire common stock at an exercise price at least equal to the fair market value of the company’s stock on the date of grant. Stock options include non-qualified and incentive stock options. Incentive stock options are intended to qualify for special tax treatment. Stock options vest according to a schedule established by the Compensation Committee.

The plan permits for payment of stock acquired through stock options by cash, check, other shares of company common stock (with some restrictions), broker-assisted same-day sales, or any other form of consideration permitted by applicable law. The term of an option cannot exceed ten years. The Compensation Committee will not have the right to reprice outstanding options if the fair market value of the stock declines.

Recipients may transfer stock options (other than incentive stock options, which must be nontransferable to qualify as incentive stock options) to certain trustsand partnerships formed for the benefit of family members.

Restricted Stock and Restricted Stock Units (RSUs)

Restricted stock is similar to common stock in that it has the same voting and dividend rights, but the recipient will forfeit the restricted stock if the applicable vesting conditions are not satisfied.

RSUs are a promise by the company to deliver a specified number of shares of stock at a future date upon the attainment of certain conditions established by the Compensation Committee. While each RSU is outstanding, its value is equal to the value of a share of company common stock. Once the RSU is vested, the units are automatically converted into shares or stock unless the holder of the RSU elects to defer the conversion beyond the vesting date to delay the taxation of the stock or cash to a later tax year. Vested RSUs may be settled in stock, cash or a combination of both, as determined by the committee. Holders of RSUs do not have voting or dividend rights, but may be credited with dividend-equivalent compensation.

Recipients of restricted stock or RSUs cannot transfer them before they vest or are settled (except that the recipient may be permitted to transfer restricted stock by gift to certain trusts and partnerships formed for the benefit of family members).

Performance Stock and Performance Units

Generally, performance stock is stock subject to performance-based vesting requirements specified by the Compensation Committee. Performance units are obligations of the company to issue and deliver in the future shares of common stock in accordance with the terms of such grant provided that the applicable performance conditions specified by the committee are satisfied.

EXHIBIT A

Recipients of units cannot transfer them, and the recipients have no voting or dividend rights until the associated shares of common stock are issued.

Performance stock and performance units may be settled in cash in the discretion of the committee.

Stock Appreciation Rights (SARs)

A SAR is a right to receive common stock or cash equal in value to: (a) the excess of (i) the fair market value of a share of common stock on the date of exercise of the right, over (ii) the fair market value of a share of common stock on the date of grant of the right, (b) multiplied by the number of shares for which the right is exercised.

The Compensation Committee may, in its discretion, substitute SARs for outstanding stock options.

Other Awards

The Compensation Committee may grant other incentives payable in cash or in common stock under the plan subject to such terms and conditions as it deems appropriate.

Performance-Based Awards

Awards under the 2004 Plan may be made subject to the attainment of performance goals relating to one or more of the following business criteria:

pre-tax income,

operating income,

cash flow,

stockholder return,

revenue,

revenue growth,

return on net assets,

net income,

net new assets,

earnings per share,

return on equity, or

return on investment.

Limits on Awards

Under the 2004 Plan, no participant may receive in any fiscal year stock options and SARs relating to more than 5 million shares, or restricted stock, RSUs, performance stock and performance units that are subject to the attainment of performance goals that collectively relate to more than 1 million shares.

The Compensation Committee may adjust these annual limits for any stock split, stock dividend, recapitalization or other similar event.

Annual Grants to Non-Employee Directors

Under the 2004 Plan, the annual, non-discretionary grants to non-employee directors consist of (i) options on 5,000 shares of company common stock and (ii) a number of restricted shares of company common stock determined by dividing $50,000 by the fair market value of company common stock on the grant date. These grants are made on May 15 of each year, but if May 15 is not a business day, then the grants are made on the next business day. The grants are subject to a three-year vesting schedule. Full vesting occurs on a director’s death, disability or “retirement,” which means a non-employee director’s resignation or removal from the Board at any time after he or she has attained age 70 or completed 5 years of service as a director. In addition, each new non-employee director receives an initial fully vested grant of options on 5,000 shares of company common stock.

EXHIBIT A

Payments of Director Fees in Awards

A non-employee director may elect to receive his or her annual retainer payments and/or meeting fees from the company in the form of cash, non-qualified stock options, restricted stock, RSUs, other stock or cash awards or a combination thereof by completing the procedures prescribed by the Compensation Committee or its delegate. The terms and number of awards to be granted to non-employee directors in lieu of annual retainers and meeting fees will be determined by the committee or its delegate.

Deferral of Awards

The Compensation Committee may permit or require a participant to have cash or shares that otherwise would be paid under the plan credited to a deferred compensation account. The account may be credited with interest or other forms of investment return, as determined by the committee.

Change in Control

Awards may be subject to such terms and conditions as the Compensation Committee deems appropriate, including provisions relating to a “change in control.” Under the plan, the term “change in control” means:

any transaction as a result of which any person becomes the beneficial owner, directly or indirectly, of at least 20% of either the company’s outstanding common stock or the combined voting power of the company’s outstanding voting securities, except as a result of a repurchase by the company of its own securities,

certain changes in the composition of the Board,

a merger or consolidation in which securities constituting 50% or more of either the outstanding common stock or the total combined voting power of the company’s outstanding voting securities are transferred to persons different from the personsholding those securities immediately before the transaction, or

a sale or other disposition of all or substantially all of the assets of the company.

FEDERAL TAX CONSEQUENCES

The following is a summary of the federal income tax consequences of awards under the 2004 Plan.

Options

When options are granted, there are no federal income tax consequences to the company or the option holder.

On the exercise of a non-qualified stock option, the option holder generally will have ordinary income. The amount of the income will be equal to:

the fair market value of the shares on the exercise date, minus

the option exercise price.

The income will be subject to tax withholding. Generally, in the same year that the option holder has income from the option exercise, the company will be able to take a tax deduction in the amount of that income.

On any subsequent sale of the shares, any additional gain or loss recognized by the holder generally will be a capital gain or loss.

In contrast, the exercise of incentive stock options will not normally result in any taxable income to the option holder at that time, nor will the company be entitled to any tax deduction. However, the exercise will result in an amount that is taken into account in computing the option holder’s alternative minimum taxable income. This amount will be equal to:

the fair market value of the shares on the exercise date, minus

the option exercise price.

EXHIBIT A

If the option holder exercises the options, holds the shares for the period required by law, and then sells the shares, the difference between the sale price and the exercise price generally will be taxed as long-term capital gain or loss.

If the option holder does not hold the shares for the period required by law, he or she generally will have ordinary income at the time of the early sale. The amount of ordinary income will be equal to:

the fair market value of the stock on the exercise date (or, if less, the sale price), minus

the option exercise price.

The company generally will be entitled to a tax deduction in that same amount. Any additional gain upon the sale generally will be taxed as capital gain.

Restricted Stock

Unless the recipient of restricted stock elects to be taxed when the shares are granted, there will be no federal income tax consequences to the recipient or to the company while the shares have vesting restrictions. Upon vesting, the recipient will have ordinary income. The amount of the income will be equal to the fair market value of the shares on the vesting date.

The income will be subject to tax withholding. The company generally will be entitled to a tax deduction in the amount of the recipient’s income. Upon any subsequent sale of the shares, any additional gain or loss recognized by the holder generally will be a capital gain or loss.

Other Benefits

In the case of an exercise of an SAR or an award of RSUs, performance stock, performance units, or common stock or cash, the recipient will generally recognize ordinary income in an amount equal to any cash received and the fair market value of any shares received on the date of payment or delivery. In that taxable year, the company will receive a federal income tax deduction in an amount equal to the ordinary income which the recipient has recognized.

The taxation of an RSU can be voluntarily deferred to a later tax year if the holder makes a timely election to defer receipt of the shares or cash deliverable under the RSU. In that case, the shares or cash delivered under the RSU are not taxed until the date income is recognized by the recipient.

Million Dollar Deduction Limit

The company may not deduct compensation of more than $1 million that is paid to an individual who, on the last day of the taxable year, is either the company’s chief executive officer or is one of the four other most highly-compensated officers for that taxable year as reported in the company’s proxy statement. The limitation on deductions does not apply to certain types of compensation, including qualified performance-based compensation.

The company believes that stock options, performance stock, performance units, SARs, performance-based restricted stock and RSUs constitute qualified performance-based compensation and, as such, will be exempt from the $1 million limitation on deductible compensation.

EXHIBIT A

General

A new plan benefits table, as described in the federal proxy rules, is not provided because no grants have been made under the 2004 Plan and all awards are discretionary except certain equity grants to non-employee directors, as described above. If the 2004 Plan had been in effect in 2003, non-employee directors,as a group, would have been granted a total of 65,000 stock options and 58,113 shares of restricted stock. On March 18, 2004, the closing price of company common stock was $11.44. If the 2004 Plan had been in effect as of that date, all employees, non-employee directors and consultants of the company and its subsidiaries would have been eligible to receive awards under the 2004 Plan.

EXHIBIT B

DESCRIPTION OF CHARLES R. SCHWAB’S EMPLOYMENT AND LICENSE AGREEMENTS

This ~~Appendix A contains descriptions of~~Exhibit B describes agreements ~~between the Company and~~with Charles R. Schwab relating to his employment and the use of the name ~~"Schwab"~~“Schwab” by the company.

Employment Agreement

The ~~Charles Schwab Corporation. EMPLOYMENT AGREEMENT AND NAME ASSIGNMENT The Company~~company and Mr. Schwab entered into an amended employment agreement effective March 31, ~~1995.~~2003. Stockholders approved the amended employment agreement. ItThe amended agreement has an initial term of five years, and provides that as of each March 31, the term of the employment agreement is automatically extended by an additional year, under the same terms and conditions, unless beforehand either party provides notice to the other of an intention not to extend it.

The amended employment agreement provides for an annual base salary of ~~$800,004~~$900,000, subject to annual review by the Board, and provides that Mr. Schwab will be entitled to participate in all compensation and fringe benefit programs made available to other executive officers, including ~~the stock~~stock-based incentive plans. Instead of participating in the executive bonus plans, Mr. ~~Schwab's~~Schwab’s annual bonus, if any, is computed as the amount of total cash compensation earned pursuant to a ~~multiple of his~~formula-based matrix, minus actual base ~~salary.~~salary paid during the year. This ~~multiple is based on~~matrix measures our corporate performance according to one or more of the following: revenue growth, net revenue growth, operating revenue growth, consolidated pre-tax profit margin, consolidated pre-tax operating margin, consolidated after-tax profit margin, consolidated after-tax operating profit margin, client net new asset growth, stockholder return, return on assets, earnings per share, return on stockholder’s equity, and return on investment. For 2003, the Compensation Committee utilized net revenue growth and after-tax operating profit margin as the measures for corporate performance used in calculating Mr. Schwab’s annual bonus under the ~~year, and is determined under a matrix adopted by the Board Compensation Committee.~~formula-based matrix. The ~~committee has~~committeehas the authority to adjust the matrix periodically (except the committee may not change the matrix more than 90 days after the beginning of any fiscal year). The matrix ~~is also adjusted automatically each~~cannot result in a payment that would cause Mr. Schwab’s total cash compensation for the year ~~based on increases in the Consumer Price Index.~~ (base salary and bonus) to exceed $8,000,000.

The employment agreement also provides that certain compensation and benefits will be paid or provided to Mr. Schwab (or his immediate family or estate) if his employment is terminated involuntarily, except for cause, before the expiration of the employment agreement. ~~"Cause"~~“Cause” is defined as the commission of a felony, or willful and gross negligence, or misconduct that results in material harm to the ~~Company. "Involuntary termination"~~company.

“Involuntary termination” includes ~~Mr. Schwab's resignation following~~ a material change in ~~his~~Mr. Schwab’s capacities or duties at the ~~Company or Charles Schwab & Co., Inc.~~company. If an involuntary termination is not due to death, disability or ~~"cause"~~“cause”: * Mr. Schwab will be entitled to receive for a period of 36 months all compensation to which he would have been entitled had he not been terminated, including his base salary and participation in all bonus, incentive and other compensation benefit plans for which he was or would have been eligible (but excluding additional grants under stock incentive plans), and * all his outstanding, unvested awards under stock incentive plans will vest fully on the termination date.

Mr. Schwab will be entitled to receive for a period of 36 months all compensation to which he would have been entitled had he not been terminated, including his base salary and participation in all bonus, incentive and other compensation and benefit plans for which he was or would have been eligible (but excluding additional grants under stock incentive plans), and

all his outstanding, unvested awards under stock incentive plans will vest fully on the termination date.

If an involuntary termination is due to disability, Mr. Schwab will be entitled to receive: * his base salary, less any payments under the corporate long-term disability plan, and benefits (but not bonuses or other incentive compensation) for a period of 36 months from the termination date, and 39 [side bar] EMPLOYMENT AGREEMENT AND NAME ASSIGNMENT ~~APPENDIX A DESCRIPTION OF EMPLOYMENT AND LICENSE AGREEMENTS * a prorated portion of any bonus or incentive payments for the year in which the disability occurs.~~

his base salary and benefits, less any payments under the long-term disability plan, for a period of 36 months from the termination date, and

a prorated portion of any bonus or incentive payments for the year in which the disability occurs.

If an involuntary termination is due to death, a lump sum payment will be made to Mr. ~~Schwab's~~Schwab’s estate equal to five times his then base salary.

EXHIBIT B

If Mr. Schwab voluntarily resigns his employment within 24 months of a change in control of the ~~Company,~~company, he will be entitled to receive his base salary up to the date of resignation, plus a prorated portion of any bonus or incentive payments payable for the year in which the resignation occurs. In addition, if Mr. Schwab voluntarily resigns his employment, or his employment is involuntarily terminated, within 24 months of a change in control of the ~~Company,~~company, he will have the right (but not the obligation) to enter into a consulting arrangement with the ~~Company.~~company. Under that arrangement, Mr. Schwab would provide certain consulting services to the ~~Company~~company for a period of five years for an annual payment equal to $1 million or 75% of his then base salary, whichever is less.

The employment agreement prohibits Mr. Schwab from becoming associated with any business competing with the ~~Company~~company during the term of the agreement and for a period of five years following a voluntary resignation of employment. (However, that restriction does not apply if Mr. Schwab resigns his employment within 24 months of a change in control of the ~~Company.~~company.)

License Agreement

The ~~Company~~company and Charles Schwab & Co., Inc. also are parties to an ~~Assignment~~assignment and ~~License~~license agreement with Mr. Schwab that was approved in July 1987 by the ~~Company's~~company’s non-employee directors. Under the agreement, Mr. Schwab has assigned to the ~~Company~~company all service mark, trademark, and trade name rights to Mr. ~~Schwab's~~Schwab’s name (and variations on the name) and likeness. However, Mr. Schwab has retained the perpetual, exclusive, irrevocable right to use his name and likeness for any activity other than the financial services business.

Beginning immediately after any termination of his employment, Mr. Schwab will be entitled to use his likeness in the financial services business for some purposes (specifically, the sale, distribution, broadcast and promotion of books, videotapes, lectures, radio ~~and television~~andtelevision programs, and also any financial planning services that do not directly compete with any business in which the ~~Company~~company or its subsidiaries are then engaged or plan to enter within three months). Beginning two years after any termination of his employment, Mr. Schwab may use his likeness for all other purposes, as long as that use does not cause confusion about whether the ~~Company~~company is involved with goods or services actually marketed by Mr. Schwab or by third parties unrelated to the ~~Company.~~ company.

So long as Mr. Schwab does not cause actual confusion among ~~customers,~~clients, he will at all times be able to use his own name to identify himself, but not as a service mark, trademark or trade name in the financial services business. The ~~Assignment~~assignment and ~~License~~license agreement defines the ~~"financial~~“financial services ~~business"~~business” as the business in which Charles Schwab & Co., Inc. is currently engaged and any additional and related businesses in which that firm or the ~~Company~~company is permitted to engage under ~~40 [side bar] EMPLOYMENT AGREEMENT AND NAME ASSIGNMENT~~ ~~APPENDIX A DESCRIPTION OF EMPLOYMENT AND LICENSE AGREEMENTS~~ rules and regulations of applicable regulatory agencies. The ~~Company's~~company’s ability to assign or license the right to use Mr. ~~Schwab's~~Schwab’s name and likeness is severely limited during Mr. ~~Schwab's~~Schwab’s lifetime.

No cash consideration is to be paid to Mr. Schwab for the name assignment while he is employed by the ~~Company~~company or, after ~~that~~his employment terminates, while he is receiving compensation under an employment agreement with the ~~Company.~~company. Beginning when all such compensation ceases, and continuing for a period of 15 years, Mr. Schwab or his estate will receive three-tenths of one percent (0.3%) of the aggregate net revenues of the ~~Company~~company (on a consolidated basis) and those of its unconsolidated assignees and licensees that use the name or likeness. These payments may not, however, exceed $2 million per year, adjusted up or down to reflect changes from the cost of living prevailing in the San Francisco Bay Area during specified months in 1987, and they will terminate if the ~~Company~~company and its subsidiaries cease using the name and likeness. ~~41 [side bar]~~

EXHIBIT C

DESCRIPTION OF LON GORMAN’S EMPLOYMENT AGREEMENT ~~AND NAME ASSIGNMENT~~ ~~APPENDIX B DESCRIPTION OF THE 2001 STOCK INCENTIVE PLAN GENERAL DESCRIPTION OF THE 2001 STOCK INCENTIVE PLAN ELIGIBILITY TO RECEIVE AWARDS Key employees~~

This Exhibit C describes Lon Gorman’s employment agreement, which includes the Schwab Capital Markets Incentive Plan.

Employment Agreement

The company, Schwab Capital Markets L.P. and Mr. Gorman entered into an agreement effective July 2002 for his employment as Vice Chairman of the ~~Company~~company and President of Schwab Capital Markets L.P. The employment agreement, which was approved by stockholders in May 2003, has a term of five years from its ~~subsidiaries, including directors who are also employees, are eligible for awards under the plan. Non-employee directors are eligible~~effective date.

The employment agreement provides for an annual ~~automatic grant~~base salary of ~~non-qualified stock options. In 2000, approximately 1,350 persons received awards~~$560,000, subject to annual review and adjustment by the company’s Chief Executive Officer and the Compensation Committee (provided, however, that Mr. Gorman’s base salary shall not be reduced below $560,000 except to the extent consistent with adjustments made to the base salaries of other current Vice Chair-level members of the Executive Committee of the company).

Mr. Gorman is eligible to participate in the company’s bonus plans, with a target annual bonus of 125% of his base salary. Mr. Gorman is also eligible to participate in the employee benefit plans and perquisites of the company comparable to those available to other Vice Chair-level members of the Executive Committee of the company.

The employment agreement provides for incentive compensation under the ~~1992 Stock~~Schwab Capital Markets Incentive Plan, which ~~is to be replaced~~was approved by the 2001 Stock Incentive Plan. Based on the current number and classes of employees within the Company and current stock-based award practices, we expect to have a comparable number of participantsstockholders in 2003. The target annual incentive compensation under the ~~2001 Stock Incentive Plan on an~~plan is $3 million, while the maximum annual ~~basis. LIMITS ON AWARDS The following are the limits on the number of shares that may be granted~~incentive compensation payable to any one participant in any one year: * 5 million shares under options, * 1 million restricted shares, and * 1 million performance share awards. These annual limits are adjusted automatically for any stock split, declaration of a stock dividend or other similar event. TYPES OF AWARDS AwardsMr. Gorman under the ~~2001 Stock Incentive Plan may take the form of~~plan is $7 million. The first $1 million in such annual incentive compensation is payable in cash. Any amountof such annual incentive compensation above $1 million is paid 50% in cash and 50% in restricted shares, performance share awards and options to acquire the Company's common stock, as described below. * Restricted shares are similar to common stock in that they have the same voting and dividend rights, but the recipient will forfeit the restricted shares if the applicable vesting conditions are not satisfied. * Performance share awards are obligations of the Company to issue and deliver in the future shares of common ~~stock if~~stock. No payment would be required under the plan for any year unless Schwab Capital Markets L.P. attains the applicable ~~conditions are satisfied. * Options are~~threshold percentage of its financial goals established by the ~~rights to acquire common stock at an exercise price at least equal to the fair market value~~Compensation Committee for that year and Mr. Gorman is in charge of ~~the Company's stock~~Schwab Capital Markets L.P. on the date ~~of grant. Options include non-qualified stock options~~payment would be due.

The employment agreement also provides that certain compensation and ~~incentive stock options. Incentive stock options are intended~~benefits will be provided to qualify for special tax treatment. Options vest according to a schedule. * An award under the plan may consist of one or more of these grant types, except that non-employee directors will only be eligible to receive non-qualified stock options. No payment is required on the grant of any award, except (in the case of restricted shares and performance shares) paymentMr. Gorman upon termination of the ~~$.01 per share par value~~employment agreement without cause before the expiration of the ~~stock awarded. Upon exercise~~employment agreement. “Cause” is defined to include the failure or refusal of ~~an option,~~Mr. Gorman to substantially perform his duties, gross negligence or willful misconduct in the ~~option holder must pay~~performance of his duties, the ~~option exercise price~~commission of a felony, or misconduct that results in material harm to the Company. On March 16, 2001, the closing price of Company common stock was $16.49 per share. A total of 70 million shares may be issued under the plan under options and performance share awards and as restricted 42 [side bar] GENERAL DESCRIPTION OF THE 2001 STOCK INCENTIVE PLAN APPENDIX B DESCRIPTION OF THE 2001 STOCK INCENTIVE PLAN shares. This number adjusts automatically for any stock split, declaration of a stock dividend or other similar event. As of February 28, 2001, the number of remaining shares under the 1992 Stock Incentive Plan was 6,896,430, and the number of remaining shares under all other Company stock incentive plans was 9,225,145. The Company will continue to make grants under the 1992 Stock Incentive Plan until all the remaining shares have been used or until that plan expires in 2002, whichever is sooner. Under the terms of the 2001 Stock Incentive Plan, if: * the recipient forfeits any restricted shares, performance share awards or options, * any performance share awards terminate for any other reason without the associated common stock being issued, or * options terminate for any other reason before exercise, then the underlying shares again become available for awards. ADMINISTRATION, AMENDMENT AND TERMINATION The 2001 Stock Incentive Plan is administered by the Board Compensation Committee. The committee, on advice of the Company's executive management, * selects the key employees who will receive awards, * determines the amount, vesting requirements, performance criteria, if any, and other conditions of each award, * interprets the provisions of the plan, and * makes all other decisions regarding the operation of the plan. The grant of non-qualified stock options to non-employee directors is made annually, and the committee has no discretion with respect to those awards. GRANTS OF OPTIONS TO NON-EMPLOYEE DIRECTORS Under the 2001 Stock Incentive Plan, each new director receives a grant of options to purchase a total of 10,000 shares of Company common stock. Also, each non-employee director receives an annual, automatic grant of options. The number of options in the grant is determined by dividing $150,000 by the closing price of Company common stock on the grant date. This grant is made on May 15 of each year, but if May 15 is not a business day, then the grant is made on the next business day. In addition, a non-employee director who elects to defer directors' fees under the Directors' Deferred Compensation Plan can, instead of receiving fees, elect either to: * receive a grant of stock options which: * have a fair value on the grant date equal to the amount of the deferred fees (as determined under an appropriate options valuation method), * have an option exercise price equal to the fair market value of Company common stock on the date the deferred fee amount would have been paid, and * vest immediately upon grant and generally expire ten years after the grant date, - or - 43 [side bar] GENERAL DESCRIPTION OF THE 2001 STOCK INCENTIVE PLAN APPENDIX B DESCRIPTION OF THE 2001 STOCK INCENTIVE PLAN * invest the amount of the deferred fees in shares of Company common stock to be held in a trust and distributed to the director (in shares) when the director leaves the Board. RESTRICTED SHARES AND PERFORMANCE SHARE AWARDS Recipients of restricted shares cannot transfer them before they vest (except that the recipient can transfer them by gift to certain trusts and partnerships formed for the benefit of family members). Recipients of performance share awards cannot transfer them, and the recipients have no voting or dividend rights until the associated shares of common stock are issued. At that time the recipients will have the same voting, dividend and other rights as the Company's other stockholders. Generally, vesting of all or a portion of restricted shares and performance share awards is accelerated if the recipient dies, becomes disabled, or retires, and may be accelerated if a "change in control" occurs. (We explain that term later in this Appendix B under "Change in Control.") When granting an award, the Board Compensation Committee determines the number of performance share awards or restricted shares to be included in the award as well as the vesting or issuance conditions. The vesting or issuance conditions may be based on: * the employee's individual performance, * the Company's performance, or * other appropriate criteria. When the committee uses the Company's performance as a vesting or issuance condition, it establishes performance goals based on one or more of the following business criteria: * pre-tax income, * operating income, * cash flow, * stockholder return, * revenue, * revenue growth, * return on net assets, * net income, * net new assets, * earnings per share, * return on equity, or * return on investment. TERMS OF STOCK OPTIONS The exercise price of any stock option granted under the plan must be equal to or greater than the fair market value of the Company's common stock on the date of grant. The 2001 Stock Incentive Plan defines "fair market value" as the closing price of the Company's stock as reported by the New York Stock Exchange Composite Transactions Index for the date of grant. The term of an incentive stock option cannot exceed ten years. The Board Compensation Committee establishes vesting conditions when it grants an option. Generally vesting is accelerated if the recipient dies, becomes disabled, or retires, and may be accelerated if a "change 44 [side bar] GENERAL DESCRIPTION OF THE 2001 STOCK INCENTIVE PLAN APPENDIX B DESCRIPTION OF THE 2001 STOCK INCENTIVE PLAN in control" occurs. (We explain that term in the following section of this Appendix B.) Recipients may transfer options (other than incentive stock options, which must be nontransferable to qualify as incentive stock options) to certain trusts and partnerships formed for the benefit of family members. CHANGE IN CONTROL Under the 2001 Stock Incentive Plan, the term "change in control" means: * the Company undergoes any change in control which would have to be disclosed in the Company's next proxy statement under SEC rules, or * any person becomes the beneficial owner, directly or indirectly, of at least 20% of the combined voting power of the Company's outstanding securities, except as a result of a repurchase by the Company of its own securities, or * the composition of the Board of Directors changes, and as a result fewer than two-thirds of the incumbent directors: * had been directors of the Company 24 months earlier, or * had been elected or nominated with the approval of at least a majority of the directors who had been directors of the Company 24 months earlier and who were still directors at the time of the incumbent directors' election or nomination. FEDERAL TAX CONSEQUENCES The following is a summary of the federal income tax consequences of awards under the 2001 Stock Incentive Plan. OPTIONS When the options are granted, there are no federal income tax consequences to the Company or the option holder. On the exercise of a non-qualified stock option, the option holder generally will have ordinary income. The amount of the income will be equal to: * the fair market value of the shares on the exercise date, minus * the option exercise price. The income will be subject to tax withholding. Generally, in the same year that the option holder has income from the option exercise, the Company will be able to take a tax deduction in the amount of that income. On any subsequent disposition of the shares, any additional gain or loss recognized by the holder generally will be capital gain or loss. In contrast, the exercise of incentive stock options will not normally result in any taxable income to the option holder at that time; nor will the Company be entitled to any tax deduction. However, the exercise will result in an amount that is taken into account in computing the option holder's alternative minimum taxable income. This amount will be equal to: * the fair market value of the shares on the exercise date, minus * the option exercise price. company.

If the ~~option holder exercises~~company or Schwab Capital Markets L.P. terminates the ~~options, holds the shares for the period required by law, and then sells the shares, the difference 45 [side bar] FEDERAL TAX CONSEQUENCES~~ APPENDIX B DESCRIPTION OF THE 2001 STOCK INCENTIVE PLAN between the sale price and the exercise price generally will be taxed as capital gain or loss. If the option holder does not hold the shares for the period required by law, he or she generally will have ordinary income at the time of the early disposition. The amount of the income will be equal to: * the fair market value of the shares on the exercise date (or, if less, the sale price), minus * the option exercise price. The Company generallyemployment agreement without cause, Mr. Gorman will be entitled to a tax deduction in that same amount. Any additional gain upon the disposition generally will be taxed as capital gain. RESTRICTED SHARES Unless the recipient of restricted shares elects to be taxed when the shares are granted, there will be no federal income tax consequences to the recipient or to the Company while the shares have vesting restrictions. Upon vesting the recipient will have ordinary income. The amount of the income will be equal to: * the fair market value of the shares on the vesting date, minus * the amount paid for the shares. The income will be subject to tax withholding. The Company generallyreceive:

any bonuses not yet paid under the company’s bonus plans or the Schwab Capital Markets Incentive Plan for the year prior to termination, and any prorated bonuses earned for the year in which the termination occurs,

his base salary for the three-year period following termination,

an additional $10 million,

an amount equal to three years of bonuses payable under the company’s bonus plans, based on his target bonus levels under those plans,

continued vesting of all outstanding stock options, restricted stock grants and other equity-based awards for the three-year period following termination,

EXHIBIT C

continuation of medical, dental and life insurance coverage for the three-year period following termination, and

various other benefits, including payment for unused vacation days through the date of termination.

If Mr. Gorman resigns his employment with “good reason,” he will be entitled to the same benefits outlined immediately above. If he resigns without “good reason,” he will, for one year following his resignation, receive his salary and be entitled to the continuation of his medical, dental and life insurance coverage, and he will be paid for his unused vacation days.

“Good Reason” is defined to include a ~~tax deduction~~material breach of his employment agreement by the company or Schwab Capital Markets L.P., a substantial diminution in Mr. Gorman’s duties, a relocation of Mr. Gorman’s principal place of business more than 25 miles from Jersey City, New Jersey without his consent, or a reduction in his base salary or bonus opportunity (unless the ~~amount~~reduction similarly affects all other Vice Chair-level members of the recipient's income. Upon any subsequent disposition of the shares, any additional gain or loss recognized by the holder generally will be capital gain or loss. PERFORMANCE SHARE AWARDS The grant of performance share awards will have no federal income tax consequencecompany’s Executive Committee).

If Mr. Gorman’s employment terminates due to the Company or the recipient at the time of the grant. When a recipient becomes entitled to receive any common stock under the terms of the performance share award, the recipient generally will have ordinary income. The amount of the income will be equal to: * the fair market value of the shares on that date, minus * any amount paid for the shares. The income will be subject to tax withholding. The Company generallyhis death, his estate will be entitled to ~~a tax deduction~~receive:

his base salary through the last day of the month in which his death occurs,

any bonuses not yet paid under the company’s bonus plans or the Schwab Capital Markets Incentive Plan for the prior fiscal year, and any prorated bonuses earned for the year in which the death occurs,

full and immediate vesting of all then outstanding stock options, restricted stock grants and other equity-based awards, which, in the case of stock options, shall remain exercisable for one year following the date of death (but not beyond their original term), and

various other benefits, including payment for unused vacation days through the date of death and payment under any plan providing life insurance benefits for Mr. Gorman.

If Mr. Gorman’s employment terminates due to his disability, Mr. Gorman will be entitled to receive:

his base salary through the date of termination,

any bonuses not yet paid under the company’s bonus plans or the Schwab Capital Markets Incentive Plan for the prior year, and any prorated bonuses earned for the year in which the termination occurs,

various other benefits, including payment for unused vacation days through the date of termination and payment under any plan providing disability insurance benefits to Mr. Gorman.

If the ~~amount~~employment agreement is not earlier terminated, and Mr. Gorman retires as of the ~~recipient's income. Upon any subsequent disposition~~last day of the ~~shares, any additional gain or loss recognized by~~employment term, Mr. Gorman will receive his base salary for a one-year period following the ~~holder generally will be capital gain or loss. 46 [side bar] FEDERAL TAX CONSEQUENCES~~ APPENDIX C DESCRIPTION OF THE ANNUAL EXECUTIVE INDIVIDUAL PERFORMANCE PLAN GENERAL DESCRIPTION OF THE ANNUAL EXECUTIVE INDIVIDUAL PERFORMANCE PLAN PLAN PARTICIPANTS The participants in the Annual Executive Individual Performance Plan, as amended, include the Vice Chairmen, Executive Vice Presidents and, from time to time, certain other officers having comparable positions, in each case as selected for participation by the Board Compensation Committee. Currently, nine executive officers participate in the Individual Performance Plan. DETERMINATION OF BONUS AMOUNTS The Individual Performance Plan specifiesretirement date, a maximum bonus for each participant, which is 160% of the amount of the executive's bonus computed under the Corporate Executive Bonus Plan. Participants in the Individual Performance Plan may receive some, all, or none of their maximum bonus under the ~~plan, depending upon an assessment~~company’s bonus plans following the one-year anniversary of ~~their achievement~~the retirement date, and vesting of ~~individual performance goals, which is made by the Compensation Committee. The following paragraph describes how an executive's bonus is computed~~any unvested shares of restricted stock granted under the ~~Corporate Executive Bonus Plan. To determine~~Schwab Capital Markets Incentive Plan effective upon the ~~bonus~~one-year anniversary of the retirement date.

EXHIBIT C

The employment agreement prohibits Mr. Gorman from becoming associated with any business competing with the company, Schwab Capital Markets L.P. or their affiliates, or soliciting or hiring their employees, during his term of employment and for a period of one year following his termination.

The benefits payable in the case of termination of Mr. Gorman’s employment without cause or the resignation by Mr. Gorman with or without good reason are subjectto Mr. Gorman’s signing a general release of claims against the company and observing the one-year non-competition and non-solicitation and various other restrictions in the employment agreement. The benefits payable to ~~an executive under~~Mr. Gorman in the ~~Corporate Executive Bonus Plan,~~case of disability are subject to Mr. Gorman’s signing a general release. The benefits payable in the ~~Compensation Committee first determines a target bonus for each executive, which is expressed~~case of Mr. Gorman’s retirement as ~~a percentage~~ of the ~~executive's annual base salary,~~last day of his employment are subject to Mr. Gorman’s observing the one-year non-competition and ~~depends upon an assessment of the executive's roles~~non-solicitation and responsibilities. The Committee sets target bonuses in the first quarter of each year, based upon the recommendations of the Chairman and Co-Chief Executive Officer and, where appropriate, the President and Co-Chief Executive Officer. For the executives who participate in the Individual Performance Plan, the target bonus percentages under the Corporate Executive Bonus Plan can be up to 100% of the executive's annual base salary. The amount of the target bonus is then multiplied by a payout percentage, which is derived from a matrix fixed by the Compensation Committee in advance, and which can range from 0% to 400% for the executives who participate in the Individual Performance Plan. The matrix establishes the relationship between the payout percentage and the Company's performance for the year relative to its targets of net revenue growth and pre-tax operating profit margin. In any event, the amount of base salary included in the computation of the target bonus amount for each participant in any year may not exceed 250% of the base salary, determined as of March 31, 2000, payable to the participant holding the same or substantially similar position on March 31, 2000. The amount so derived from multiplying the executive's target bonus by the payout percentage determined pursuant to the matrix is the amount of the bonus payable under the Corporate Executive Bonus Plan. This latter amount is then multiplied by 160% to determine the maximum bonus payable to the executive under the Individual Performance Plan. 47 [side bar] GENERAL DESCRIPTION OF THE ANNUAL EXECUTIVE INDIVIDUAL PERFORMANCE PLAN APPENDIX C DESCRIPTION OF THE ANNUAL EXECUTIVE INDIVIDUAL PERFORMANCE PLAN BONUS PAYMENTS Payments are generally made in cash, except that the Compensation Committee may decide to make all or a portion of the payments in Company stock orvarious other equity-based awards (including stock options or restricted stock) with equivalent value. However, not more than 0.5% of the Company's outstanding shares may be issued in any year under the Individual Performance Plan (combined with any such shares issued under the Corporate Executive Bonus Plan). Amounts payable under the Individual Performance Plan are generally paid within a reasonable time after the end of the year in which they are earned. However, a recipient may elect to defer receipt of all or any portion of the amounts payable under the plan until a specified date, or until termination of employment, but deferrals will be paid immediately if the Company undergoes a change in control. Deferrals may be credited with growth rates, determined by the total return that would result from investments in certain registered investment companies selected from time to time by the Company, the allocation among which is determined by the participant. PLAN ADMINISTRATION The Compensation Committee administers the Individual Performance Plan and makes all decisions regarding the operation of the plan and payments under it. The Compensation Committee may amend or terminate the plan at any time and for any reason. 48 [side bar] GENERAL DESCRIPTION OF THE ANNUAL EXECUTIVE INDIVIDUAL PERFORMANCE PLAN ~~APPENDIX D NEW PLAN BENEFITS TABLE~~
NEW PLAN BENEFITS 2001 ANNUAL EXECUTIVE INDIVIDUAL STOCK INCENTIVE PLAN(1) PERFORMANCE PLAN (2) NUMBER OF SHARES NUMBER OF RESTRICTED DOLLAR VALUE ($) NAME UNDERLYING OPTIONS(#) AND OTHER SHARES(#) - ----------------------------------------------------------------------------------------------------------------------------------- CHARLES R. SCHWAB(3) 300,000 0 N/A CHAIRMAN AND CO-CHIEF EXECUTIVE OFFICER DAVID S. POTTRUCK(3) 300,000 0 N/A PRESIDENT AND CO-CHIEF EXECUTIVE OFFICER JOHN PHILIP COGHLAN 220,001 0 $ 826,478 VICE CHAIRMAN AND EXECUTIVE VICE PRESIDENT STEVEN L. SCHEID 220,001 0 $ 843,553 VICE CHAIRMAN AND EXECUTIVE VICE PRESIDENT DAWN G. LEPORE 220,001 0 $ 821,645 VICE CHAIRMAN, EXECUTIVE VICE PRESIDENT AND CHIEF INFORMATION OFFICER LINNET F. DEILY 220,001 0 $ 876,683 VICE CHAIRMAN AND EXECUTIVE VICE PRESIDENT LON GORMAN 220,001 0 $ 820,345 VICE CHAIRMAN AND EXECUTIVE VICE PRESIDENT ALL CURRENT EXECUTIVE OFFICERS, AS A GROUP 1,034,984 60,000 $6,523,864 (13 PERSONS -- 2001 STOCK INCENTIVE PLAN; 9 PERSONS -- 2001 ANNUAL EXECUTIVE INDIVIDUAL PERFORMANCE PLAN) ALL CURRENT DIRECTORS WHO ARE NOT EXECUTIVE OFFICERS, AS 53,283 194 N/A A GROUP (9 PERSONS) (4) ALL CURRENT EMPLOYEES, OTHER THAN EXECUTIVE OFFICERS, AS 15,076,861 1,193,500 N/A A GROUP (4) (1) This column assumes that had the 2001 Stock Incentive Plan been in effect in 2000, the same number of options and restricted and other shares would have been granted in 2000 under that plan as were granted in 2000 under the 1992 Stock Incentive Plan. (2) This column identifies the amounts that would have been payable under the Annual Executive Individual Performance Plan, as amended, for 2000, had the amended plan been in effect in 2000, based on: * 2000 base salaries and target bonuses, * the Company's 2000 net revenue growth of 29% and pre-tax operating profit margin of 24%, and * an assumption that each executive officer receives his or her full target bonus under the amended plan. (3) Mr. Schwab and Mr. Pottruck do not participate in the Annual Executive Individual Performance Plan. (4) Only executive officers are eligible to participate in the Annual Executive Individual Performance Plan.
~~49 [side bar] NEW PLAN BENEFITS TABLE~~ APPENDIX E AUDIT COMMITTEE CHARTER PURPOSE The Audit Committee of the Board of Directors assists the Board in fulfilling its oversight responsibilities by reviewing (1) the integrity of the Company's financial reporting process; (2) the adequacy of the Company's internal controls; (3) the audit process, including the independence and performance of the Company's internal and external auditors; and (4) such other matters as directed by the Board or this Charter. COMPOSITION AND MEMBERSHIP The Board appoints the members of the Audit Committee. The Audit Committee shall consist of at least three independent directors, all of whom shall be financially literate. At least one member of the Audit Committee shall have accounting or related financial management experience. The term of each member shall be two years, with alternating dates of expiration so as to provide continuity to the Audit Committee. AUTHORITY The Audit Committee shall have the authority to retain special legal, accounting or other consultants to advise the Committee. The Audit Committee may request any officer or employee of the Company or the Company's outside counsel or independent auditors to attend a meeting of the Committee or to meet with any members of, or consultants to, the Committee. MEETINGS There shall be four regular meetings each year and additional meetings may be held as circumstances warrant. RESPONSIBILITIES The responsibilities of the Audit Committee include, but are not limited, to the following: 1. Review and reassess the adequacy of this Charter annually and recommend any proposed changes to the Board for approval. 2. Recommend to the Board the appointment of the independent auditors, which firm is ultimately accountable to the Audit Committee and the Board. 3. Review the performance of the independent auditors and, if so determined by the Audit Committee, recommend that the Board replace the independent auditors. 4. Review the annual audited financial statements with management, including major issues regarding accounting and auditing principles and practices, as well as the adequacy of the internal controls that could significantly affect the Company's financial statements. 5. Review any analyses prepared by management and/or the independent auditors of significant financial reporting issues and judgments made in connection with preparation of the Company's financial statements. 6. Review with the independent auditors any problems or difficulties the auditors may have encountered and any management letter provided by the auditors and the Company's response to that letter. Such review should include any difficulties 50 [side bar] PURPOSE COMPOSITION AND MEMBERSHIP AUTHORITY MEETINGS RESPONSIBILITIES APPENDIX E AUDIT COMMITTEE CHARTER encountered in the course of the audit work, including any restrictions on the scope of activities or access to required information. 7. Receive written periodic reports from the independent auditors regarding the auditors' independence, discuss such reports with the auditors, and if so determined by the Audit Committee, recommend that the Board take appropriate action to ensure the independence of the auditors. 8. Review and approve fees for audit services provided by the independent auditors. Review fees for information technology consulting and all other services provided by the independent auditors during the fiscal year. 9. Consider whether the provision of non-audit services by the independent auditors is compatible with maintaining auditor independence. 10. Meet with the independent auditors prior to the audit to review the planning and staffing of the audit. 11. Discuss with the independent auditors matters required to be discussed by Statement on Auditing Standards No. 61 relating to the conduct of the audit. 12. Discuss, or delegate to the Chairman to discuss, matters communicated by the independent auditors in connection with interim financial reviews prior to the filing of interim financial information with a regulatory agency, if practicable. 13. Review major changes to the Company's accounting principles and auditing practices as suggested by the independent auditors, internal auditors or management. 14. Review the appointment and replacement of the senior internal auditing executive. 15. Review with the independent auditors the internal audit department responsibilities, budget and staffing, and any changes required in the planned scope of the internal audit. 16. Review the significant reports to management prepared by the internal audit- ing department and management's responses. 17. Review with the Company's General Counsel legal matters that may have a material impact on the financial statements, the Company's compliance policies and any material reports or inquiries received from regulators or governmental agencies. 18. Meet periodically with management to review the Company's major financial risk exposures and the steps management has taken to monitor and control such exposures. 19. Maintain communication and, when appropriate, meet separately with the independent auditors, the Chief Financial Officer, the Senior Vice President of Internal Audit, and the General Counsel. 51 [side bar] RESPONSIBILITIES APPENDIX E AUDIT COMMITTEE CHARTER 20. Review and approve disclosures required by the rules of the Securities and Exchange Commission to be included in the Company's annual proxy statement. 21. Oversee the process for determining compliance with the Company's Code of Conduct. Review and approve significant revisions thereto. 22. Request reports from the independent and internal auditors regarding any areas that may require the Audit Committee's special attention. 23. Report its activities to the full Board on a regular basis. While the Audit Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Audit Committee to plan or conduct audits or to determine that the Company's financial statements are complete and accurate and are in accordance with accounting principles generally accepted in the United States of America. This is the responsibility of management and the independent auditors. Nor is it the duty of the Audit Committee to conduct investigations, to resolve disagreements, if any, between management and the independent auditors or to assure compliance with laws and regulations and the Company's Code of Conduct. 52 [side bar] RESPONSIBILITIES restrictions.

THE CHARLES SCHWAB CORPORATION

101 ~~MONTGOMERY STREET SAN FRANCISCO, CA~~Montgomery Street

San Francisco, California 94104 ~~415.627.7000 NYSE Stock Symbol: SCH~~

(415) 627-7000

www.schwab.com ~~creating a world of smarter inventors (TM) CharlesSchwab logo appears here Printed on recycled paper. LGL-13902-02~~

LGL-13902-05

THE CHARLES SCHWAB CORPORATION ~~2001~~

2004 STOCK INCENTIVE PLAN ~~ARTICLE~~

(Effective, 2004)

TABLE OF CONTENTS


		Page
SECTION 1.	ESTABLISHMENT AND PURPOSE	1

SECTION 2.	ADMINISTRATION	1
(a) Committee Composition		1
(b) Committee Administration		2

SECTION 3.	PARTICIPANTS	2
(a) General Rule		2
(b) Non-Employee Directors		2

SECTION 4.	STOCK SUBJECT TO PLAN	4
(a) Basic Limitation		4
(b) Share Usage		4
(c) Participant Limits		4
(d) Adjustments		5

SECTION 5.	AWARDS	5
(a) General		5
(b) Stock Options		5
(c) Stock Appreciation Rights		6
(d) Restricted Stock and Restricted Stock Units		6
(e) Performance Stock		6
(f) Other Stock or Cash Awards		7
(g) Performance Goals		7

SECTION 6.	ADJUSTMENT OF SHARES	7
(a) Adjustments		7
(b) Corporate Transactions		7
(c) Substitution and Assumption of Benefits		8
(d) Reservation of Rights		8

SECTION 7.	TERMS OF AWARDS	8
(a) Transferability		8
(b) Change in Control		8
(c) Taxes		10
(d) Effective Date, Amendment and Termination		10
(e) Fair Market Value		10
(f) Dividend Equivalents		10
(g) Other Provisions		11
(h) Non-U.S. Employees		11
(i) Governing Law		11

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SECTION 8.	PAYMENT OF DIRECTOR’S FEES IN SECURITIES	11
(a) Elections to Receive Awards		11
(b) Number and Terms of Awards		11

SECTION 9.	DEFERRAL OF AWARDS	11

SECTION 10.	DEFINED TERMS	12

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THE CHARLES SCHWAB CORPORATION

2004 STOCK INCENTIVE PLAN

SECTION 1. ~~INTRODUCTION.~~ ESTABLISHMENT AND PURPOSE.

The Plan was adopted by the Board of Directors on ~~February 28, 2001.~~March 10, 2004, subject to stockholder approval, which was obtained on(the “Effective Date”). The ~~purpose~~purposes of ~~this~~The Charles Schwab Corporation 2004 Stock Incentive Plan is(the “Plan”) are to promote the long-term success of The Charles Schwab Corporation (“Schwab” or the “Company”) and the creation of incremental stockholder value by ~~(a)~~(i) encouraging ~~Non-Employee Directors~~non-employee directors, employees and ~~Key Employees~~consultants to focus on long-range objectives, ~~(b)~~(ii) encouraging the attraction and retention of ~~Non-Employee Directors~~non-employee directors, employees and ~~Key Employees~~consultants with exceptional qualifications and ~~(c)~~(iii) linking ~~Non-Employee Directors~~non-employee directors, employees and ~~Key Employees~~consultants directly to stockholder ~~interests.~~interests by providing them stock options and other stock and cash incentives.

This Plan is a successor to The Charles Schwab Corporation 2001 Stock Incentive Plan, The Charles Schwab Corporation 1992 Stock Incentive Plan and The Charles Schwab Corporation Employee Stock Incentive Plan (the “Prior Plans”). As of the Effective Date, no further awards shall be made under the Prior Plans. However, unless a contrary rule is stated, the provisions of the Prior Plans shall continue to apply to awards granted to a participant under the Prior Plans prior to the Effective Date. In the event that this Plan is not approved by stockholders, awards shall continue to be made under the Prior Plans in accordance with their terms.

SECTION 2. ADMINISTRATION.

(a)Committee Composition. The Plan ~~seeks~~will be administered by a Committee (the “Committee”) of the Schwab Board of Directors (the “Board”) consisting of two or more directors as the Board may designate from time to ~~achieve this purpose~~time. The composition of the Committee shall satisfy such requirements as:

(i) the Securities and Exchange Commission may establish for administrators acting under plans intended to qualify for exemption under Rule 16b-3 or its successor under the Securities Exchange Act of 1934 (the “Exchange Act”);

(ii) may be established by ~~providing~~the stock exchange or stock market on which Schwab’s common stock may be listed pursuant to the rule-making authority of such stock exchange or stock market; and

(iii) the Internal Revenue Service may establish for ~~Awards in~~outside directors acting under plans intended to qualify for exemption under section 162(m) of the ~~form~~Internal Revenue Code of ~~Restricted Shares, Performance Share Awards~~1986, as amended (the “Code”).

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(b)Committee Administration. The Committee shall have discretionary authority to construe and interpret the Plan and any benefits granted under the Plan, to establish, interpret and amend rules for Plan administration, to change the terms and conditions of options and other benefits at or ~~Options,~~after grant, and to make all other determinations which ~~may constitute incentive stock options~~it deems necessary or ~~nonstatutory stock options.~~advisable for the administration of the Plan. The ~~Plan~~determinations of the Committee shall be ~~governed by,~~made in accordance with its judgment as to the best interests of Schwab and ~~construed~~its stockholders and in accordance with the ~~laws~~purposes of the State of Delaware. ARTICLE 2. ADMINISTRATION. 2.1 The Committee. The Plan shall be administered by the -------------- Committee. The Committee shall consist of two or more Directors, who shall be appointed by the Board. 2.2 Committee Responsibilities. The Committee shall select the --------------------------- Key Employees who are to receive Awards under the Plan, determine the amount, vesting requirements and other conditions of such Awards, may interpret the Plan, and make all other decisions relating to the operation of the Plan. The Committee may adopt such rules or guidelines as it deems appropriate to implement the Plan. The Committee's determinations under the Plan shall be final and ~~binding~~conclusive on all persons. ~~ARTICLE 3. LIMITATIONS ON AWARDS. The aggregate number~~A majority of ~~Restricted Shares, Performance Share Awards~~the members of the Committee shall constitute a quorum, and ~~Options awarded under~~all determinations of the Plan shall not exceed 70,000,000. If any Restricted Shares, Performance Share Awards or Options are forfeited, or if any Performance Share Awards terminate for any other reason without the associated Common Shares being issued, or if any Options terminate for any other reason before being exercised, then such Restricted Shares, Performance Share Awards or Options shall again become available for Awards under the Plan. Subject to the overall limit on the aggregate shares set forth above, the following limitations shall apply: (a) The maximum number of Common Shares which may be granted subject to an Option to any one Participant in any one fiscal yearCommittee shall be ~~5,000,000; and (b) The maximum number~~made by a majority of ~~Restricted Shares~~its members in person or ~~Performance Share Awards which may be granted to any one Participant in any one fiscal year shall be 1,000,000. The limitations set forth in~~telephone. Any determination of the ~~preceding sentence shall be subject to adjustment pursuant to Article 10; and~~ ~~The limitations of this Article 3 shall each be subject to adjustment pursuant to Article 10. Any Common Shares issued pursuant to~~Committee under the Plan may be ~~authorized but unissued~~made without notice or meeting of the Committee, in writing signed by all the Committee members. The Committee may authorize one or more officers of the Company to select employees to participate in the Plan and to determine the number of option shares and other rights to be granted to such participants, except with respect to awards to officers subject to section 16 of the Exchange Act or ~~treasury shares. ARTICLE 4. ELIGIBILITY. 4.1~~ officers who are or may become “covered employees” within the meaning of section 162(m) of the Code (“Covered Employees”) and any reference in the Plan to the Committee shall include such officer or officers. Subject to the requirements of applicable law, the Committee may also authorize one or more officers of the Company to administer claims under the Plan. No member of the Committee shall be liable for any action that such member has taken or failed to take in good faith with respect to the Plan or any award under the Plan.

SECTION 3. PARTICIPANTS.

(a)General ~~Rule. Key Employees~~Rule. Participants may consist of all employees and consultants of Schwab and its subsidiaries, non-employee directors of the Board of Directors of Schwab (“Non-Employee Directors ~~shall ------------ be eligible for designation~~”) and non-employee directors of any subsidiary as ~~Participants~~determined by the Committee. ~~4.2~~ Any corporation or other entity in which a 50% or greater interest is at the time directly or indirectly owned by Schwab shall be a subsidiary for purposes of the Plan. Designation of a participant in any year shall not require the Committee to designate that person to receive a benefit in any other year or to receive the same type or amount of benefit as granted to the participant in any other year or as granted to any other participant in any year. The Committee shall consider all factors that it deems relevant in selecting participants and in determining the type and amount of their respective benefits.

(b)Non-Employee ~~Directors.~~Directors. In addition to any awards ~~pursuant~~that may be granted to ~~----------------------~~them under Section ~~4.1,~~3(a), each Non-Employee ~~Directors~~Director shall be entitled to receive the following automatic ~~NQSOs described in this Section 4.2. (a) Each Non-Employee Director shall receive an NQSO covering a number of Common Shares for~~awards:

(i) For each ~~Award Year~~calendar year with respect to which he or she serves as a Non-Employee Director, each Non-Employee Director shall be granted on the ~~grant~~date specified in subparagraph (iv) a stock option covering 5,000 shares of Schwab common stock that is subject to the terms described in subparagraph (v).

(ii) For each calendar year for which he or she serves as a Non-Employee Director, each Non-Employee Director shall be granted, on the date described in ~~subsection (b) below, to be~~subparagraph (iv), Restricted Stock covering shares of Schwab common stock in an

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amount calculated by dividing ~~$150,000~~$50,000 by the ~~Fair Market Value~~fair market value of a share of Schwab common stock on the date of grant, subject to vesting described in subparagraph (vi).

(iii) Upon joining the Board, each Non-Employee Director shall become entitled to receive a stock option covering 5,000 shares of Schwab common stock. Such stock option shall be granted on the date of the ~~Common Shares on~~first meeting of the ~~grant~~Board following the date such individual becomes a Non-Employee Director, shall be exercisable in full at all times during its term, and shall be subject to the conditions (other than date of grant) set forth in subparagraph (v).

(iv) The awards described in ~~subsection (b) below;~~subparagraphs (i) and ~~(b) The NQSO~~(ii) for a particular ~~Award Year shall~~calendar year will be granted to each Non-Employee Director as of May 15 of each ~~Award Year,~~such year, and if May 15 is not a business day, then the ~~grant~~award shall be ~~made~~granted on and as of the next succeeding business ~~day; (c)~~day.

(v) Each ~~NQSO~~stock option shall be ~~exercisable~~subject to the following terms and conditions:

(A) Each stock option shall be designated as a non-qualified stock option that is not intended to meet the specific requirements set forth in ~~full at all times during its term; (d)~~section 422 of the Code (“Nonqualified Stock Option”);

(B) The term of each ~~NQSO~~Nonqualified Stock Option shall be 10 years; provided, however, that any unexercised ~~NQSO~~Nonqualified Stock Option shall expire on the earlier of (1) the date 10 years after the date of ~~grant~~grant; or (2) three (3) months following the date that the ~~Optionee~~participant ceases to be a Non-Employee Director or ~~a Key Employee~~an employee for any reason other than retirement (as defined in subparagraph (vi), below) death or disability. If ~~an Optionee~~a participant ceases to be a Non-Employee Director or ~~Key Employee~~employee on account of death or disability, any unexercised ~~NQSO~~Nonqualified Stock Option shall expire on the earlier of the date 10 years after the date of grant or one year after the date of death or disability of such ~~Director;~~director, and ~~(e)~~if a participant ceases to be a Non-Employee Director or employee on account of retirement, any unexercised Nonqualified Stock Option shall expire on the earlier of the date 10 years after the date of grant or two years after the date of retirement of such director; and

(C) The ~~Exercise Price~~exercise price under each ~~NQSO~~Nonqualified Stock Option shall be equal to the ~~Fair Market Value~~fair market value on the date of grant as determined by the Committee.

(vi) The awards described in subparagraphs (i) and (ii) shall become vested and exercisable in accordance with the following schedule


1st anniversary of grant date		25%
2^nd anniversary of grant date		50%
3^rd anniversary of grant date		100%

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Notwithstanding the foregoing, the awards described in subparagraphs (i) and (ii) shall be ~~payable~~fully vested on the Non-Employee Director’s death, disability (as such term is defined in the applicable award agreement) or retirement from the Board. For purposes of this Section 3(b), “retirement” shall mean a Non-Employee Director’s resignation or removal from the Board at any time after he or she has either attained age 70 or completed five years of service as a Non-Employee Director.

SECTION 4. STOCK SUBJECT TO PLAN.

(a)Basic Limitation. There is hereby reserved for issuance under the Plan an aggregate of:

(i) 45 million shares of Schwab common stock; plus

(ii) any shares of Schwab common stock subject to outstanding awards under the Prior Plans as of the Effective Date that on or after the Effective Date cease for any reason to be subject to such awards (other than by reason of exercise or settlement of the awards to the extent they are exercised for or settled in shares); plus

(iii) any shares of Schwab common stock that were issued under the Prior Plan and are reacquired by Schwab after the Effective Date.

The aggregate maximum number of shares of Schwab common stock available under subparagraphs (ii) and (iii) is 150 million.

(b)Share Usage. If there is a lapse, expiration, termination or cancellation of any stock option issued under the Plan prior to the issuance of shares under the Plan or if shares of common stock are issued under the Plan and thereafter are reacquired by Schwab, the shares subject to those options and the reacquired shares shall be added to the shares available for benefits under the Plan. Shares covered by a benefit granted under the Plan or a Prior Plan shall not be counted as issued unless and until they are actually issued and delivered to a participant. Any shares covered by a Stock Appreciation Right shall be counted as issued only to the extent shares are actually issued to the participant upon exercise of the right. In addition, any shares of common stock exchanged by a participant as full or partial payment to Schwab of the exercise price under any Stock Option exercised under the Plan or a Prior Plan, any shares retained by Schwab pursuant to a participant’s tax withholding election, and any shares covered by a benefit which is settled in cash shall be added to the shares available for benefits under the Plan. All shares issued under the Plan may be either authorized and unissued shares or issued shares reacquired by Schwab.

(c)Participant Limits. Under the Plan, no participant may receive in any fiscal year:

(i) Stock Options or SARs relating to more than 5 million shares, or

(ii) Restricted Stock, Restricted Stock Units, Performance Stock or Performance Units that are subject to the attainment of Performance Criteria described in Section 5(g) relating to more than 1 million shares.

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(d)Adjustments. The shares reserved for issuance and the limitations set forth in this Section 4 shall be subject to adjustment in accordance with Section 6.

SECTION 5. AWARDS.

(a)General. Benefits under the Plan shall consist of Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Stock, Performance Units, and Other Stock or Cash Awards, all as described below.

(b)Stock Options. Stock Options may be granted to participants at any time as determined by the Committee. The Committee shall determine the number of shares subject to each option and whether the option is an incentive stock option described in section 422(b) of the forms described in Article 6. 4.3 Ten-Percent Stockholders. A Key Employee who owns more than 10 ------------------------ percent of the total combined voting power of all classes of outstanding stock of the Company or any of its SubsidiariesCode (an “Incentive Stock Option”); provided that only a common-law employee shall ~~not~~ be eligible for the grant of an ~~ISO unless (a)~~Incentive Stock Option. The option price for each option shall be determined by the ~~Exercise price under such ISO is at least 110 percent~~Committee but shall not be less than 100% of the ~~Fair Market Value~~fair market value of Schwab’s common stock on the date the option is granted. Each option shall expire at such time as the Committee shall determine at the time of grant. Options shall be exercisable at such time and subject to such terms and conditions as the Committee shall determine; provided, however, that no option shall be exercisable later than the tenth anniversary of its grant. The option price, upon exercise of any option, shall be payable to Schwab in full by:

(i) cash payment or its equivalent;

(ii) surrendering, or attesting to the ownership of, shares of Schwab stock that are already owned by the participant provided that such action would not cause Schwab to recognize compensation expense (or additional compensation expense) with respect to the option for financial reporting purposes;

(iii) delivery of a ~~Common Share~~properly executed exercise notice, together with irrevocable instructions to a broker to promptly deliver to Schwab the amount of sale proceeds from the option shares or loan proceeds to pay the exercise price and any withholding taxes due to Schwab; and

(iv) such other methods of payment as the Committee, at its discretion, deems appropriate; provided, however, that no method of payment will be permitted if it would result in a violation of applicable law, as determined by the Committee in its sole discretion.

In no event shall the Committee cancel any outstanding Stock Option for the purpose of reissuing the option to the participant at a lower exercise price or reduce the option price of an outstanding option. A Stock Option agreement may provide that a new Stock Option will be granted automatically to the participant when he or she exercises a prior Option and pays the exercise price in the form described in subparagraph (ii) above. The Committee may at any time (x) offer to buy out for a payment in cash or cash equivalents an Option previously granted or (y) authorize a participant to elect to cash out an Option previously granted, in either case at such time and based upon such terms and conditions as the Committee shall establish.

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(c)Stock Appreciation Rights. Stock Appreciation Rights (“SARs”) may be granted to participants at any time as determined by the Committee. An SAR may be granted in tandem with a Stock Option granted under this Plan or on a free-standing basis. The Committee also may, in its discretion, substitute SARs for outstanding Stock Options. The grant price of a tandem or substitute SAR shall be equal to the option price of the related option. The grant price of a free-standing SAR shall be equal to the fair market value of Schwab’s common stock on the date of ~~grant~~its grant. An SAR may be exercised upon such terms and ~~(b)~~conditions and for such ~~ISO~~term as the Committee in its sole discretion determines; provided, however, that the term shall not exceed the option term in the case of a tandem or substitute SAR or ten years in the case of a free-standing SAR and the terms and conditions applicable to a substitute SAR shall be substantially the same as those applicable to the Stock Option which it replaces. Upon exercise of an SAR, the participant shall be entitled to receive payment from Schwab in an amount determined by ~~its terms is not exercisable after~~multiplying the ~~expiration~~excess of ~~five years from~~the fair market value of a share of Schwab common stock on the date of ~~grant. 4.4 Attribution Rules. For purposes~~exercise over the grant price of ~~Section 4.3, in determining ----------------- stock ownership, a Key Employee shall be deemed to own~~ the ~~stock owned, directly or indirectly,~~SAR by ~~or for his or 2~~ her brothers, sisters, spouse, ancestors or lineal descendants. Stock owned, directly or indirectly, by or for a corporation, partnership, estate or trust shall be deemed to be owned proportionately by or for its stockholders, partners or beneficiaries. Stockthe number of shares with respect to which the ~~Key Employee holds an option shall not~~SAR is exercised. The payment may be ~~counted. 4.5 Outstanding Stock. For purposes of Section 4.3, "outstanding ----------------- stock" shall include all~~made in cash or stock, ~~actually issued and outstanding immediately after~~at the ~~grant~~discretion of the ~~ISO~~Committee.

(d)Restricted Stock and Restricted Stock Units. Restricted Stock and Restricted Stock Units may be awarded or sold to ~~the Key Employee. "Outstanding stock"~~participants under such terms and conditions as shall ~~not include treasury shares or shares authorized for issuance under outstanding options held~~be established by the Key Employee or by any other person. 4.6 Options Issued To Non-Employee Directors In Lieu of Fee -------------------------------------------------------------- Deferrals. In addition to any awards pursuant to Sections 4.1Committee. Restricted Stock and 4.2, a - --------- Non-Employee Director who elects to defer the receipt of amounts pursuant to Section 5.1 of The Charles Schwab Corporation Directors' Deferred Compensation Plan (the "Directors Deferred Compensation Plan") and elects to receive stock options in lieu of a Deferral Account balance pursuant to Section 5.4(2) of the Directors Deferred Compensation Plan, shall be entitled to receive a grant of NQSOs hereunder on the date the amounts would have been payable to the Non-Employee Director if the Non-Employee Director had not made such deferral election. Any NQSOs issued pursuant to this Section shall be issued pursuant to the terms set forth in subsections (c), (d) and (e) of Section 4.2 hereof. 4.7 Performance Shares Issued To Non-Employee Directors Pursuant -------------------------------------------------------------- to Fee Deferrals. In addition to any awards pursuant to Sections 4.1 and 4.2, a - ---------------- Non-Employee Director who elects to defer the receipt of amounts pursuant to Section 5.1 of The Directors' Deferred Compensation Plan and elects to receive payment in Shares pursuant to Section 5.4(1) of the Directors Deferred Compensation Plan, shall be entitled to receive a grant of Performance Shares hereunder on the date the amounts would have been payable to the Non-Employee Director if the Non-Employee Director had not made such deferral election. For purposes of this section, the term Non-Employee Director shall also include non-employee directors of any Subsidiary, if the Committee has approved participation in the Directors Deferred Compensation Plan for such Subsidiary's non-employee directors. ARTICLE 5. OPTIONS. 5.1Restricted Stock ~~Option Agreement. Each grant of an Option under the Plan ---------------------- shall be evidenced by a Stock Option Agreement between the Optionee and the Company. Such Option~~Units shall be subject to ~~all applicable terms and conditions~~such restrictions as the Committee determines, including, without limitation, any of the ~~Plan, and may be subject to any~~following (i) a prohibition against sale, assignment, transfer, pledge, hypothecation or other ~~terms and conditions which are not inconsistent with~~encumbrance for a specified period; or (ii) a requirement that the Plan and which the Committee deems appropriate for inclusion in a Stock Option Agreement. The provisions of the various Stock Option Agreements entered into under the Plan need not be identical. The Committee may designate all or any part of an Option as an ISOholder forfeit (or in the case of ~~a Key Employee who is subject~~shares or units sold to the ~~tax laws~~participant resell to Schwab at cost) such shares or units in the event of ~~a foreign jurisdiction,~~termination of employment during the period of restriction. All restrictions shall expire at such times as ~~an option qualifying for favorable tax treatment under~~ the ~~laws~~Committee shall specify. Settlement of ~~such foreign jurisdiction), except for Options granted to Non-Employee Directors. 3~~ 5.2 Options Nontransferability. Subject to the provisions of --------------------------- Section 14.2, no Option granted under the Plan shall be transferable by the Optionee other than by will or the laws of descent and distribution. An Optionvested Restricted Stock Units may be ~~exercised during~~made in the ~~lifetime~~form of ~~the Optionee only by him~~(a) cash, (b) shares or ~~her. No Option~~Schwab common stock or ~~interest therein may be transferred, assigned, pledged or hypothecated by the Optionee during his or her lifetime, whether by operation~~(c) any combination of law or otherwise, or be made subject to execution, attachment or similar process. 5.3 Number of Shares. Each Stock Option Agreement shall specify ---------------- the number of Common Shares subject to the Option and shall provide for the adjustment of such number in accordance with Article 10. Each Stock Option Agreement shall also specify whether the Option is an ISO or an NQSO. 5.4 Exercise Price. Each Stock Option Agreement shall specify the -------------- Exercise Price. The Exercise Price under an Option shall not be less than 100 percent of the Fair Market Value of a Common Share on the date of grant, exceptboth, as ~~otherwise provided in Section 4.3. Subject to the preceding sentence, the Exercise Price under any Option shall be~~ determined by the Committee. Restricted Stock Units may be settled in a lump sum or in installments. The ~~Exercise Price shall~~distribution may occur or commence when all vesting conditions applicable to the Restricted Stock Units have been satisfied or have lapsed, or it may be ~~payable~~deferred to any later date in accordance with ~~Article 6. 5.5 Exercisability~~Section 9.

(e) Performance Stock. The Committee shall designate the participants to whom long-term performance stock (“Performance Stock”) or long-term performance units (“Performance Units”) are to be awarded and ~~Term. Each Stock Option Agreement shall ----------------------- specify~~determine the ~~date when all~~number of shares or ~~any installment~~units, the length of the ~~Option is to become exercisable. The Stock Option Agreement shall also specify~~performance period and the term of the Option. The term of an ISO shall in no event exceed 10 years from the date of grant, and Section 4.3 may require a shorter term. Subject to the preceding sentence, the Committee shall determine when all or any part of an Option is to become exercisable and when such Option is to expire; provided that, in appropriate cases, the Company shall have the discretion to extend the term of an Option or the time within which, following termination of employment, an Option may be exercised, or to accelerate the exercisability of an Option. A Stock Option Agreement may provide for expiration prior to the end of its term in the event of the termination of the Optionee's employment and shall provide for the suspension of vesting when an employee is on a leave of absence for a period in excess of six months in appropriate cases, as determined by the Company; provided that, except to the extent otherwise specified by the Committee at the time of grant, (i) the exercisability of Options shall be accelerated in the event of the Participant's death or Disability; (ii) in the case of Retirement, the exercisability of all outstanding Options shall be accelerated, other than any Options that had been granted within two years of the date of the Optionee's Retirement; and (iii) vesting shall be suspended when an employee is on a leave of absence for a period in excess of six months in appropriate cases, as determined by the Company. Except as provided in Section 4.2, NQSOs may also be awarded in combination with Restricted Shares, and such an Award may provide that the NQSOs will not be exercisable unless the related Restricted Shares are forfeited. In addition, NQSOs granted under this Section 5 may be granted subject to forfeiture provisions which provide for forfeiture of the Option upon the exercise of tandem awards, the terms of which are established in other programs of the Company. 5.6 Limitation on Amount of ISOs. The aggregate fair market value ---------------------------- (determined at the time the ISO is granted) of the Common Shares with respect to which ISOs are exercisable for the first time by the Optionee during any calendar year (under all incentive stock option plans 4 of the Company) shall not exceed $100,000; provided, however, that all or any portion of an Option which cannot be exercised as an ISO because of such limitation shall be treated as an NQSO. 5.7 Effect of Change in Control. The Committee (in its sole ------------------------------- discretion) may determine, at the time of granting an Option, that such Option shall become fully exercisable as to all Common Shares subject to such Option immediately preceding any Change in Control with respect to the Company. 5.8 Restrictions on Transfer of Common Shares. Any Common Shares ----------------------------------------- issued upon exercise of an Option shall be subject to such special forfeiture conditions, rights of repurchase, rights of first refusal and other transfer restrictions as the Committee may determine. Such restrictions shall be set forth in the applicable Stock Option Agreement and shall apply in addition to any general restrictions that may apply to all holders of Common Shares. 5.9 Authorization of Replacement Options. Concurrently with the -------------------------------------- grant of any Option to a Participant (other than NQSOs granted pursuant to Section 4.2), the Committee may authorize the grant of Replacement Options. If Replacement Options have been authorized by the Committee with respect to a particular award of Options (the "Underlying Options"), the Option Agreement with respect to the Underlying Options shall so state, and the terms and conditions of each such award. Each award of Performance Stock or Performance Units shall entitle the ~~Replacement Options shall be~~participant to a payment in the form of shares of common stock or cash (as provided ~~therein. The grant~~in the award agreement) upon the attainment of performance goals and other terms and conditions specified by the Committee. Notwithstanding satisfaction of any Replacement Options shall be effective only upon the exercise of the Underlying Options through the use of Common Shares pursuant to Section 6.2 or Section 6.3. The number of Replacement Options shall equalperformance goals, the number of Common Shares used to exercise the Underlying Options, and, if the Option Agreement so provides, the number of Common Shares used to satisfy any tax withholding requirements incident to the exercise of the Underlying Options in accordance with Section 13.2. Upon the exercise of the Underlying Options, the Replacement Options shall be evidenced by an amendment to the Underlying Option Agreement. Notwithstanding the fact that the Underlying Optionshares issued under Performance Stock or Performance Unit awards may be ~~an ISO, a Replacement Option is not intended to qualify as an ISO. The Exercise Price of a Replacement Option shall be no less than~~adjusted by the ~~Fair Market Value of a Common Share~~Committee on the ~~date~~basis of such further consideration as the grant of the Replacement Option becomes effective. The term of each Replacement Option shall be equal to the remaining term of the Underlying Option. No Replacement Options shall be granted to Optionees when Underlying Options are exercised pursuant to the terms of the Plan and the Underlying Option Agreement following termination of the Optionee's employment. The Committee in its sole discretion shall determine. However, the Committee may ~~establish~~not, in any event, increase the number of shares or cash earned upon satisfaction of any performance goal by any participant who is a Covered Employee. The Committee may, in its discretion, make a cash payment equal to the fair market value of shares of common stock otherwise required to be issued to a participant pursuant to a Performance Stock award.

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(f) Other Stock or Cash Awards. In addition to the incentives described in subparagraphs (b) through (e) of this Section 5, the Committee may grant other incentives payable in cash or in common stock under the Plan as it determines to be in the best interests of Schwab and subject to such other terms and conditions ~~for Replacement Options~~ as it deems appropriate. 5.10 Options Granted to Non-United States Key Employees. In the ----------------------------------------------------- case of Key Employees who are subject to the tax laws of a foreign jurisdiction, the Company may issue Options to such Key Employees that contain terms required to conform with any requirements for favorable tax treatment imposed by the laws of such foreign jurisdiction, or as otherwise may be required by the laws of such foreign jurisdiction. The terms of any such Options shall be governed by the Plan, subject to the terms of any Addendum to the Plan specifically applicable to such Options. 5 ARTICLE 6. PAYMENT FOR OPTION SHARES. 6.1 General Rule. The entire Exercise Price of Common Shares ------------ issued upon exercise of Options shall be payable in cash at the time when such Common Shares are purchased, except that the Company may at any time accept payment pursuant to Section 6.2 or 6.3. 6.2 Surrender of Stock. To the extent that this Section 6.2 is ------------------ applicable, payment for all or any part of the Exercise Price may be made with Common Shares which are surrendered to the Company. Such Common Shares shall be valued at their Fair Market Value on the date when the new Common Shares are purchased under the Plan. In the event that the Common Shares being surrendered are Restricted Shares that have not yet become vested, the same restrictions shall be imposed upon the new Common Shares being purchased. 6.3 Exercise/Sale. To the extent this Section 6.3 is applicable, ------------- payment may be made by the delivery (in a manner prescribed by the Company) of an irrevocable direction to Charles Schwab & Co., Inc. to sell Common Shares (including the Common Shares to be issued upon exercise of the Options) and to deliver all or part of the sales proceeds to the Company in payment of all or part of the Exercise Price and any withholding taxes. ARTICLE 7. RESTRICTED SHARES AND PERFORMANCE SHARE AWARDS. 7.1 Time, Amount and Form of Awards. The Committee may grant --------------------------------- Restricted Shares or

(g)Performance ~~Share~~Goals. Awards with respect to an Award Year during such Award Year or at any time thereafter. Each such Award shall be evidenced by a Stock Award Agreement between the Award recipient and the Company. The amount of each Award of Restricted ~~Shares~~Stock, Restricted Stock Units, Performance Stock, Performance Units and Other Stock or ~~Performance Share Awards shall be determined by the Committee.~~Cash Awards under the Plan may be ~~granted in~~made subject to the ~~form~~attainment of ~~Restricted Shares~~performance goals for a specified period of time relating to one or more business criteria within the meaning of Section 162(m) of the Code, including, but not limited to, pre-tax adjusted income; adjusted operating income; cash flow; stockholder return; revenue; revenue growth; return on net assets; net income; net new assets; earnings per share; return on stockholders’ equity; or return on investment (“Performance ~~Share Awards or in any combination thereof, as~~Criteria”). Not later than the 90th day of such period, the Committee shall select the participants for such period and establish in writing (i) the objective performance goals for each participant for that period based on one or more of the Performance Criteria, (ii) the specific award amounts that will be paid to each participant if his or her performance goals are achieved, subject to the per-participant limit described in Section 4(c)(ii), and (iii) the method by which such amounts will be calculated. Any Performance Criteria may be used to measure the performance of the Company as a whole or any business unit of the Company and may be measured relative to a peer group or index. The Committee may not in any event increase the amount of compensation payable to a Covered Employee upon the attainment of a performance goal. The Committee shall determine and certify, for each participant, the extent to which the performance goals have been met and the amount of the award, if any, to be made.

SECTION 6. ADJUSTMENT OF SHARES.

(a)Adjustments. If Schwab shall at any time change the number of issued shares of common stock by stock dividend, stock split, spin-off, split-off, spin-out, recapitalization, merger, consolidation, reorganization, combination, or exchange of shares, the total number of shares reserved for issuance under the Plan, the maximum number of shares which may be made subject to an award in any fiscal year, and the number of shares covered by each outstanding award and the price therefor, if any, shall be equitably adjusted by the Committee, in its sole ~~discretion at~~discretion. The Committee also may make adjustments in the ~~time~~terms and conditions of, and the criteria included in, awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in the preceding sentence) affecting the Company or the financial statements of the ~~grant. Restricted Shares~~Company or ~~Performance Share Awards may also~~of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent unintended dilution or enlargement of the benefits or potential benefits intended to be ~~awarded in combination with NQSOs,~~made available under the Plan. The determination of the Committee as to the foregoing adjustments, if any, shall be conclusive and ~~such an Award may provide that~~binding on all participants under the ~~Restricted Shares or Performance Share Awards will be forfeited in~~Plan.

(b)Corporate Transactions. In the event that the related NQSOs are exercised. 7.2 Payment for Restricted Share Awards. To the extent that an ----------------------------------- Award is granted in the form of Restricted Shares, the Award recipient, as a condition to the grant of such Award, shall be required to pay the Company in cash an amount equal to the par value of such Restricted Shares. 7.3 Vesting or Issuance Conditions. Each Award of Restricted -------------------------------- Shares shall become vested, in full or in installments, upon satisfaction of the conditions specified in the Stock Award Agreement. Common Shares shall be issued pursuant to Performance Share Awards in full or in installments upon satisfaction of the issuance conditions specified in the Stock Award Agreement. The Committee shall select the vesting conditions in the case of Restricted Shares, or issuance conditions in the case of Performance Share Awards, which may be based upon the Participant's service, the Participant's performance, the Company's performance or such other 6 criteria as the Committee may adopt; provided that, in the case of an Award of Restricted Shares where vesting is based entirely on the Participant's service (except to the extent otherwise specified by the Committee at the time of grant), (i) vesting shall be accelerated in the event of the Participant's death or Disability; (ii) in the case of Retirement, vesting shall be accelerated for all Restricted Shares that had been granted more than two years prior to the date of the Participant's Retirement; and (iii) vesting shall be suspended when an employee is on a leave of absence for a period in excess of six months in appropriate cases, as determined by the Company. The Committee, in its sole discretion, may determine, at the time of making an Award of Restricted Shares, that such Award shall become fully vested in the event that a Change in Control occurs with respect to the Company. The Committee, in its sole discretion, may determine, at the time of making a Performance Share Award, that the issuance conditions set forth in such Award shall be waived in the event that a Change in Control occurs with respect to the Company. 7.4 Form of Settlement of Performance Share Awards. Settlement of ---------------------------------------------- Performance Share Awards shall only be made in the form of Common Shares. Until a Performance Share Award is settled, the number of Performance Share Awards shall be subject to adjustment pursuant to Article 10. 7.5 Death of Recipient. Any Common Shares that are to be issued ------------------ pursuant to a Performance Share Award after the recipient's death shall be delivered or distributed to the recipient's beneficiary or beneficiaries. Each recipient of a Performance Share Award under the Plan shall designate one or more beneficiaries for this purpose by filing the prescribed form with the Company. A beneficiary designation may be changed by filing the prescribed form with the Company at any time before the Award recipient's death. If no beneficiary was designated or if no designated beneficiary survives the Award recipient, then any Common Shares that are to be issued pursuant to a Performance Share Award after the recipient's death shall be delivered or distributed to the recipient's estate. The Committee, in its sole discretion, shall determine the form and time of any distribution(s) to a recipient's beneficiary or estate. ARTICLE 8. CLAIMS PROCEDURES. Claims for benefits under the Plan shall be filed in writing with the Committee on forms supplied by the Committee. Written notice of the disposition of a claim shall be furnished to the claimant within 90 days after the claim is filed. If the claim is denied, the notice of disposition shall set forth the specific reasons for the denial, citations to the pertinent provisions of the Plan, and, where appropriate, an explanation as to how the claimant can perfect the claim. If the claimant wishes further consideration of his or her claim, the claimant may appeal a denied claim to the Committee (or to a person designated by the Committee) for further review. Such appeal shall be filed in writing with the Committee on a form supplied by the Committee, together with a written statement of the claimant's position, no later than 90 days following receipt by the claimant of written notice of the denial of his or her claim. If the claimant so requests, the Committee shall schedule a hearing. A decision on review shall be made after a full and fair review of the claim and shall be delivered in writing to the claimant no later than 60 days after the Committee's receipt of the notice of appeal, unless special circumstances (including the need 7 to hold a hearing) require an extension of time for processing the appeal, in which case a written decision on review shall be delivered to the claimant as soon as possible but not later than 120 days after the Committee's receipt of the appeal notice. The claimant shall be notified in writing of any such extension of time. The written decision on review shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, and shall specifically refer to the pertinent Plan provisions on which it is based. All determinations of the Committee shall be final and binding on Participants and their beneficiaries. ARTICLE 9. VOTING RIGHTS AND DIVIDENDS. 9.1 Restricted Shares. All holders of Restricted Shares shall have ------------------ the same voting, dividend, and other rights as the Company's other stockholders. 9.2 Performance Share Awards. The holders of Performance Share ------------------------ Awards shall have no voting or dividend rights until such time as any Common Shares are issued pursuant thereto, at which time they shall have the same voting, dividend and other rights as the Company's other stockholders. ARTICLE 10. PROTECTION AGAINST DILUTION; ADJUSTMENT OF AWARDS. 10.1 General. In the event of a subdivision of the outstanding ------- Common Shares, a declaration of a dividend payable in Common Shares, a declaration of a dividend payable in a form other than Common Shares, a combination or consolidation of the outstanding Common Shares (by reclassification or otherwise) into a lesser number of Common Shares, a recapitalization, a spinoff or a similar occurrence, the Committee shall make appropriate adjustments in one or more of (a) the number of Options, Restricted Shares and Performance Share Awards available for future Awards under Article 3, (b) the maximum number of Common Shares which may be granted under Article 3 to any one Participant in any one fiscal year either subject to an Option or as Restricted Shares or Performance Share Awards, (c) the number of Performance Share Awards included in any prior Award which has not yet been settled, (d) the number of Common Shares covered by each outstanding Option or (e) the Exercise Price under each outstanding Option. 10.2 Reorganizations. Subject to the provisions of Section 5.7, in --------------- the event that the CompanySchwab is a party to a merger or other reorganization, outstanding ~~Options, Restricted Shares and Performance Share Awards~~awards shall be subject to the agreement of merger or reorganization. Such agreement ~~may~~shall provide ~~without limitation,~~ for (i) the continuation of the outstanding awards by Schwab, if Schwab is a surviving corporation, (ii) the assumption of the outstanding ~~Awards~~awards by the surviving corporation or its parent ~~for their continuation~~or subsidiary, (iii) the substitution by the ~~Company (if~~surviving corporation or its

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parent or subsidiary of its own awards for the ~~Company is~~outstanding awards under this Plan, (iv) full exercisability or vesting and accelerated expiration of the outstanding awards or (v) settlement of the full value of the outstanding awards in cash or cash equivalents followed by cancellation of such awards.

(c)Substitution and Assumption of Benefits. Without affecting the number of shares reserved or available hereunder the Board or the Committee may authorize the issuance of benefits under this Plan in connection with the assumption of, or substitution for, outstanding benefits previously granted to individuals who become employees of Schwab or any subsidiary as a ~~surviving corporation), for accelerated vesting~~result of any merger, consolidation, acquisition of property or ~~for settlement in cash. 10.3~~stock, or reorganization, upon such terms and conditions as the Committee may deem appropriate.

(d) Reservation of ~~Rights.~~Rights. Except as provided in this ~~Article 10, ---------------------~~Section 6, a ~~Participant~~participant shall have no rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any ~~stock~~ dividend or any other increase or decrease in the number of shares of stock of any class. Any issue by ~~the Company~~Schwab of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be 8 made with respect to, the number, kind or ~~Exercise Price~~exercise price of ~~Common Shares~~shares subject to ~~an Option.~~a Stock Option or other award. The grant of an ~~Award~~award pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets. ~~ARTICLE 11. LIMITATION~~

SECTION 7. TERMS OF ~~RIGHTS. 11.1 Employment Rights. Neither~~AWARDS.

(a)Transferability. Except as otherwise determined by the ~~Plan nor any Award~~Committee in the case of benefits other than Incentive Stock Options or SARs granted ~~------------------~~in tandem with Incentive Stock Options, each benefit granted under the Plan shall not be transferable otherwise than by will or the laws of descent and distribution and each Stock Option and SAR shall be exercisable during the participant’s lifetime only by the participant or, in the event of disability, by the participant’s personal representative. In the event of the death of a participant, the exercise of any benefit or payment with respect to any benefit shall be made only by or to the executor or administrator of the estate of the deceased participant or the person or persons to whom the deceased participant’s rights under the benefit shall pass by will or the laws of descent and distribution.

(b) Change in Control. The Committee (in its sole discretion) may determine at the time of (or at any time after) the grant of an award, that upon a Change in Control of Schwab, that any outstanding Stock Option or SAR shall become vested and exercisable; all restrictions on any Restricted Stock or Restricted Stock Unit shall lapse; all performance goals shall be deemed achieved at target levels and all other terms and conditions met; Performance Stock shall be delivered; a Performance Unit and Restricted Stock Unit shall be paid out as promptly as practicable; and any Other Stock or Cash Award shall be delivered or paid. A “Change in Control” shall mean the occurrence of any of the following events:

(i) Upon consummation of a reorganization, merger or consolidation (a “Business Combination”), in each case, unless, following such Business Combination:

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(A) the individuals and entities who were the beneficial owners, respectively, of the then outstanding shares of Common Stock of the Company (the “Outstanding Common Stock”) and the then outstanding voting securities of the Company entitled to ~~give~~vote generally in the election of directors (the “Outstanding Voting Securities”) immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Common Stock and Outstanding Voting Securities, as the case may be; and

(B) no Person (as defined in subparagraph (iii) below) (excluding any ~~individual a right to remain employed~~corporation resulting from such Business Combination or any employee benefit plan (or related trust) sponsored or maintained by the Company or such other corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation, except to the extent that such ownership of Outstanding Common Stock or Outstanding Voting Securities existed prior to the Business Combination; and

(C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or

(ii) If individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for any ~~Subsidiary.~~reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of (A) an actual or threatened election contest with respect to the election or removal of directors; (B) an actual or threatened solicitation of proxies or consents; or (C) any other actual or threatened action by, or on behalf of, any Person other than the Board; or

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(iii) Upon the acquisition after the Effective Date by any individual, entity or group (within the meaning of section 13(d)(3) or 14(d)(2) of the Exchange Act (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then Outstanding Common Stock or (B) the combined voting power of the Outstanding Voting Securities; provided, however, that the following acquisitions shall not be deemed to be covered by this subparagraph (iii): (x) any acquisition of Outstanding Common Stock or Outstanding Voting Securities by the Company, (y) any acquisition of Outstanding Common Stock or Outstanding Voting Securities by any employee benefit plan (or related trust) sponsored or maintained by the Company or (z) any acquisition of Outstanding Common Stock or Outstanding Voting Securities by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of subparagraph (i) above; or

(iv) The consummation of the sale of all or substantially all of the assets of the Company or approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.

(c)Taxes. Schwab shall be entitled to withhold the amount of any tax attributable to any amounts payable or shares deliverable under the Plan, after giving the person entitled to receive such payment or delivery notice and Schwab may defer making payment or delivery as to any award, if any such tax is payable until indemnified to its ~~Subsidiaries reserve~~satisfaction. A participant may pay all or a portion of Schwab’s minimum statutory withholding obligation arising in connection with the ~~right~~exercise of a Stock Option or SAR or the receipt or vesting of shares hereunder by electing to have Schwab withhold shares of common stock having a fair market value equal to such amount.

(d)Effective Date, Amendment and Termination. The Plan is effective on the Effective Date and shall automatically terminate one day before the 10th anniversary of the date on which the Board approved the Plan. The Board or the Committee may amend the Plan from time to time or terminate the ~~employment~~Plan at any time. However, no such action shall reduce the amount of any ~~employee~~existing award or change the terms and conditions thereof without the participant’s consent. Stockholder approval shall be obtained for any Plan amendment to the extent necessary and desirable to comply with applicable laws, regulations or rules.

(e)Fair Market Value. The fair market value of Schwab’s common stock at any time ~~with~~shall be determined in such manner as the Committee may deem equitable, or ~~without cause,~~as required by applicable law or regulation.

(f)Dividend Equivalents. Any participant selected by the Committee, in its sole discretion, may be granted dividend equivalents based on the dividends declared on shares that are subject only to a written employment agreement (if any). 11.2 Stockholders' Rights. A Participant shall have no dividend -------------------- rights, voting or other rights as a stockholder with respect to any ~~Common Shares covered~~award, to be credited as of dividend payment dates, during the period between the date the award is granted and the date the award is exercised, vests or expires, as determined by the Committee. Such dividend equivalents shall be converted to cash or additional shares by such formula and at such time and subject to such limitations as may be determined by the Committee.

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(g)Other Provisions. The award of any benefit under the Plan may also be subject to other provisions (whether or not applicable to the benefit awarded to any other participant) as the Committee determines appropriate, including provisions intended to comply with applicable securities laws and stock exchange or stock market requirements, understandings or conditions as to the participant’s employment, requirements or inducements for continued ownership of common stock after exercise or vesting of benefits, forfeiture of awards in the event of termination of employment shortly after exercise or vesting, or breach of noncompetition or confidentiality agreements following termination of employment, or provisions permitting the deferral of the receipt of a benefit for such period and upon such terms as the Committee shall determine.

(h)Non-U.S. Employees. In the event any benefit under this Plan is granted to an employee who is employed or providing services outside the United States and who is not compensated from a payroll maintained in the United States, the Committee may, in its sole discretion, modify the provisions of the Plan as they pertain to such individuals to comply with applicable law, regulation or accounting rules.

(i)Governing Law. The Plan and any actions taken in connection herewith shall be governed by and construed in accordance with the laws of the state of Delaware (without regard to applicable Delaware principles of conflict of laws).

SECTION 8. PAYMENT OF DIRECTOR’S FEES IN SECURITIES.

(a)Elections to Receive Awards. A Non-Employee Director may elect to receive his or her ~~Award prior~~annual retainer payments and/or meeting fees from Schwab in the form of cash, Nonqualified Stock Options, Restricted Stock, Restricted Stock Units, Other Stock or Cash Awards or a combination thereof, by completing the procedures prescribed by the Committee or its delegate. Such Nonqualified Stock Options, Restricted Stock, Restricted Stock Units and Other Stock or Cash Awards shall be issued under the Plan. For purposes of this Section 8, the term “Non-Employee Director” shall also include a non-employee director of any Subsidiary, if the Committee has approved participation by such non-employee director in Schwab’s deferred compensation plan for directors.

(b)Number and Terms of Awards. The terms and the number of awards to be granted to Non-Employee Directors in lieu of annual retainers and meeting fees under this Section 8 shall be determined by the ~~issuance~~Committee or its delegate.

SECTION 9. DEFERRAL OF AWARDS.

The Committee (in its sole discretion) may permit or require a participant to have cash or shares that otherwise would be paid to such participant as a result of the exercise or settlement of an award credited to a deferred compensation account established for such ~~Common Shares, whether~~participant by ~~issuance of a certificate, book~~the Committee as an entry on Schwab’s books. A deferred compensation account may be credited with interest or other ~~procedure. No adjustment~~forms of investment return, as determined by the Committee. A participant for whom such an account is established shall be made for cash dividends or other rights for which the record date is prior to the date when such certificate is issued, except as expressly provided in Articles 7, 9 and 10. 11.3 Creditors' Rights. A holder of Performance Share Awards shall ----------------- have no rights other than those of a general creditor of ~~the Company. Performance Share Awards~~Schwab. Such an account shall represent an unfunded and unsecured ~~obligations~~obligation of ~~the Company,~~

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Schwab and shall be subject to the terms and conditions of the applicable ~~Stock Award Agreement. 11.4 Government Regulations. Any other provision~~agreement between such participant and Schwab. If the deferral or conversion of awards is permitted or required, the Committee (in its sole discretion) may establish rules, procedures and forms pertaining to such awards, including (without limitation) the settlement of deferred compensation accounts established under this Section 9.

SECTION 10. DEFINED TERMS


		Page
“Board”		1
“Code”		1
“Committee”		1
“Company”		1
“Covered Employees”		2
“Effective Date”		1
“Exchange Act”		1
“Incentive Stock Option”		5
“Non-Employee Directors”		2
“Nonqualified Stock Option”		3
“Performance Criteria”		7
“Performance Stock”		6
“Performance Units”		6
“Plan”		1
“SARs”		6
“Schwab”		1
“Business Combination”		8
“Change in Control”		8
“Incumbent Board”		9
“Outstanding Common Stock”		9
“Outstanding Voting Securities”		9
“Person”		10
“Prior Plans”		1

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EMPLOYMENT AGREEMENT

This Agreement, as amended, is made and entered into effective as of March 31, 2003 by and between The Charles Schwab Corporation, a Delaware Corporation (hereinafter referred to as the “Company”), and Charles R. Schwab, an individual (hereinafter referred to as the “Executive”) .

WITNESSETH:

WHEREAS, the Company desires to reward the Executive for his continuing contribution to the Company and provide additional security for the Executive and to provide an inducement to the Executive to remain with the Company and not to engage in competition with it.

NOW THEREFORE, in consideration of the ~~Plan ----------------------- notwithstanding,~~mutual obligations herein contained, the ~~obligations~~parties hereto, intending to be legally bound hereby, covenant and agree as follows:

1.	EMPLOYMENT

(a) The Company hereby employs the Executive to render services to the Company in the positions of Chairman of the Board in the capacity defined in the By-laws of the Company, as may be amended from time to time. The Executive shall perform such duties commensurate with his position and shall have authority and responsibility in working with the Chief Executive Officer, subject to the control of the Board of Directors, for the overall strategic direction and leadership of the Company.

(b) Throughout the term of this Agreement, the Executive shall devote his full business time and undivided attention to the business and affairs of the Company and its subsidiaries, except for reasonable vacations and except for illness or incapacity, but nothing in the Agreement shall preclude the Executive from devoting reasonable periods required for serving, as appropriate, on Boards of Directors of other companies, and from engaging in charitable and public service activities provided such activities do not materially interfere with the performance of his duties and responsibilities under this Agreement.

TERM

This Agreement shall commence on March 31, 2003, and shall continue through March 31, 2008, subject to the terms and conditions herein set forth. Beginning

on March 31, 2004, and on each subsequent anniversary of this date, one year shall be added to the term of the Agreement, unless, prior to such anniversary, the Company or the Executive has notified the other party hereto that such extension will not become effective.

3.	COMPENSATION

For services rendered by the Executive during the term of this Agreement, and for his performance of all additional obligations of employment, the Company agrees to pay the Executive and the Executive agrees to accept the following salary, other compensation, and benefits:

(a)Base Salary. During the term of this Agreement, the Company shall pay the Executive in periodic installments, a base salary at the annual rate of $900,000, such base salary to be reviewed on March 31, 2004, and on each subsequent anniversary the Board may adjust it up or down, taking into account, among other things, individual performance, competitive practice, and general business conditions.

(b) Annual Incentive. In addition to the base salary provided in Section 3(a) above, the Executive shall be eligible to receive an annual incentive award based upon the Company’s attainment of pre-established performance targets relative to specified performance standards. The performance standards upon which annual incentive payments will be earned shall be adopted at the beginning of each year by the Compensation Committee of the Board of Directors (the “Committee”), to be selected by the Committee from among the following: revenue growth, net revenue growth, operating revenue growth, consolidated pretax profit margin, consolidated pretax operating margin, consolidated after-tax profit margin, consolidated after-tax operating profit margin, customer net new asset growth, stockholder return, return on assets, earnings per share, return on equity, and return on investment.

For each fiscal year during the term of this Agreement, the Executive’s incentive opportunity shall be computed as the amount of total cash compensation earned pursuant to the formula-based matrix, which shall be adopted each year by the Compensation Committee of the Board of Directors of the Company, minus the Executive’s actual base salary paid during that year. For the 2003 fiscal year, the target total annual cash compensation amount (including base salary) is $5,400,000; therefore, the incentive target is $4,500,000 for achieving specified objectives (see above).

The formula-based matrix, as amended at the sole discretion of the Committee, shall be the sole basis for determining the Executive’s annual

incentive award. The Committee shall annually review and approve the performance standards and targets with respect to ~~Common Shares to~~the Executive’s incentive opportunity, which review and approval shall be ~~issued pursuant~~completed no later than the 90th day of the Company’s fiscal year for which such incentive opportunity may be earned.

Notwithstanding anything to the ~~Plan shall~~contrary, the Executive’s maximum annual cash compensation (including base salary and annual incentive) may not exceed $8,000,000.

(c)Long-Term Incentive. The Executive will be ~~subject to all applicable laws, rules and regulations, and such approvals by any governmental agencies as may be required. The Company reserves~~considered for stock options in accordance with the right to restrict, in whole or in part, the delivery of Common Shares pursuant to any Award until such time as: (a) Any legal requirements or regulations have been met relating to the issuance of such Common Shares or to their registration, qualification or exemption from registration or qualification under the Securities Act of 1933,Company’s 2001 Stock Incentive Plan, as amended, or any successor thereto (“Stock Option Program”) and any other long-term incentives offered to other executives of the Company from time to time during the term of this Agreement.

(d)Benefits. The Executive shall be entitled to participate, as long as he is an employee of the Company, in any and all of the Company’s present or future employee benefit plans, including without limitation pension plans, thrift and savings plans, insurance plans, and other benefits that are generally applicable ~~state securities laws;~~to the Company’s executives; provided, however, that the accrual and/or receipt by the Executive of benefits under and ~~(b) Satisfactory assurances have been received that~~pursuant to any such ~~Common Shares, when issued,~~present or future employee benefit plan shall be determined by the provisions of such plan.

(e)Perquisites. The Executive will be ~~duly listed on the New York Stock Exchange or any other securities exchange on which Common Shares~~provided such additional perquisites as are ~~then listed. ARTICLE 12. LIMITATION OF PAYMENTS. 12.1 Basic Rule. Any provision~~customary for senior level executives of the ~~Plan~~Company provided that each perquisite is approved by the Board of Directors.

(f)Business Expenses. The Executive will be reimbursed for all reasonable expenses incurred in connection with the conduct of the Company’s business upon presentation of evidence of such expenditures, including but not limited to travel expenses incurred by the Executive in the performance of his duties, security for the Executive, his family, and principal residence, professional organization dues, and club initiation fees, dues and expenses.

(g) Any annual incentive award earned by Executive under this Section 3 shall be paid as soon as reasonably practical after the end of the Company’s fiscal year end; provided, however, that if any such payment would be nondeductible to the Company under Internal Revenue Code Section 162(m), then any nondeductible amounts shall be deferred from year to year until the payment of such amounts is deductible by the Company.

4. TERMINATION OF EMPLOYMENT

(a)Resignation. Notwithstanding Section 2 hereof, this Agreement may be terminated by the Executive at any time upon six (6) months written notice of resignation by the Executive to the Company, and in such event any payments pursuant to Section 3 and 4 of this Agreement shall automatically terminate (except for the Company’s obligations relating to voluntary termination under its compensation and benefit plans, as specified in the various plan documents, and the Executive’s obligations set forth in Section 5). Subsequent payments may be made to the Executive as provided pursuant to Section 6 of this Agreement.

(b)Termination by the Company Other Than for Cause. Termination of the Executive by the Company other than for Cause, as defined in Section 4(c) below, shall cause the Company to make payments to the Executive hereunder pursuant to the provisions of this Section 4(b). Such a termination shall require at least sixty (60) business days’ prior notice and must be signed by at least three-fourths (3/4) of all the non-employee members of the Board of Directors.

Notwithstanding anything to the contrary ~~---------- notwithstanding,~~contained in the ~~event that~~Stock Option Program or any agreement or document related thereto, the ~~independent auditors most recently selected by~~Executive’s total outstanding and unvested shares and/or options under the ~~Board (the "Auditors") 9~~ ~~determine that any payment~~Stock Option Plan shall at the date of termination be deemed to be 100% vested. No further grants of stock or ~~transfer in~~options shall be made under the ~~nature of~~Plan after such termination.

With respect to base salary and annual incentive compensation, the Company’s obligation shall be to ~~or for~~pay the ~~benefit of a Participant, whether paid or payable (or transferred or transferable) pursuant~~Executive, according to the terms of this ~~Plan or otherwise (a "Payment"), would be nondeductible~~Agreement and for ~~federal income tax purposes because~~a period of thirty-six (36) months, an amount equal to the annual salary and incentive paid to the Executive [at the bonus level for the year prior to which such termination occurs unless performance of the ~~provisions concerning "excess parachute payments"~~Company as defined in ~~section 280G~~the matrix referenced in Section 3(b) is better in the year of termination, in which event such bonus shall be based on the matrix calculation as described in Section 3(b)], such annual amounts to be paid in equal monthly installments.

During the 36-month severance payment period, the Executive shall be entitled to all payments, benefits and perquisites as provided for in this Agreement, and office space and secretarial support comparable to that provided to the Executive during his employment by the Company. The Executive shall be entitled to all payments and benefits as provided for in this Section for a period of thirty-six (36) months.

If the Board of Directors fails to reelect the Executive to a position comparable to that described in Section 1(a) of this Agreement or, without terminating the Executive’s employment, removes the Executive from his position for reasons other than Cause, substantively reduces the Executive’s duties and responsibilities, reduces his pay and/or benefits without the written consent of the ~~Code,~~Executive, forces relocation, or requires excessive travel, then the ~~aggregate present value of all Payments shall be reduced (but not below zero)~~Executive may, by notice to the ~~Reduced Amount; provided, however, that the Committee, at the time of making an Award under this Plan~~Company, treat such action or at any time thereafter, may specify in writing that such Award shall not be so reduced and shall not be subject to this Article 12. For purposes of this Article 12, the "Reduced Amount" shall be the amount, expressedremoval as a ~~present value, which maximizes the aggregate present value~~termination of the ~~Payments without causing any Payment to be nondeductible~~Executive by the Company ~~because of section 280G~~pursuant to this Section 4(b).

In the event of the ~~Code. 12.2 Reduction of Payments. If~~Executive’s death before the ~~Auditors determine that any --------------------- Payment would be nondeductible because of section 280G~~completion of the ~~Code, then~~payments pursuant to this Section 4(b), the Company shall promptly give the Participant notice to that effect and a copy of the detailed calculation thereof and of the Reduced Amount, and the Participant may then elect, in his or her sole discretion, which and how much of the Paymentsremaining payments hereunder shall be ~~eliminated~~made to the beneficiary or ~~reduced (as long as after such election,~~beneficiaries designated by the ~~aggregate present value of the Payments equals the Reduced Amount) and shall advise~~Executive to the Company in writing ofor, absent such a designation, to his ~~or her election within 10 days of receipt of notice. If no such election is made~~estate.

(c)Termination by the ~~Participant within such 10-day period, then~~Company for Cause. The Company may terminate the Executive’s employment for Cause if the Executive has committed a felonious act, or the Executive, in carrying out his duties hereunder has been willfully and grossly negligent or has committed willful and gross misconduct resulting, in either case, in material harm to the Company. An act or omission shall be deemed “willful” only if done, or omitted to be done, in bad faith and without reasonable belief that it was in the best interest of the Company. In the event of termination of the Executive by the Company ~~may elect which~~for Cause, the Executive shall no longer be entitled to receive any payments or any other rights or benefits under this Agreement.

(d)Disability. In the event the Executive’s employment terminates due to total and ~~how much of~~permanent disability (for the Payments shall be eliminated or reduced (as long as after such election the aggregate present value of the Payments equals the Reduced Amount) and shall notify the Participant promptly of such election. For purposes of this ~~Article 12, present value~~Agreement “disability” shall have the same meaning as applies under the Company’s Long-Term Disability Plan), he will continue to receive the same base salary and benefits which he was receiving prior to such disability for 36 months, offset by payments under the Company’s Long-Term Disability Plan. In addition, he shall receive a pro-rated annual incentive payment for the year in which is employment is terminated, based on the formula described in Section 3(b).

(e)Death. In the event of the death of the Executive during the term of this Agreement, the rights and benefits under employee benefit plans and programs of the Company, including life insurance, will be determined in accordance with ~~section 280G(d)(4)~~the terms and conditions of such plans and programs as in effect on his date of death. In such event, the Company shall pay in a lump sum to the Executive’s estate an amount equal to five

times the then current rate of the ~~Code. All determinations made~~Executive’s base salary, and no further payments shall be required pursuant to this Agreement.

(f)Change in Control. In the event of a change in control of the Company, as set forth below, the Executive may at any time and in his complete discretion during a 24-month period following a change in control, elect to terminate his employment with the Company. For purposes of this Agreement, a “change in control” shall mean a change in ownership of the Company that would be required to be reported in response to Item 1(a) of a Current Report on Form 8-K pursuant to the Securities and Exchange Act of 1934 (“Exchange Act”), as in effect on the date hereof, except that any merger, consolidation or corporate reorganization in which the owners of the capital stock entitled to vote in the election of directors of the Employer or the Company (“Voting Stock”) prior to said combination, own 75% or more of the resulting entity’s Voting Stock shall not be considered a change in control for the purposes of this Agreement; provided that, without limitation, such a change in control shall be deemed to have occurred if (i) any “person” (as that term is used in Sections 13(d) and 14(d)(2) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company is or becomes the beneficial owners (as that is used in Section 13(d) of the Exchange Act), directly or indirectly, of 30% or more of the Voting Stock of the Company or its successor; or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company (“Incumbent Board”) cease for any reason to constitute at least a majority thereof; provided, however, that any person becoming a director of the Company after the beginning of the period whose election was approved by a vote of at least three-quarters of the directors comprising the incumbent Board shall, for the purposes hereof, be considered as though he were a member of the incumbent Board; or (iii) there shall occur the sale of all or substantially all of the assets of the Company. Notwithstanding anything in the foregoing to the contrary, no change in control of the Company shall be deemed to have occurred for purposes of this Agreement by virtue of any transaction which results in the Executive, or a group of persons which includes the Executive acquiring, directly or indirectly, more than 30 percent of the combined voting power of the Company’s outstanding securities. If any of the events constituting a change in control shall have occurred during the term hereof, the Executive shall be entitled to the privilege provided in subparagraph (f) herein to terminate his employment.

Any termination by the ~~Auditors~~Executive pursuant to this Section shall be communicated by a written “Notice of Termination.”

If, following a change in control, the Executive shall for any reason voluntarily terminate his employment during the 24-month period following a change in control, then the Company shall pay base salary up to the date of termination and a prorated annual incentive award based on the calculated bonus for the year in which termination occurred, as defined in Section 3(b), in a lump sum on the thirtieth (30th) day following the Date of Termination.

5.	COVENANT NOT TO COMPETE

(a) As a material inducement to the Company’s entering into this Agreement, the Executive agrees that during the term of this Agreement, he will not become associated with, render service to or engage in any other business competitive with any existing or contemplated business of the Company or its subsidiaries, except that the Executive may serve as a member of the board of directors of other companies or organizations, provided that he provides written notice to the Board of each significant activity, and that he will do nothing inconsistent with his duties and responsibilities to the Company.

(b) If the Executive voluntarily resigns from the employ of the Company prior to the expiration of the term of this Agreement, he specifically agrees that for a period of five (5) years commencing with the date of his voluntary resignation he will not engage in or perform any services either on a full-time or a part-time or on a consulting or advisory basis for any business organization that is in competition with the Company at the time such services are being performed by Executive, with the exception that this Section 5(b) shall not apply in the event the Executive resigns voluntarily following a change in control of the Company as defined in Section 4(f).

(c) The Executive will not at any time, whether while employed by the Company or after voluntary or involuntary termination or after retirement, reveal to any person, firm or entity any trade or business secrets or confidential, secret, or privileged information about the business of the Company or its subsidiaries or affiliates except as shall be required in the proper conduct of the Company’s business.

6.	CONSULTING ARRANGEMENT

Following a voluntary termination of employment pursuant to Section 4(a) and 4(f), or an involuntary termination subsequent to a change in control of the Company, for any reason but during a 24-month period following a change in control as defined in Section 4(f), after the Executive ceases to render services as the Chairman, he may in his sole discretion elect to act as a consultant to the

Company for a period of five (5) years. During this period of consulting services, the Executive shall, at reasonable times and places, taking into account any other employment or activities he may then have, hold himself available to consult with and advise the officers, directors, and other representatives of the Company. As compensation therefore, the Executive shall be entitled to receive, and Company shall pay, an annual amount equal to seventy-five percent (75%) of his annual base salary rate in effect immediately prior to his termination of employment, but in no event an annual amount to exceed $1,000,000, for each year of such period, payable in equal monthly installments.

7.	WITHHOLDING

All amounts payable hereunder which are or may become subject to withholding under ~~this Article 12~~pertinent provisions of law or regulation shall be reduced for applicable income and/or employment taxes required to be withheld.

8.	MISCELLANEOUS

(a) This Agreement supersedes any prior agreements or understandings, oral or written, with respect to employment of the Executive and constitutes the entire Agreement with respect thereto; provided, however, that nothing contained herein shall supercede that certain Assignment and License Agreement entered into as of March 31, 1987, as amended. This Agreement cannot be altered or terminated orally and may be amended only by a subsequent written agreement executed by both of the parties hereto or their legal representatives, and any material amendment must be approved by a majority of the voting shareholders of the Company.

(b) This Agreement shall be governed by and construed in accordance with the laws of the State of California.

(c) This Agreement shall be binding upon ~~the Company and the Participant~~ and shall be made within 60 days of the date when a Payment becomes payable or transferable. As promptly as practicable following such determination and the elections hereunder, the Company shall pay or transferinure to ~~or for~~ the benefit of the ~~Participant~~Company and its successors and assigns. In that this constitutes a personal service agreement, it may not be assigned by the Executive and any attempted assignment by the Executive in violation of this covenant shall be null and void.

(d) For the purpose of this Agreement, the phrase “designated beneficiary or beneficiaries” shall include the estates of such ~~amounts as are then due to him or her~~beneficiaries in the event of their death before the receipt of all payments under ~~the Plan,~~this Agreement and shall ~~promptly pay~~also include any alternate or ~~transfer~~successor beneficiaries designated in writing to the Company by the Executive.

(e) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provisions, which shall remain in full force and effect.

(f) The Section and Paragraph headings contained herein are for reference purposes only and shall not in any way affect the ~~benefit~~meanings or interpretation of this Agreement.

(g) Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of arbitrators in accordance with the rules of the ~~Participant~~American Arbitration Association then in effect. Judgement may be entered on the ~~future~~arbitrators award in any court having jurisdiction. The expense of such ~~amounts as become due~~arbitration shall be borne by the Company.

(h) Any notices, requests or other communications provided for by this Agreement shall be sufficient if in writing and if sent by registered or certified mail to ~~him or her under~~ the ~~Plan. 12.3 Overpayments and Underpayments. As a result of uncertainty in ------------------------------ the application of section 280G of the Code~~Executive at the time of an initial determination by the Auditors hereunder, it is possible that Payments will have been made by the Company which should not have been made (an "Overpayment") or that additional Payments which will not have been made by the Company could have been made (an "Underpayment"), consistentlast address he has filed in ~~each case~~writing with ~~the calculation of the Reduced Amount hereunder. In the event that the Auditors, based upon the assertion of a deficiency by the Internal Revenue Service against~~ the Company or, in the ~~Participant~~case of the Company, at its principal offices.

IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first above written.

Company:
ATTEST THE CHARLES SCHWAB CORPORATION
By:
Carrie Dwyer
By:
Mary McLeod
Corporate Secretary
Title:
Executive Vice President - Human Resources
Executive:
/s/ Charles R. Schwab
Charles R. Schwab

EXECUTIVE EMPLOYMENT AGREEMENT

This Executive Employment Agreement (the “Agreement”) is entered into as of thisday of, 2002 (the “Effective Date”) by and among The Charles Schwab Corporation, a Delaware corporation (“TCSC”), Schwab Capital Markets, L.P., a New Jersey limited partnership (“SCM”) and Lon Gorman, an individual (“Executive”).

R E C I T A L S

Executive commenced employment with TCSC as Executive Vice President on June 10, 1996 and since then has been serving TCSC and SCM in various capacities, including but not limited to serving as Vice Chairman — Enterprise President of SCM (the “SCM President”) since August 1, 1999.

Executive desires to continue to serve TCSC and SCM and TCSC and SCM desire to continue to so employ Executive and secure Executive’s agreement, inter alia, not to compete with TCSC, SCM and/or their affiliates or subsidiaries for the period and on the terms and conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the mutual premises set forth herein, and for other good and valuable consideration, the parties hereby agree as follows:

AGREEMENT

1.Employment. TCSC hereby employs Executive as Vice Chairman and Executive Vice President and SCM hereby employs Executive as SCM President and Executive hereby agrees to serve in those positions or in such other comparable or higher officer position to which he may be appointed or assigned by the ~~Auditors believe has a high probability~~Co-Chief Executive Officers of ~~success, determine that an Overpayment has been made,~~TCSC during the Employment Term (as defined below). Executive shall report to the President & Co-Chief Executive Officer of TCSC, or to such ~~Overpayment~~other more senior person or persons within SCM, Charles Schwab & Co. (“Schwab”) or TCSC as may be designated by the Board of Directors of TCSC (“the Board”).

2.Employment Term. The term of Executive’s employment under this Agreement shall be ~~treated~~ for a period of five (5) years commencing on the Effective Date, unless earlier terminated pursuant to Section 7 of this Agreement (the “Employment Term”).

3.Duties and Responsibilities. During the Employment Term, Executive shall have responsibilities, duties and authority reasonably accorded to and expected of a Vice Chairman and Executive Vice President by TCSC and responsibilities, duties and authority reasonably accorded to and expected of the SCM President by SCM. During the Employment Term, Executive shall devote all ~~purposes~~of his business time, ability, attention, energy, knowledge and skill to performing all such duties and responsibilities as are reasonably assigned or delegated to him by the Co-Chief Executive Officers of TCSC, including but not limited to serving as the chief executive officer of SCM. Executive agrees to use his best efforts to perform such duties and responsibilities. Executive further agrees that during the Employment Term he shall not, without the prior written consent of the Co-Chief Executive Officers of TCSC and the

Compliance Department of TCSC: (i) render to any other person or entity services of any kind or engage in any other business activity, whether for compensation or otherwise (except for services provided to Executive’s friends and/or family members or non-profit, educational, charitable or religious organizations), or (ii) serve on any board of directors; provided that Executive may serve on the boards of directors of non-profit, educational, charitable or religious organizations without such prior written consent, so long as the fact of any such board service is disclosed by Executive in writing to the Co-Chief Executive Officers of TCSC and so long as the extent of any such service does not violate any material SCM, Schwab or TCSC policy applicable to such practices, or materially interfere with Executive’s performance of his duties and responsibilities under this Agreement, or conflict in any way with the business of SCM, Schwab, TCSC and/or any of their respective affiliates and subsidiaries.

4.Compensation. For all services rendered by Executive during the Employment Term in any capacity to SCM, Schwab, TCSC and/or any of their respective affiliates or subsidiaries, including, without limitation, services as an officer, director, or member of any committee (including, without limitation, services as a ~~loan~~member of the Executive Committee of TCSC), Executive shall be compensated as follows:

(a)Base Salary. During the Employment Term, Executive shall receive a gross base salary of $560,000 on an annualized basis to ~~the Participant~~be paid in equal installments twice every month (or otherwise in accordance with changes to SCM’s payroll practices), from which ~~he or she~~SCM shall ~~repay to the Company on demand, together with interest at the~~withhold and deduct all applicable federal ~~rate provided in section 7872(f)(2) of the Code; provided, however, that no amount~~and state taxes and authorized deductions as required or permitted by applicable laws (“Base Salary”). Executive’s Base Salary shall be ~~payable by the Participant to the Company if~~reviewed and ~~to the extent that such payment would not reduce the amount which~~ is subject to ~~taxation under section 4999~~adjustment annually by the Co-Chief Executive Officers of TCSC and the Compensation Committee of the ~~Code. In the event~~Board, in their sole and absolute discretion, provided that ~~the Auditors determine that an Underpayment has occurred, such Underpayment shall promptly be 10~~ paid or transferred by the Company to or for the benefit of the Participant, together with interest at the applicable federal rate provided in section 7872(f)(2) of the Code. 12.4 Related Corporations. For purposes of this Article 12, the --------------------- term "Company" shall include affiliated corporations to the extent determined by the Auditors in accordance with section 280G(d)(5) of the Code. ARTICLE 13. WITHHOLDING TAXES. 13.1 General. To the extent required by applicable federal, state, ------- local or foreign law, the recipient of any payment or distribution under the Plan shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise by reason of such payment or distribution. The CompanyExecutive’s Base Salary shall not be required to make such payment or distribution until such obligations are satisfied. 13.2 Nonstatutory Options, Restricted Shares or Performance Share -------------------------------------------------------------- Awards. The Committee may permit an Optionee who exercises NQSOs, or who - ------ receives Awards of Restricted Shares, or who receives Common Shares pursuant to the terms of a Performance Share Award, to satisfy all or part of his or her withholding tax obligations by having the Company withhold a portion of the Common Shares that otherwise would be issued to him or her under such Awards. Such Common Shares shall be valued at their Fair Market Value on the date when taxes otherwise would be withheld in cash. The payment of withholding taxes by surrendering Common Shares to the Company, if permitted by the Committee, shall be subject to such restrictions as the Committee may impose, including any restrictions required by rules of the Securities and Exchange Commission. ARTICLE 14. ASSIGNMENT OR TRANSFER OF AWARD. 14.1 General Rule. Any Award granted under the Plan shall not be ------------ anticipated, assigned, attached, garnished, optioned, transferred or made subject to any creditor's process, whether voluntarily, involuntarily or by operation of law,reduced below $560,000 except to the extent ~~specifically~~consistent with adjustments made to the base salaries of the other current Vice Chair-level members of the Executive Committee of TCSC.

(b)Executive Committee Bonus. During the Employment Term, Executive shall be eligible to participate in TCSC’s Corporate Executive Bonus Plan and Annual Individual Incentive Performance Plan (collectively, the “Executive Committee Bonus Plans”), as such plans may be amended from time to time by TCSC in its sole and absolute discretion, on a basis comparable to the other Vice Chair-level members of the Executive Committee of TCSC. Pursuant to the terms and conditions of the current Executive Committee Bonus Plans, true and correct copies of which are attached hereto asExhibits A-1 and A-2, respectively, Executive shall be eligible to earn an aggregate annual bonus under such plans with a current target of 125% of his Base Salary, from which SCM shall withhold and deduct all applicable federal and state taxes and authorized deductions as required or permitted by Section 14.2. 14.2 Exceptions to General Rule. Notwithstanding Section 14.1, this -------------------------- Plan shall not preclude (i) a Participant from designating a beneficiary to succeed, after the Participant's death, to thoseapplicable laws (the “Executive Committee Bonus”). The amount of the ~~Participant's Awards (including without limitation,~~Executive Committee Bonus, if any, awarded to Executive for any calendar year during the ~~right to exercise any unexercised Options) as may~~Employment Term will be determined by the ~~Company~~Co-Chief Executive Officers of TCSC and the Compensation Committee of the Board, in their sole and absolute discretion, on the basis of: (A) Executive’s performance in managing the non-SCM business units for which he is responsible and (B) Executive’s contribution to the overall management of TCSC as a member of the Executive Committee. The Executive Committee Bonus paid to Executive, if any, for any calendar year during the Employment Term will be paid on or before February 28th of the following year, on the condition Executive is actively

employed with TCSC and SCM on that date, except as otherwise specifically provided in Section 7, below. Executive acknowledges and agrees that nothing in the Executive Committee Bonus Plans, this Section 4(b) or elsewhere in this Agreement, or in any other agreement between Executive and SCM, Schwab, TCSC and/or any of their respective affiliates or subsidiaries is intended to or does guarantee Executive any minimum Executive Committee Bonus during the Employment Term (except as otherwise specifically provided in Section 7, below) and nothing in the Executive Committee Bonus Plans, this Section 4(b) or elsewhere in this Agreement, or in any other agreement between Executive and SCM, Schwab, TCSC and/or any of their respective affiliates or subsidiaries is intended to or does affect the manner in which Executive’s Executive Committee Bonus is determined under the Executive Committee Plans, other than to specify a current target bonus of 125% of Executive’s Base Salary for purposes of the Executive Committee Bonus Plans. In no event shall Executive’s target bonus percentage of base salary be reduced below 125% unless the other current Vice-Chair-level member of the Executive Committee of TSCS receive comparable reductions.

(c)SCM Incentive. Subject to the TCSC stockholder approval described in Section 4(f), below, during the Employment Term Executive shall be eligible to participate in the Schwab Capital Markets Incentive Plan (“SCM Incentive Plan”), which shall be reviewed on an annual basis and which may be amended by TCSC with the written consent of Executive, which shall not be unreasonably withheld, to reflect SCM’s current business plan, financial goals or other business objectives. TCSC agrees to submit the SCM Incentive Plan for the Employment Term to the 2003 annual meeting of TCSC stockholders for their approval. Pursuant to the terms and conditions of the current SCM Incentive Plan, a summary of which is attached hereto asExhibit B, Executive shall be eligible to earn additional annual incentive compensation based on the financial performance of SCM and other related capital markets businesses for which Executive is responsible, from which SCM shall withhold and deduct all applicable federal and state taxes and authorized deductions as required or permitted by applicable laws (the “SCM Incentive”). The SCM Incentive, if any, awarded to Executive in any calendar year during the Employment Term will be awarded by the Compensation Committee of the Board, currently calculated in the manner described onExhibit C on the basis of SCM’s financial performance as measured by its Actual Adjusted Pre-Tax Contribution Margin for the combined performance of all related capital markets businesses for which Executive is responsible. For purposes of illustration and for calendar year 2002 only (as baselines necessarily will change, upwards or downwards, as reasonably determined by the parties hereto, for purposes of calculating Actual Adjusted Pre-Tax Contribution Margins in subsequent years), an SCM Incentive Illustration is attached hereto asExhibit C. As set forth more fully onExhibit C, Executive’s current target SCM Incentive is $3 million;provided, however, that: (i) no SCM Incentive will be paid to Executive with respect to any calendar year in which SCM fails to attain the applicable threshold percentage of its financial goal (currently, 80% of its Adjusted Pre-Tax Contribution Margin goal of $138.8 million); (ii) any SCM Incentive paid to Executive shall be pro-rated by the Compensation Committee of the Board in its sole and absolute discretion for Actual Adjusted Pre-Tax Contribution Margin between stated levels and for partial years worked by Executive, except that 2002 shall not be considered a partial year and should not be pro-rated as a result of this Agreement’s execution date; and, (iii) the maximum gross amount of SCM Incentive payable to Executive in any calendar year during the Employment Term is $7 million. The SCM Incentive payable to Executive, if any, with respect to any calendar year during the Employment Term shall be paid and/or granted on or before February 28th of the following year, on the

condition Executive is actively employed with TCSC and SCM on that date, except as otherwise specifically provided in Section 7, below. The initial $1 million gross of any SCM Incentive payable to Executive in any calendar year during the Employment Term shall be paid entirely in cash; any amount of SCM Incentive payable to Executive in any calendar year during the Employment Term above $1 million gross shall be paid 50% in cash and 50% in equivalent grants of restricted shares of TCSC common stock. The number of restricted shares so granted to Executive, if any, shall be determined by TCSC on the date of grant by dividing the applicable gross dollar value of Executive’s SCM Incentive by the average of the high and low price of TCSC common stock on the date of grant. Fifty percent (50%) of the restricted shares subject to any such grant shall vest on the second anniversary of the date of the grant and the remaining 50% shall vest on the third anniversary of the date of the grant, provided in each case that Executive is actively employed by TCSC and SCM on such date, except as otherwise specifically provided in Section 7, below. SCM, TSCS and Executive hereby acknowledge and agree that if SCM’s financial performance attains the applicable threshold percentage of the adjusted pre-tax contribution margin goal specified in the SCM Incentive Plan, as it may be amended during the Employment Term in accordance with this Section 4(c), then he shall be entitled to the corresponding SCM Incentive amount specifically allocated thereto;provided, however,that, except as provided in this sentence or in Section 7 below, nothing in the SCM Incentive Plan, this Section 4(c) or elsewhere in this Agreement, or in any other agreement between Executive and SCM, Schwab, TCSC and/or any of their respective affiliates or subsidiaries otherwise is intended to or does guarantee him any minimum SCM Incentive during the Employment Term. Notwithstanding any other provision of this Agreement, in no event shall the SCM Incentive Plan, the manner in which the SCM Incentive Bonus is calculated (as described in Exhibit C), including the threshold percentages listed on Exhibit C, or the Executive’s target SCM Incentive be altered, amended, terminated or changed in any way without the Executive’s written consent (which shall not be unreasonably withheld).

(d)Participation in The Charles Schwab Corporation Stock Programs. Subject to the approval of, and on the terms and conditions set out by, the Compensation Committee of the Board, Executive may be granted options to purchase common stock of TCSC from time to time during the Employment Term pursuant to the stock plans, agreements and programs applicable to Executive Committee members at the same corporate title and grade level. Any such option granted shall have a ten-year term, an exercise price equal to the closing price of TCSC common stock on the date of grant, and a vesting schedule consistent with similar options granted to other Executive Committee members. Any options granted shall be pursuant to and governed by the terms of the stock plans, agreements and programs then in effect and applicable to Executive Committee members at the same corporate title and grade level.

(e)Reimbursement of Expenses. During the Employment Term, Executive shall be entitled to receive prompt reimbursement for all properly documented travel, entertainment and other expenses properly incurred by him in connection with his employment by TCSC and SCM in accordance with their policies.

(f)SCM Incentive Subject to TCSC Stockholder Approval. Executive acknowledges and agrees that notwithstanding anything to the contrary in the SCM Incentive Plan, this Section 4 or elsewhere in this Agreement, or in any other agreement between Executive and SCM, Schwab, TCSC and/or any of their respective affiliates or subsidiaries, the

Executive’s eligibility for and/or receipt of (and any obligation of SCM, Schwab, TCSC and/or any of their respective affiliates or subsidiaries to pay or otherwise provide to Executive) any SCM Incentive pursuant to Section 4(c) above with respect to any calendar year after 2002 is expressly contingent upon the approval by a majority of TCSC’s stockholders at TCSC’s 2003 annual meeting, of a proposal to approve the SCM Incentive Plan and payments for the Employment Term which may become payable to Executive as described in Section 4(c) above. SCM, TCSC and Executive also acknowledge and agree that, if a majority of TCSC’s stockholders fails to approve such a proposal at the TCSC 2003 annual meeting, then, other than with respect to the payments provided in Section 7 below, the SCM Incentive Plan and Section 4(c), above, shall be null and void and of no further force and effect with respect to any calendar year after 2002 and that the compensation (but not the severance) payable to Executive under this Agreement after 2002 for all services rendered by Executive during the Employment Term in any capacity to SCM, Schwab, TCSC and/or any of their respective affiliates or subsidiaries shall be determined without regard to the SCM Incentive Plan or Section 4(c), above.

5.Benefits.

(a)Employee Benefits and Perquisites. During the Employment Term, Executive shall be eligible to participate in those employee benefit plans and perquisites of Schwab or TCSC comparable to those available to other Vice Chair-level members of the Executive Committee of TCSC, provided that such benefits and perquisites may be amended, revised or eliminated by Schwab or TCSC from time to time in its sole ~~discretion, (ii) a transfer~~and absolute discretion.

(b)Vacation and Sick Leave. During the Employment Term, Executive shall be entitled to accrue paid vacation and sick leave consistent with policies of ~~any Award hereunder by will~~Schwab or ~~the laws of descent or distribution, or (iii) a voluntary transfer of an Award (other than an ISO)~~TCSC applicable to ~~a trust or partnership for the exclusive benefit of one or more~~other Vice Chair-level members of the ~~Participant's family, but only if~~Executive Committee of TCSC, provided that such policies may be amended, revised or eliminated by Schwab or TCSC from time to time in its sole and absolute discretion.

6.Non-Competition, Non-Solicitation, Confidentiality and Assignment of Developments. As a material inducement to cause TCSC and SCM to employ Executive hereunder and in consideration of TCSC’s and SCM’s employment of Executive hereunder, Executive hereby covenants and agrees as follows:

(a) At all times during Executive’s employment with SCM and/or TCSC and for a period of one (1) year subsequent to the ~~Participant has sole investment control over such trust~~ termination of Executive’s employment with SCM and/or ~~partnership. 11~~ ARTICLE 15. FUTURE OF PLANS. 15.1 Term of the Plan. The Plan, as set forth herein, shall become ---------------- effective on May 7, 2001. The Plan shall remain in effect until it is terminated under Section 15.2, except that no ISOs shall be granted after May 6, 2011. 15.2 Amendment or Termination. The Committee may, at any time and ------------------------TCSC for any reason, ~~amend~~Executive shall not, directly or ~~terminate~~indirectly, alone or with others, on his own behalf or on behalf of another:

(i) enter the ~~Plan;~~employ of or render any services to any person, joint venture, partnership, firm, corporation, limited liability company or other entity other than SCM, Schwab, TCSC or any of their respective affiliates or subsidiaries (each, a “Schwab Entity”; collectively, the “Schwab Entities”), engaged in the business or businesses of the trading, sales, research and/or underwriting of equity and/or equity-related instruments, including without limitation option trading, market-making activities and/or electronic program trading, and/or

fixed income trading, sales and/or underwriting, including without limitation UIT’s and/or exchange-traded funds (“Competitive Business”);

(ii) engage in, participate in, assist in or otherwise benefit from any Competitive Business; or

(iii) continue to be or become interested in any Competitive Business, directly or indirectly, in any capacity or in any relationship with any other person or entity (other than any Schwab Entity) whether as an individual, partner, member, shareholder, director, officer, principal, agent, employee, trustee, or consultant; provided, however, that nothing contained in this Agreement shall be deemed to prohibit Executive from acquiring, solely as an investment, shares of capital stock of any ~~amendment~~corporation which are publicly traded so long as Executive does not thereby own more than five percent (5%) of the ~~Plan shall be subject~~outstanding shares of such corporation.

(b) At all times during Executive’s employment with TCSC and/or SCM and for a period of one (1) year subsequent to the approval of the Company's stockholders to the extent required by applicable laws, regulations or rules. 15.3 Effect of Amendment or Termination. No Award shall be made ----------------------------------- under the Plan after the termination thereof. The termination of ~~the Plan,~~ Executive’s employment with TCSC and/or SCM for any ~~amendment thereof,~~reason, Executive shall not, ~~affect~~directly or indirectly, alone or with others, on his own behalf or on behalf of another:

(i) contact or solicit any ~~Option, Restricted Share~~person or ~~Performance Share Award previously granted under~~entity who at such time is or, during the Plan. ARTICLE 16. DEFINITIONS. 16.1 "Award" means any award of an Option, a Restricted Share or a Performance Share Award under the Plan. 16.2 "Award Year" means a fiscal year beginning January 1 and ending December 31 with respect to which an Award may be granted. 16.3 "Board" means the Company's Board of Directors, as constituted from time to time. 16.4 "Change in Control" means the occurrence of any of the following events after the effective date of the Plan as set out in Section 15.1: (a) A change in control required to be reported pursuant to Item 6(e) of Schedule 14A of Regulation 14A under the Exchange Act; (b) A change in the composition of the Board, as a result of which fewer than two-thirds of the incumbent directors are directors who either (i) had been directors of the Company 24twelve (12) months prior to such ~~change~~time was, employed by or engaged as a consultant under contract to any Schwab Entity for the purpose of hiring that person or entity on behalf of any person or entity other than a Schwab Entity, or otherwise encouraging that person or entity to leave the employment of any Schwab Entity;

(ii) ~~were elected,~~hire on behalf of any person or ~~nominated for election, to~~entity other than a Schwab Entity any person or entity who at such time is, or during the ~~Board with the affirmative votes of at least a majority of the directors who had been directors of the Company 24~~12 months prior to such ~~change~~time was, employed by or engaged as a consultant under contract to any Schwab Entity; or

(iii) solicit for the benefit or account of any person or entity other than a Schwab Entity, any person or entity who at such time is, or during the 12 months prior to such time was, a customer of any Schwab Entity.

(c) During and ~~who were still~~at all times following the Employment Term, Executive shall keep secret and retain in ~~office at~~ the ~~time~~strictest confidence all confidential matters and information relating to the Schwab Entities and/or any of their respective customers, including, without limitation, trade secrets, proprietary information, “know-how”, “show-how”, customer identities, information or lists, pricing policies, account and pricing valuation methods, operating methods or procedures, marketing plans or strategies, product development techniques or plans, designs or design projects, technical processes, formulae, source codes, inventions and research projects learned by him prior to and during his employment with TCSC and/or SCM (“Confidential Information”). Executive shall not disclose such Confidential Information to anyone other than authorized personnel of the ~~election~~Schwab Entities, or ~~nomination; (c) Any "person"~~use such Confidential Information for his own benefit or for the benefit of any person or entity other than the Schwab Entities, except as required in the course of performing his duties as an employee of SCM and/or TCSC or as required by law, or if such matters become generally available to the public other than by (i)

disclosure by Executive or anyone else owing a duty of confidentiality to any Schwab Entity, provided Executive has or reasonably should have actual or constructive knowledge that such disclosure was made in breach of such other person’s duty of confidentiality, or (ii) Executive’s failure to put in place adequate protections to prevent disclosure of Confidential Information. In the event that Executive is ordered to disclose any Confidential Information, whether in a legal or regulatory proceeding or otherwise, Executive shall provide TCSC and SCM, to the extent permitted by law, with prompt notice of such request or order so that TCSC and SCM or any of the other Schwab Entities may seek to prevent such disclosure. In the case of any disclosure required by law, Executive shall disclose only that portion of the Confidential Information he is required to disclose.

(d) Executive agrees that any and all inventions, ideas, discoveries, improvements, processes, developments, designs, “know-how”, “show-how”, data, computer programs, algorithms, formulae, works of authorship, work modifications, trademarks, trade names, documentation, techniques, designs, methods, trade secrets, technical specifications, technical data, concepts, expressions and all other intellectual property rights or other developments whatsoever (collectively, “Developments”), whether or not patentable or registrable under copyright, trademark, or similar statutes or subject to analogous protection, made, authored, discovered, reduced to practice, conceived, developed or otherwise obtained by Executive (alone or jointly with others, whether during business hours or otherwise and whether on any Schwab Entity’s premises or otherwise) during his employment with TCSC and/or SCM, and arising from or relating to such employment or the business of any Schwab Entity, or made using any Schwab Entity’s time, materials or facilities (including, without limitation, all such information relating to corporate opportunities, research, financial and sales data, pricing and trading terms, evaluations, opinions, interpretations, acquisition prospects, the identity of customers or their requirements, the identity of key contacts within the customer’s organizations or within the organization of acquisition prospects, or marketing and merchandising techniques, prospective names and marks) shall be promptly and fully disclosed to TCSC and/or SCM and to no one else and are and shall be the sole property of TCSC and/or SCM and/or its or their nominees or assigns as “works made for hire” (as ~~such~~that term is used under U.S. copyright law) or otherwise, and TCSC and/or SCM and/or its or their nominees or assigns shall be the sole owner of all patents, copyrights, and other rights in ~~sections 13(d)~~or connected with such Developments. Executive agrees that all drawings, memoranda, notes, records, files, correspondence, manuals, models, specifications, computer programs, maps and ~~14(d)~~all other writings or materials of any type embodying any Developments are and shall be the sole and exclusive property of TCSC and/or SCM. To the extent any Developments are not or are deemed not to be works made for hire, Executive hereby assigns to TCSC and SCM without further compensation all right, title and interest he has or may have in any Developments at that time or thereafter and agrees that he shall acquire no rights during the course of his employment with TCSC and SCM with respect to Developments. During and after his employment with TCSC and SCM, Executive shall assist TCSC and SCM and/or their nominees or assigns (without charge but at no expense to Executive) to obtain and maintain or enforce any patents, copyrights, mask works or other rights or protections relating to such Developments in all countries. Executive irrevocably designates and appoints TCSC, SCM and their duly authorized officers and agents as his agent and attorney-in-fact to execute and file any and all applications and other necessary documents and to do all other lawfully permitted acts to further the prosecution, issuance or enforcement of patents, copyrights, trade secrets and similar protections related to such Developments with the

same legal force and effect as if Executive had executed them himself. Executive represents and agrees thatExhibit D hereto sets forth all inventions (whether patentable or not), patents, trade secrets, trademarks, trade names, copyrights, and other intellectual property owned by Executive before entering into employment with TCSC and SCM hereunder. Executive will not assert any rights in or to any inventions, patents, trade secrets, trade names, copyrights and other intellectual property unless they are identified onExhibit D.

(e) Executive acknowledges and agrees that the restrictions contained in this Section 6 are material inducements to TCSC’s and SCM’s employment of Executive hereunder. Executive further acknowledges that the restrictions contained in this Section 6 are reasonable in scope and duration, will not prevent him from earning a livelihood during the applicable period of restriction, are necessary to protect the legitimate interests of the ~~Exchange Act) becomes~~Schwab Entities, and that any breach by Executive of any provision contained in this Section 6 will result in immediate irreparable injury to TCSC, SCM and/or the ~~beneficial owner, directly~~ other Schwab Entities for which a remedy at law would be inadequate. Accordingly, Executive acknowledges that TCSC, SCM and/or ~~indirectly,~~such other Schwab Entity, shall be entitled to seek permanent injunctive relief against Executive in the event of ~~securities~~any breach or threatened breach by Executive of the ~~Company representing 20 percent~~ provisions of this Section 6, in addition to any other remedy that may be available to TCSC, SCM and/or ~~more~~such other Schwab Entities whether at law or in equity. The provisions of this Section 6 shall remain unmodified and in full force and effect following the termination of Executive’s employment. It is the intention of the ~~combined voting power~~parties to this Agreement that the covenants and restrictions set forth in this Section 6 be given the broadest interpretation permitted by law.

7.Termination of Employment.

(a)Expiration of the ~~Company's then outstanding securities ordinarily (and apart~~Employment Term. Unless earlier terminated in accordance with this Section 7, the Employment Term shall automatically terminate on that date which is five (5) years from ~~rights accruing~~the Effective Date. In such event, the sole liability (other than as provided in Section 7(i) below) of TCSC, SCM and the other Schwab Entities shall be to pay (or, as the case may be, provide) to Executive: (i) Executive’s Base Salary through the last day of the Employment Term, (ii) any bonuses not yet paid to Executive, if any, under ~~special circumstances) having the right~~Sections 4(b) and 4(c), above, in respect of TCSC’s fiscal year ended prior to ~~vote at elections of directors (the "Base Capital 12~~ Stock"); provided, however, that any change in the relative beneficial ownership of securities of any person resulting solely from a reduction in the aggregate number of outstanding shares of Base Capital Stock,Executive’s termination and any decrease thereafter in such person's ownership of securities, shall be disregarded until such person increases in any manner, directly or indirectly, such person's beneficial ownership of any securities of the Company. 16.5 "Code" means the Internal Revenue Code of 1986,pro-rated bonus payable to Executive under Sections 4(b) and 4(c), above, as ~~amended. 16.6 "Committee" means~~determined by the Compensation Committee of the Board in a manner consistent with TCSC policies applicable to Executive Committee members, (iii) all unreimbursed out-of-pocket business expenses of the type described in Section 4(e) above, properly incurred and documented by Executive, (iv) all unused vacation days accrued through the last day of the Employment Term, and (v) any other benefits to which Executive is entitled under applicable employee benefit plans in which he participated. In addition, if and only if Executive retires effective as of the last day of the Employment Term (“Retirement Date”)and fully complies with the restrictions and covenants set forth in Section 6, above, then TCSC and/or SCM shall: (A) continue to pay Executive his Base Salary in effect on the last day of the Employment Term for a one-year period following the Retirement Date; (B) pay Executive his annual target Executive Committee Bonus as soon as practicable after the one year anniversary of the Retirement Date; and (C) vest all of the then-unvested shares of restricted stock granted to Executive during the Employment Term pursuant to Section 4(c), above, if any, effective upon the one year anniversary of the Retirement Date. (For the avoidance of doubt, all unvested stock options and equity based awards held by

Executive other than the restricted stock granted to Executive during the Employment Term pursuant to Section 4(c), above, if any, shall cease to vest effective as of the Retirement Date, unless otherwise specified in the applicable stock plans, agreements and programs). In the event Executive fails to retire and/or fails to comply in any respect with his obligations under Section 6, above, then neither TCSC, SCM or any other Schwab Entity shall have any obligation to make any such additional post-employment payments or benefits to Executive but rather shall be entitled to reimbursement by Executive in full for any such additional payments or benefits already made. All payments and benefits provided to Executive pursuant to this Section 7(a) shall be in lieu of any and all other compensation, benefits, perquisites and claims of any kind, excepting only such additional amounts as may be required by law.

(b)Death. The Employment Term shall terminate upon the death of Executive. In such event, the sole liability (other than as provided in Section 7(i) below) of TCSC, SCM and the other Schwab Entities shall be to pay (or, as the case may be, provide) to Executive’s estate: (i) Executive’s Base Salary through the last day of the month in which the death of Executive occurs, (ii) any bonuses not yet paid to Executive, if any, under Sections 4(b) and 4(c), above, in respect of TCSC’s fiscal year ended prior to Executive’s death and any pro-rated bonus payable to Executive under Sections 4(b) and 4(c), above, as determined by the Compensation Committee of the Board in a manner consistent with TCSC policies applicable to Executive Committee members, (iii) all unreimbursed out-of-pocket business expenses of the type described in Section 4(e) above, properly incurred and documented by Executive, (iv) all unused vacation days accrued to the date of Executive’s death, (v) full and immediate vesting of all then outstanding stock options, restricted stock grants and other equity-based awards, which, in the case of stock options, shall remain exercisable by the legal representative of Executive’s estate for one (1) year following the date of Executive’s death (but not beyond their original term) or as otherwise specified in the applicable stock plans, agreements and programs, and (vi) any other benefits to which Executive, his beneficiaries, or his estate is entitled under applicable employee benefit plans in which Executive participated including, but not limited to payments under any plan providing life insurance benefits to Executive, his beneficiaries or his estate. All payments and benefits provided to Executive pursuant to this Section 7(b) shall be in lieu of any and all other compensation, benefits, perquisites and claims of any kind, excepting only such additional amounts as may be required by law.

(c)Disability. If Executive is deemed to be disabled within the meaning of The Charles Schwab Disability Plan, then TCSC/SCM and/or Executive may terminate Executive’s employment and their obligations hereunder. TCSC/SCM and/or Executive shall provide the other written notice of their intent to terminate Executive’s employment pursuant to this Section 7(c) at least fourteen (14) days before the effective date of such termination. In the event of such a termination, subject to and in consideration of Executive’s execution of a waiver of liability and general release of all claims against the Schwab Entities and their respective officers, directors, employees and agents in a form acceptable to TCSC and SCM, the sole liability (other than as provided in Section 7(i) below) of TCSC, SCM and the other Schwab Entities shall be to pay (or, as the case may be, provide) to Executive: (i) Executive’s Base Salary through the effective date of termination, (ii) any bonuses not yet paid to Executive, if any, under Sections 4(b) and 4(c), above, in respect of TCSC’s fiscal year ended prior to Executive’s termination and any pro-rated bonus payable to Executive under Sections 4(b) and 4(c), above, as determined by the Compensation Committee of the Board in a manner consistent

with TCSC policies applicable to Executive Committee members, (iii) all unreimbursed out-of-pocket business expenses of the type described in Section 4(e) above incurred by Executive prior to the effective date of Executive’s termination, (iv) all unused vacation days accrued up to and including the effective date of Executive’s termination, (v) full and immediate vesting of all then outstanding stock options, restricted stock grants and other equity-based awards, which, in the case of stock options, shall remain exercisable by the Executive or the legal representative of Executive for one (1) year following the date of Executive’s termination (but not beyond their original term) or as otherwise specified in the applicable stock plans, agreements and programs, and (vi) any other benefits to which Executive is entitled under applicable employee benefits plans in which he participated including, but not limited to, payments under any plan providing disability insurance benefits to Executive. In the event Executive fails to execute the waiver of liability and general release described above, then neither TCSC, SCM nor any other Schwab Entity shall have any obligation to make any such post-employment payments or benefits to Executive, with the exception of those payments or benefits described in subsections (i), (iii), (iv), (v) and (vi) herein, but rather shall be entitled to reimbursement by Executive in full for any such payments or benefits already made. All payments and benefits provided to Executive pursuant to this Section 7(c) shall be in lieu of any and all other compensation, benefits, perquisites and claims of any kind, excepting only such additional amounts as may be required by law.

(d)Termination of Executive for Cause. TCSC and SCM may terminate Executive’s employment and their obligations hereunder at any time during the Employment Term for Cause (as defined below), provided that TCSC and SCM have given Executive written notice of the event or events constituting Cause and a reasonable opportunity (not to exceed fourteen (14) calendar days) for Executive to cure such event or events, provided such event or events are capable of being cured. In the event of such a termination, the sole liability (other than as provided in Section 7(i) below) of TCSC, SCM and the other Schwab Entities shall be to pay (or, as the case may be, provide) to Executive: (i) Executive’s Base Salary through the effective date of termination, (ii) payment of all unreimbursed out-of-pocket business expenses of the type described in Section 4(e) incurred by Executive prior to the effective date of Executive’s termination, (iii) all unused vacation days accrued up to and including the effective date of Executive’s termination, and (iv) any other benefits to which Executive is entitled under applicable employee benefit plans in which he participated. The effect of a termination under this Section 7(d) on Executive’s outstanding stock options, restricted stock grants and other equity-based awards shall be determined in accordance with the applicable stock plans, agreements and programs. For purposes of this Agreement, an event or occurrence constituting “Cause” shall mean any one or more of the following:

(i) Executive’s failure or refusal to substantially perform his duties, responsibilities, agreements or covenants as set forth or referenced herein, or Executive’s continued neglect to perform such duties, responsibilities, agreements or covenants to the full extent of his abilities for reasons other than death, physical or mental incapacity;

(ii) Executive’s gross negligence or willful misconduct in the performance of his duties, responsibilities, agreements and covenants as set forth or referenced herein, or conduct which is materially adverse, monetarily or otherwise, to SCM or its shareholders;

(iii) A finding by a court or other governmental body that an act or acts of Executive constituted a felony or other crime involving theft or fraud under the laws of the United States or any state thereof, or any other event that would operate as a statutory disqualification under applicable securities laws, rules or regulations;

(iv) Executive’s violation of federal or state laws or regulations, or Executive’s violation of the regulations of any self-regulatory organization, and a good faith determination by the Co-Chief Executive Officers of TCSC that the continued employment of Executive would be seriously detrimental to TCSC, SCM or their respective businesses;

(v) Executive’s refusal, unwillingness or failure to substantially comply with compliance or risk management rules, policies, directions and/or restrictions of SCM, Schwab or TCSC, or Executive’s refusal, unwillingness or failure to substantially comply with human resources rules, policies, directions and/or restrictions of SCM, Schwab or TCSC relating to harassment and/or discrimination, as such rules, policies, directions and/or restrictions are and/or may be established by SCM, Schwab or TCSC from time to time. 16.7 "Common Share" means one share of the common stock of the Company. 16.8 "Company" means The Charles Schwab Corporation, a Delaware corporation. 16.9 "Disability" means the inability to engage in any substantial gainful activity considering the Participant's age, education and work experiencetime;

(vi) An uncurable loss by ~~reason~~Executive of any ~~medically determined physical~~license or ~~mental impairment~~registration that ~~has continued~~is necessary for Executive to perform the duties of SCM President, or the imposition by a self-regulatory organization of special supervision or other special requirements as prerequisites for maintaining any license or registration that is necessary for Executive to perform the duties of SCM President, or the commission of any act or occurrence of any event that could result in the statutory disqualification of Executive from being employed or otherwise associated with a broker-dealer; or

(vii) a material breach by Executive of this Agreement.

(e)Termination of Executive Without Cause. TCSC and SCM may terminate the employment of Executive and their obligations hereunder at any time during the Employment Term without ~~interruption for~~Cause upon not less than fourteen (14) days written notice to Executive. In the event of such a ~~period~~termination, subject to and in consideration of ~~at least six months~~Executive’s execution of a waiver of liability and ~~that can be expected~~general release of all claims against the Schwab Entities and their respective officers, directors, employees and agents in a form acceptable to beTCSC and SCMand Executive’s full compliance with the restrictions and covenants set forth in Section 6, above, the sole liability (other than as provided in Section 7(i) below) of ~~long, continued~~TCSC, SCM and ~~indefinite duration. All determinations as to whether a Participant has incurred a Disability~~the other Schwab Entities shall be ~~made~~to pay (or, as the case may be, provide) to Executive: (i) Executive’s Base Salary for the three-year period immediately following the effective date of Executive’s termination, payable at TCSC/SCM’s option in a lump sum discounted to present value by a compounded six percent (6%) interest rate or in substantially equal installments biweekly, from which TCSC/SCM shall withhold and deduct in either event all applicable federal, state and city income, social security and disability taxes as required by applicable law, (ii) an additional $10 million, (iii) any bonuses not yet paid to Executive, if any, under Sections 4(b) and 4(c), above, in respect of TCSC’s fiscal year ended prior to Executive’s termination and any pro-rated bonus payable to Executive under Sections 4(b) and 4(c) above, calculated by the ~~Employee Benefits Administration~~Compensation Committee of the ~~Company,~~Board in a manner consistent with TCSC policies applicable to Executive Committee members; (iv) an amount equivalent to three years of bonuses payable to Executive under Section 4(b) above, based on Executive’s target bonus levels under the ~~findings~~plans described in

Sections 4(b) above, (v) continued vesting of ~~which shall be final, binding~~all of Executive’s then outstanding stock options, restricted stock grants and ~~conclusive. 16.10 "ERISA" means~~other equity-based awards for the ~~Employee Retirement Income Security Act~~three-year period commencing on the effective date of 1974, as amended. 16.11 "Exchange Act" means the Securities Exchange Act of 1934, as amended. 16.12 "Exercise Price" means the amount for which one Common Share may be purchased upon exercise of an Option, as specified by the CommitteeExecutive’s termination (TCSC agrees that notwithstanding any provision in the applicable ~~Stock Option Agreement. 16.13 "Fair Market Value" means~~stock plans, agreements or programs to the ~~market price of~~contrary regarding when a ~~Common Share, determined by the committee~~vested stock option may be exercised, Executive shall be treated as ~~follows: (a) If the Common Share was traded on a stock exchange~~having his employment terminated on the date in question, then the Fair Market Value shall be equal to the closing price reported by the applicable composite-transactions report for such date; (b) If the Common Share was traded over-the-counter onthird anniversary of the date ~~in question~~of termination permitting him to exercise any vested stock options for up to three (3) years and ~~was classified~~three (3) months following the effective date of Executive’s termination under this Section 7(e), and Executive acknowledges and agrees that any such exercise by him more than three (3) months after the effective date of his termination shall preclude the treatment of any such stock option as a national market issue, then the Fair Market Value shall be equal to the last transaction price quoted by the NASDAQ system for such date; 13 (c) If the Common Share was traded over-the-counter on the date in question but was not classified as a national market issue, then the Fair Market Value shall be equal to the mean between the last reported representative bid and asked prices quoted by the NASDAQ system for such date; and (d) If none of the foregoing provisions is applicable, then the Fair Market Value shall be determined by the Committee in good faith on such basis as it deems appropriate. 16.14 "ISO" means an incentive stock option for tax purposes), (vi) continuation of the medical, dental and life insurance coverage provided to Executive immediately prior to the effective date of Executive’s termination for the three-year period commencing on the effective date of Executive’s termination, at the end of which period Executive shall be entitled to group health continuation coverage in accordance with Section 4980B of the Code or other benefits equivalent thereto; (vii) payment of all unreimbursed out-of-pocket business expenses of the type described in ~~section 422 (b)~~Section 4(e) incurred by Executive prior to the effective date of Executive’s termination, (viii) all unused vacation days accrued up to and including the effective date of Executive’s termination, and (ix) any other benefits to which Executive is entitled under applicable employee benefit plans in which he participated. In the event Executive fails to execute the waiver of liability and general release described above and/or fails to comply in any respect with his obligations under Section 6, above, then neither TCSC, SCM nor any other Schwab Entity shall have any obligation to make any such post-employment payments or benefits to Executive, with the exception of those payments or benefits described in subsections (vii), (viii) and (ix) herein, but rather shall be entitled to reimbursement by Executive in full for any such payments or benefits already made. All payments and benefits provided to Executive pursuant to this Section 7(e) shall be in lieu of any and all other compensation, benefits, perquisites and claims of any kind, excepting only such additional amounts as may be required by law.

(f)Termination by Executive with Good Reason. Executive may resign his employment with TCSC and SCM with Good Reason (as defined below), provided that Executive has given TCSC and SCM written notice of the ~~Code. 16.15 "Key Employee" means (1)~~event or events constituting Good Reason and a ~~key common-law employee~~reasonable opportunity (not to exceed fourteen (14) calendar days) for TCSC and SCM to cure such event or events, provided such event or events are capable of being cured. In the event of such a resignation, subject to and in consideration of Executive’s execution of a waiver of liability and general release of all claims against the Schwab Entities and their respective officers, directors, employees and agents in a form acceptable to TCSC and SCMand Executive’s full compliance with the restrictions and covenants set forth in Section 6, above, the sole liability (other than as provided in Section 7(i) below) of TCSC, SCM and the other Schwab Entities shall be to pay (or, as the case may be, provide) to Executive: (i) Executive’s Base Salary for the three-year period immediately following the effective date of Executive’s resignation, payable at TCSC/SCM’s option in a lump sum discounted to present value by a compounded six percent (6%) interest rate or in substantially equal installments biweekly, from which TCSC/SCM shall withhold and deduct in either event all applicable federal, state and city income, social security and disability taxes as required by applicable law, (ii) an additional $10 million, (iii) any bonuses not yet paid to Executive, if any, under Sections 4(b) and 4(c), above, in respect of TCSC’s fiscal year ended prior to Executive’s resignation and any pro-rated bonus

payable to Executive under Sections 4(b) and 4(c) above, calculated by the Compensation Committee of the ~~Company~~Board in a manner consistent with TCSC policies applicable to Executive Committee members; (iv) an amount equivalent to three years of bonuses payable to Executive under Section 4(b) above, based on Executive’s target bonus levels under the plans described in Section 4(b) above, (v) continued vesting of all of Executive’s then outstanding stock options, restricted stock grants and other equity-based awards for the three-year period commencing on the effective date of Executive’s resignation (TCSC agrees that notwithstanding any provision in the applicable stock plans, agreements or ~~any Subsidiary,~~programs to the contrary regarding when a vested stock option may be exercised, Executive shall be treated as ~~determined by~~having his employment terminated on the ~~Committee, or (2) a non-employee director of any Subsidiary, as determined by the Committee. 16.16 "Named Executive Officer" means a Participant who, as~~third anniversary of the date of ~~vesting~~termination permitting him to exercise any vested stock options for up to three (3) years and three (3) months following the effective date of Executive’s termination under this Section 7(f), and Executive acknowledges and agrees that any such exercise by him more than three (3) months after the effective date of his termination shall preclude the treatment of any such stock option as an ~~Award~~incentive stock option for tax purposes), (vi) continuation of the medical, dental and life insurance coverage provided to Executive immediately prior to the effective date of Executive’s resignation for the three-year period commencing with the effective date of resignation, at the end of which period Executive shall be entitled to group health continuation coverage in accordance with Section 4980B of the Code or other benefits equivalent thereto; (vii) payment of all unreimbursed out-of-pocket business expenses of the type described in Section 4(e) incurred by Executive prior to the effective date of Executive’s termination, (viii) all unused vacation days accrued up to and including the effective date of Executive’s termination, and (ix) any other benefits to which Executive is entitled under applicable employee benefit plans in which he participated. In the event Executive fails to execute the waiver of liability and general release described above and/or fails to comply in any respect with his obligations under Section 6, above, then neither TCSC, SCM nor any other Schwab Entity shall have any obligation to make any such post-employment payments or benefits to Executive, with the exception of those payments or benefits described in subsections (vii), (viii) and (ix) herein, but rather shall be entitled to reimbursement by Executive in full for any such payments or benefits already made. All payments and benefits provided to Executive pursuant to this Section 7(f) shall be in lieu of any and all other compensation, benefits, perquisites and claims of any kind, excepting only such additional amounts as may be required by law. For purposes of this Agreement, an event or occurrence constituting “Good Reason” shall mean any one or more of the following:

(i) a ~~group~~material breach of ~~"covered employees," as defined~~this Agreement by TCSC or SCM;

(ii) a substantial diminution in the ~~Regulations promulgated under Code~~title, duties or responsibilities of Executive as SCM President, or a substantial diminution in the titles of Executive as Vice Chairman and/or Executive Vice President of TCSC;

(iii) the relocation of Executive’s principal place of business to a location more than 25 miles from Jersey City, New Jersey without his consent, which shall not be unreasonably withheld;

(iv) (A) a reduction in Executive’s bonus opportunity as described in Section ~~162(m),~~4(c) above, and Exhibits B and C hereto, or ~~any successor statute. 16.17 "Non-Employee Director" means a member~~(B) the failure of the Board ~~who is not~~to recommend for approval the SCM Incentive Plan for the Employment Term at the 2003 annual meeting of

TCSC’s stockholders, or the taking of any action by the Board, after having recommended for approval the SCM Incentive Plan for the Employment Term at the 2003 annual meeting of TCSC’s stockholders, to rescind such recommendation; (C) the failure of the Board to recommend or present for approval the SCM Incentive Plan for the Employment Term at the 2003 annual meeting of TCSC’s stockholders, or (D) the failure of a ~~common-law employee. 16.18 "NQSO" means an employee stock option not~~majority of TCSC’s stockholders to approve the SCM Incentive Plan at that 2003 annual meeting;

(v) a reduction in Executive’s Base Salary or bonus opportunity as described in ~~sections 422 through 424~~section 4(b), above, and Exhibit A hereto, unless such reduction similarly affects all other Vice-Chair level members of the ~~Code. 16.19 "Option" means~~Executive Committee of TCSC; or

(vi) the failure by TCSC or SCM to obtain the express written assumption of this agreement by an ~~ISO~~successor to TCSC or ~~NQSO~~SCM.

(g)Resignation by Executive. Executive may resign from his employment without Good Reason during the Employment Term and effective upon fourteen (14) days written notice to TCSC and SCM. In the event of such a resignation, subject to and in consideration of Executive’s execution of a waiver of liability and general release of all claims against the Schwab Entities and their respective officers, directors, employees and agents in a form acceptable to TCSC and SCMand Executive’s full compliance with the restrictions and covenants set forth in Section 6, above, the sole liability (other than as provided in Section 7(i) below) of TCSC, SCM and the other Schwab Entities shall be to pay (or, as the case may be, provide) to Executive: (i) Executive’s Base Salary for the one-year period immediately following the effective date of Executive’s resignation, payable at TCSC/SCM’s option in a lump sum discounted to present value by a compounded six percent (6%) interest rate or in substantially equal installments biweekly, from which TCSC/SCM shall withhold and deduct in either event all applicable federal, state and city income, social security and disability taxes as required by applicable law, (ii) continuation of the ~~case~~medical, dental and life insurance coverage provided to Executive immediately prior to the date of Executive’s resignation for the one-year period immediately following the effective date of resignation, at the end of which period Executive shall be entitled to group health continuation coverage in accordance with Section 4980B of the Code or other benefits equivalent thereto, (iii) payment of all unreimbursed out-of-pocket business expenses of the type described in Section 4(e) incurred by Executive prior to the effective date of Executive’s resignation, (iv) all unused vacation days accrued up to and including the effective date of Executive’s resignation; and (v) any other benefits to which Executive is entitled under applicable employee benefit plans in which is participated. The effect of a ~~Key Employee who is subject~~resignation under this Section 7(g) on Executive’s outstanding stock options, restricted stock grants and other equity-based awards shall be determined in accordance with the applicable stock plans, agreements and programs. In the event Executive fails to execute the ~~tax laws~~waiver of ~~a foreign jurisdiction, an option qualifying~~liability and general release described above and/or fails to comply in any respect with his obligations under Section 6, above, then neither TCSC, SCM nor any other Schwab Entity shall have any obligation to make any such post-employment payments or benefits to Executive, with the exception of those payments or benefits described in subsections (iii), (iv) and (v) herein, but rather shall be entitled to reimbursement by Executive in full for ~~favorable tax treatment under the laws~~any such payments or benefits already made. All payments and benefits provided to Executive pursuant to this Section 7(g) will be in lieu of any and all other compensation, benefits, perquisites and claims of any kind, excepting only such jurisdiction, including a Replacement Option, granted under the Plan and entitling the holder to purchase one Common Share. 16.20 "Optionee" means an individual, or his or her estate, legatee or heirs at law that holds an Option. 16.21 "Participant" means a Non-Employee Director or Key Employee who has received an Award. 16.22 "Performance Share Award" means the conditional right to receive in the future one Common Share, awarded to a Participant under the Plan. 16.23 "Plan" means this 1992 Stock Incentive Plan of The Charles Schwab Corporation,additional amounts as it may be ~~amended from time to time. 16.24 "Replacement Option" means an Option that is granted when a Participant uses a Common Share held or to be acquired~~required by law.

(h)Resignation of Positions. Upon the ~~Participant to exercise an Option and/or to satisfy tax withholding requirements incident to the exercise~~effective date of ~~an Option. 14~~ ~~16.25 "Restricted Share" means a Common Share awarded to a Participant under the Plan. 16.26 "Retirement" shall mean~~ any termination or resignation of Executive’s employment ~~of an Optionee~~ for any reason ~~other than death at~~whatsoever, Executive shall be deemed to have resigned from any ~~time after~~and all offices and directorships then held with SCM, Schwab, TCSC, and/or any of their respective affiliates or subsidiaries.

(i)Retirement Eligibility. TCSC acknowledges and agrees that Executive will have satisfied the ~~Optionee has attained Retirement Age. For this purpose, Retirement Age shall mean age fifty (50), but only if, at~~requisite criteria for retirement eligibility under the ~~time~~terms and conditions of ~~such termination, the Participant has been credited with at least seven (7) Years of Service under~~ the SchwabPlan Retirement Savings and Investment ~~Plan; provided, however, that if at~~Plan, the ~~time of grant of an Option an Optionee is a Participant in a qualified retirement plan maintained by a Subsidiary (other than~~TCSC Deferred Compensation Plan, the SchwabPlan Retirement Savings and Investment Plan), then Retirement Age shall have the same meaning as the Normal Retirement Date as defined in such plan. 16.27 "Stock Award Agreement" means the agreement between the CompanyTCSC 1992 Stock Incentive Plan, and the ~~recipient~~TCSC 2001 Stock Incentive Plan as of June 1, 2002, because he was actively employed by SCM and TCSC on that date. As a ~~Restricted Share or Performance Share Award which contains the terms, conditions~~result, Executive is entitled to have all options granted become fully exercisable and ~~restrictions pertaining to~~all restricted shares granted become fully vested, but only if such Restricted Share or Performance Share Award. 16.28 "Stock Option Agreement" means the agreement between the Company and an Optionee which contains the terms, conditions and restrictions pertaining to his or her option. 16.29 "Subsidiary" means any corporation or other entity, if the Company and/or one or more other Subsidiaries own not less than 50 percent of the total combined voting power of all classes of outstanding stock of such corporation (or ownership interest of such other entity). A corporation or other entity that attains the status of a Subsidiary on a dateretirement occurs at least two (2) years after the ~~adoption~~date of ~~the Plan shall be considered a Subsidiary commencing as of such date. 15~~ ~~ADDENDUM A The provisions of the Plan, as amended by the terms of this Addendum A, shall apply to the grant of Approved Options to Key U.K. Employees. 1.~~grant. For purposes of this ~~Addendum~~retirement eligibility, his “retirement” shall be deemed to be on the date on which his base salary payments cease, calculated assuming the company does not elect to pay the Executive in a lump sum. Nothing in this Agreement shall limit Executive’s ability to “retire” for purposes of these plans upon any termination of his employment and his “retiring” for purposes of these plans shall not affect his entitlement to any severance resulting from his termination of employment.

8.Effect of Termination of Employment. Upon the termination of Executive’s employment, the parties’ obligations under this Agreement shall terminate, except for those rights and obligations set forth in Sections 6, 7, 8, 10, 11, 12, 16, 20 and 23 hereof, which shall survive such termination. The benefits and payments provided to Executive under Section 7 are expressly in lieu of any eligibility for or entitlement to severance benefits under any severance plan or policy of SCM, Schwab, TCSC, or any of their respective affiliates or subsidiaries.

9.Representations and Warranties.

(a) TCSC and SCM represent and warrant that they have the requisite corporate power to enter into this Agreement and to carry out the obligations hereunder. The execution and delivery of this Agreement have been duly authorized by all necessary corporate action on the part of TCSC and SCM.

(b) Executive represents and warrants that he has the legal capacity to enter into this Agreement, is under no employment contract, bond, confidentiality agreement, non-competition agreement, or any other obligation that would violate or be in conflict with the terms and conditions of this Agreement or encumber his performance of duties assigned to him by SCM or TCSC. Executive further represents and warrants that he has not signed or committed to any employment or consultant duties or other obligations that would divert his full attention or conflict with from the duties assigned to him by SCM or TCSC under this Agreement.

10.Indemnification. Executive shall be indemnified by TCSC for his acts or omissions occurring during the Employment Term to the same extent TCSC indemnifies all other employees at the Executive Committee level.

11.Governing Law/Jurisdiction. Any and all actions arising out of this Agreement or Executive’s employment with TCSC and/or SCM, including, without limitation, tort and

contract claims, shall be governed by and construed in accordance with the laws of the State of New Jersey, without reference to the choice of law principles thereof. Subject to Section 12 below, any and all actions arising out of this Agreement or Executive’s employment with TCSC and/or SCM shall be brought only and heard in the state and federal courts of the State of New Jersey, and Executive hereby irrevocably submits to the exclusive jurisdiction of such courts. Executive hereby irrevocably consents to the jurisdiction and proper venue of any such courts in any such suit, action or proceeding and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.Executive and SCM and TCSC each hereby agree to waive their respective rights to a trial by jury.

12.Dispute Resolution.

(a) Except as otherwise provided herein, Executive and TCSC and SCM agree that any and all disputes between Executive and SCM, Schwab, TCSC and/or any of their respective affiliates or subsidiaries, or their respective employees, officers, directors, agents or assigns, which relate to, arise out of or pertain to Executive’s employment, separation from employment or the construction or interpretation of this Agreement shall be submitted to and resolved by final and binding arbitration. The arbitration shall be instead of any civil litigation; this means that Executive, SCM and TCSC are eachwaiving any rights to a jury trial. Executive and TCSC and SCM expressly understand and agree that consistent with the foregoing, no party to this Agreement shall institute a proceeding in any court or administrative agency to resolve a dispute arising under or in connection with this Agreement.

(b) Executive and SCM and TCSC expressly understand and agree that there will be no court or jury trial of disputes between them arising out of or in connection with this Agreement, Executive’s employment or separation from employment, including, but not limited to, claims under federal, state or local laws prohibiting employment discrimination. The only disputesnot covered by this agreement to arbitrate are actions for injunctive relief brought by either the Executive or SCM, Schwab, TCSC and/or any of their respective affiliates or subsidiaries concerning the rights and obligations set forth in Section 6 above. Furthermore, claims for unemployment insurance benefits, for workers’ compensation insurance benefits, and for benefits under any ERISA-governed employee benefit plan(s), shall be resolved pursuant to the claims procedures under such benefit plans.

(c) All disputes between the parties which are covered by the agreement to arbitrate and which cannot be resolved within two weeks after a demand for direct negotiation between the parties shall be settled exclusively by binding arbitration in Newark, New Jersey under the Commercial Arbitration Rules of the American Arbitration Association before a panel of three (3) neutral arbitrators selected under said Rules. The arbitrators shall award the prevailing party its attorneys fees, arbitration costs, expert fees, and all other costs and expenses incurred in connection with the arbitration, including any fees and costs incurred in confirming and enforcing the award. In the event a dispute concerning or arising out of this Agreement involves regulatory matters or compliance with applicable securities laws, rules or regulations, SCM and/or TCSC or Executive at its or his option may elect to pursue arbitration of all issues between the parties under the arbitration rules of the National Association of Securities Dealers (“NASD”) or the New York Stock Exchange (“NYSE”) in accordance with the applicable rules. Executive and SCM and TCSC expressly understand and agree that any limitations in the NASD

or NYSE arbitration rules excluding statutory discrimination from the scope of the arbitration clause shall not apply and that it is the parties’ desire to include statutory discrimination claims within the scope of arbitration. Executive and SCM and TCSC knowingly and voluntarily agree to this arbitration provision. A decision in arbitration shall be final and binding.

(d) Judgment may be entered on the arbitrators’ award in any court having jurisdiction. The arbitration filing fee expenses shall be borne according to the rules of the NASD or NYSE, as the case may be; provided that if and only if the arbitration involves statutory discrimination claims, SCM and/or TCSC shall pay all types of costs that are unique to arbitration, such as the arbitrator’s fees.

13.Nonwaiver of Rights of Parties. No right or power of any party under this Agreement shall be deemed to have been waived by any act or conduct on the part of such party, or by any neglect to exercise that right or power, or by any delay in so doing; and, except as otherwise provided herein, every right or power shall continue in full force and effect until specifically waived or released by an instrument in writing executed by such party.

14.Headings. The headings of the several sections of this Agreement are inserted for reference only and not intended to affect the meaning or interpretation of this Agreement.

15.Binding Effect. This Agreement shall be binding upon and inure to the benefit of Executive, his heirs, executors, administrators, distributes, devisees and legatees and to the benefit of TCSC, SCM and their successors and assigns. With respect to the obligations, representations and warranties of Executive under Sections 6 and 9(b) this Agreement shall also inure to the benefit of all of the Schwab Entities and their respective successors and assigns.

16.Assignment. This Agreement is a personal contract and the rights and interests of Executive herein may not be sold, transferred, assigned, pledged or hypothecated. The rights and obligations of TCSC, SCM and the other Schwab Entities, as applicable, hereunder shall be binding upon and run in favor of the successors and permitted assigns of TCSC, SCM and/or the other Schwab Entities, as applicable. This Agreement may not be assigned by either party without the prior written consent of the other; except that, without such prior written consent, TCSC and/or SCM may assign their rights and obligations hereunder to any entity owned, directly or indirectly, by SCM, Schwab or TCSC on the condition that TCSC remains liable to perform the obligations of any such assignee in the event such assignee fails to so perform. TCSC and/or SCM shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of its business and/or assets of TCSC and/or SCM, as the case may be, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that TCSC and/or SCM is required to perform it.

17.Entire Agreement. This Agreement, together with its Exhibits, constitutes the entire agreement among the parties hereto with respect to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties with respect thereto. No amendment, modification or rescission of this Agreement shall be effective unless set forth in writing signed by Executive, on the one hand, and by the President & Co-Chief Executive Officer of TCSC and the Executive Vice-President, General Counsel and Corporate Secretary of TCSC on the other hand.

18.No Mitigation. Executive shall not be required to mitigate the amount of any payment provided for under this Agreement by seeking other employment or otherwise, and compensation earned from such employment or otherwise shall not reduce the amounts otherwise payable under this Agreement.

19.Further Assurances. Each party hereto shall, whenever and as often as reasonably requested to do so by any party hereto, do, execute, acknowledge, and deliver, or cause to be done, executed, acknowledged, delivered, filed or recorded, all such further acts, deeds, assignments, transfers, conveyances, powers of attorney, instruments, and assurances as such other party may reasonably request in order to carry out fully the terms and provisions of this Agreement.

20.Severability and Enforceability. If any one or more of the provisions contained in this Agreement should be held to be invalid, illegal or unenforceable as to any party or in any jurisdiction, then such provision or provisions only shall be deemed invalid, illegal or unenforceable without affecting or otherwise impairing the enforceability of the remaining provisions contained herein and without affecting or otherwise impairing the enforceability of the same provisions in this Agreement with respect to any other party or in any other jurisdiction. If any of the covenants contained in Sections 6 or 12 of this Agreement are held to be invalid, illegal or unenforceable for any reason, the parties agree that the judicial body making such determination shall have the power to reform that provision only to the limited extent required to make the provision enforceable, and as reformed, such provision shall then be enforceable and shall be enforced.

21.Counterparts. This Agreement may be executed in separate counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument.

22.Legal Fees. SCM and/or TCSC shall promptly pay, or if Executive has already paid such amounts reimburse Executive for all properly documented attorneys fees and expenses, including disbursements, reasonably incurred by Executive in connection with the review and negotiation of this Agreement, subject to a maximum of $25,000.

23.Notices. Any notice or other communication to be given hereunder by any party to another shall be in writing and delivered to the following ~~definitions shall apply~~addresses personally, by facsimile transmission, by postage prepaid registered or certified mail, or by a national overnight carrier:

(a) Schwab Capital Markets, L.P. and The Charles Schwab Corporation:

David S. Pottruck

President & Co-Chief Executive Officer

The Charles Schwab Corporation

120 Kearny Street

San Francisco, Ca 94108

Facsimile No.: (415) 636-5431

with copies to:

Carrie E. Dwyer, Esq.

Executive Vice President, General Counsel

and Corporate Secretary

The Charles Schwab Corporation

120 Kearny Street

San Francisco, Ca 94108

Facsimile No.: (415) 667-3596

and

Lawrence B. Rabkin, Esq.

Howard, Rice, Nemerovski, Canady, Falk & Rabkin, A

Professional Corporation

3 Embarcadero Center, 6th Floor

San Francisco, CA 94111

Facsimile: 415/217-5910

Executive: Lon Gorman

Facsimile No.: ()

with a copy to:

Charles J. Conroy, Jr.

Milbank, Tweed, Hadley & McCloy, LLP

1 Chase Manhattan Plaza

New York, NY 10005

Facsimile No.: (212) 530-5219

or such other persons or such other addresses as may be designated in writing by the parties, by a notice given as aforesaid.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.


Schwab Capital Markets L.P.:

By:		/s/ James Leonard
Its:		SVP of General Partner

The Charles Schwab Corporation:

By:		/s/ David S. Pottruck
Its:		President and Co-CEO

EXECUTIVE:

/s/ Lon Gorman
Lon Gorman

EXHIBIT A-1

The Charles Schwab Corporation

Corporate Executive Bonus Plan

(As Amended February 27, 2002)

I. Purposes

The purposes of this Corporate Executive Bonus Plan (the “Plan”) are: (a) to provide greater incentive for key executives continually to exert their best efforts on behalf of The Charles Schwab Corporation (the “Company”) by rewarding them for services rendered with compensation that is in addition to ~~those set out~~their regular salaries; (b) to attract and to retain in ~~section 16~~the employ of the ~~Plan: APPROVED OPTION Means a stock option designed~~Company persons of outstanding competence; and (c) to ~~qualify as an approved executive share option under~~further the ~~Taxes Act; INLAND REVENUE means the Board~~identity of interests of such employees with those of the ~~Inland Revenue~~Company’s stockholders through a strong performance-based reward system.

II.	Form of Awards

III.	Determination of Awards

Incentive awards for participants other than the President/Co-Chief Executive Officer shall be determined quarterly according to a Corporate Performance Payout Matrix that shall be adopted at the beginning of each year by the Compensation Committee of the Board of Directors (the “Committee”). The Executive Committee Corporate Performance Payout Matrix shall be based on corporate performance criteria to be selected by the Committee from among the following: revenue growth, operating revenue growth, consolidated pretax profit margin, consolidated pretax operating margin, customer net new asset growth, stockholder return, return on net assets, earnings per share, return on equity, and return on investment. Awards shall be defined by reference to a target percentage of base salary determined, from time to time, by the Committee. Payouts described in this subsection shall be calculated and paid on a quarterly basis, based on year-to-date performance compared with the comparable period in the preceding year.

With respect to payments made pursuant to Section III.1, the amount of base salary included in the computation of incentive awards shall not exceed 250% of the base salary in effect for the officer holding the same or substantially similar position on March 31, 2000. In addition, for all participants other than the President/Co-Chief Executive Officer, (i) the maximum target incentive percentage shall be 100% of base salary and (ii) the maximum award shall be 400% of the participant’s target award.

Incentive awards for the President/Co-Chief Executive Officer shall be determined in accordance with a Corporate Performance Payout Matrix that shall be adopted at the

beginning of each year by the Committee. The Committee shall determine the President/Co-Chief Executive Officer’s award each year, up to the maximum amount defined by the matrix for a given level of performance. This matrix may, if the Committee deems appropriate, differ from that described in Subsection III.1. However, the United Kingdom. KEY U.K. EMPLOYEE means a designated employee of Sharelink Investment Services plc or any subsidiary (as that term is defined inperformance criteria shall be the ~~Companies Act 1985 of the United Kingdom,~~same as ~~amended) of which Sharelink Investment Services plc has control~~referred to above. Payouts for the ~~purposes of section 840 of~~President/Co-Chief Executive Officer shall be made on an annual basis, based on the ~~Taxes Act; TAXES ACT means~~Company’s results for the Income and Corporation Taxes Act 1988 of the United Kingdom. 2. An Approved Option may only be granted to a Key U.K. Employee who: (i) is employed on a full-time basis; and (ii) does not fall within the provisions of paragraph 8 of Schedule 9 to the Taxes Act. For purposes of this section 2(i) of Addendum A, "full-time" shall mean an employee who is required to work 20 hours per week, excluding meal breaks. 3. full year.

The maximum award payable for the President/Co-Chief Executive Officer under this plan shall be no more than 500% of his target incentive award. The target incentive amount shall be determined each year by the Committee, but may not exceed 500% of base salary. The amount of base salary taken into account for purposes of computing the target incentive award may not exceed 250% of the President/Co-Chief Executive Officer’s base salary as of March 31, 2000.

Notwithstanding anything to the contrary contained in this Plan, the Committee shall have the power, in its sole discretion, to reduce the amount payable to any Participant (or to determine that no amount shall be payable to such Participant) with respect to any award prior to the time the amount otherwise would have become payable hereunder. In the event of such a reduction, the amount of such reduction shall not increase the amounts payable to other participants under the Plan.

IV.	Administration

Except as otherwise specifically provided, the Plan shall be administered by the Committee. The Committee members shall be appointed pursuant to the Bylaws of the Company, and the members thereof shall be ineligible for awards under this Plan for services performed while serving on said Committee.

The decision of the Committee with respect to any questions arising as to interpretation of the Plan, including the severability of any and all of the provisions thereof, shall be, in its sole and absolute discretion, final, conclusive and binding.

V.	Eligibility for Awards

Awards under the Plan may be granted by the Committee to those employees who have contributed the most in a general way to the Company’s success by their ability, efficiency, and loyalty, consideration being given to ability to succeed in more important managerial responsibility in the Company. This is intended to include the President/Co-Chief Executive Officer, Vice Chairmen, Executive Vice Presidents, and from time to time, certain other officers having comparable positions.

No ~~Approved Option~~award may be granted to a ~~Key U.K. Employee if it would cause the aggregate~~member of the ~~exercise price~~Company’s Board of ~~all subsisting Approved Options granted to such~~Directors except for services performed as an employee ~~under the Plan, or any other subsisting options granted to such employee under any other share option scheme approved under Schedule 9~~ of the ~~Taxes Act~~Company.

Except in the event of retirement, death, or disability, to be eligible for an award an employee shall be employed by the Company as of the date awards are calculated and approved by the Committee under this Plan.

For purposes of this Plan, the term “employee” shall include an employee of a corporation or other business entity in which this Company shall directly or indirectly own 50% or more of the outstanding voting stock or other ownership interest.

VI.

Awards

The Committee shall determine each year the payments, if any, to be made under the Plan. Awards for any calendar year shall be granted not later than the end of the first quarter of the calendar year, and payments pursuant to the Plan shall be made as soon as practicable after the close of each calendar quarter (or, in the case of the President/Co-Chief Executive Officer, as soon as practicable after the close of each calendar year).

Upon the granting of awards under this Plan, each participant shall be informed of his or her award by his or her direct manager and that such award is subject to the applicable provisions of this Plan.

VII.	Deferral of Awards

A participant in this Plan who is also eligible to participate in The Charles Schwab Corporation Deferred Compensation Plan may elect to defer payments pursuant to the terms of that plan.

VII.	Recommendations and Granting of Awards

Recommendations for awards shall be made to the Committee by the Co-Chief Executive Officers, except that, with respect to the President/Co-Chief Executive Officer, recommendations for awards shall be made solely by the Chairman/Co-Chief Executive Officer.

Any award shall be made in the sole discretion of the Committee, which shall take final action on any such award. No person shall have a right to an award under this Plan until final action has been taken granting such award.

IX.	Amendments and Expiration Date

While it is the present intention of the Company to grant awards annually, the Committee reserves the right to modify this Plan from time to time or to repeal the plan entirely, or to direct the discontinuance of granting awards either temporarily or permanently; provided, however, that no modification of this plan shall operate to annul, without the consent of the beneficiary, an award already granted hereunder; provided, also, that no modification without approval of the stockholders shall increase the maximum amount which may be awarded as hereinabove provided.

X.	Miscellaneous

All expenses and ~~established~~costs in connection with the operation of this Plan shall be borne by the Company ~~or an associated company, to exceed the higher of (a) one hundred thousand pounds sterling~~ and ~~(b) four times such employee's relevant emoluments for the current or preceding year of assessment (whichever is greater); but where there were~~ no ~~relevant emoluments for the previous year of assessment, the limit~~part thereof shall be charged against the ~~higher~~awards anticipated by the Plan. Nothing contained herein shall be construed as a guarantee of ~~one hundred thousand pounds sterling or four times such employee's relevant emoluments for the period~~continued employment of ~~twelve months beginning~~any participant hereunder. This Plan shall be construed and governed in accordance with the first day during the current year of assessment in respect of which there are relevant emoluments. For the purpose of this section 3 of Addendum A, "associated company" 16 ~~means an associated company within the meaning of section 416~~laws of the ~~Taxes Act; "relevant emoluments" has the meaning given by paragraph 28(4)~~State of Schedule 9 to the Taxes Act and "year of assessment" means a year beginning on any April 6 and ending on the following April 5. 4. Common Shares issued pursuant to the exercise of Approved Options must satisfy the conditions specified in paragraphs 10 to 14 of Schedule 9 to the Taxes Act. 5. Notwithstanding the provisions of Section 5.4 of theCalifornia.

EXHIBIT A-2

The Charles Schwab Corporation

Annual Executive Individual Performance Plan the exercise price of an Approved Option shall not be less than 100 percent of the closing price of a Common Share as reported in the New York Stock Exchange Composite Index on the date of grant. 6. No Approved Option may be exercised at any time by a Key U.K. Employee when that Key U.K. Employee falls within the provisions of paragraph 8 of Schedule 9 to the Taxes Act. If at any time the shares under an Approved Option cease to comply with the conditions in paragraphs 10 to 14 of Schedule 9 to the Taxes Act, then all Approved Options then outstanding shall lapse and cease to be exercisable from the date of the shares ceasing so to comply, and no optionee shall have any cause of action against the Company, Sharelink Investment Services plc or any subsidiary of the Company or any other person in respect thereof. 7. An Approved Option may contain such other terms, provisions and conditions as may be determined by the Committee consistent with the Plan, provided that the approved option otherwise complies with the requirements for approved executive option schemes specified in Schedule 9 of the Taxes Act. 8. In relation to an Approved Option, notwithstanding the terms of section 10.1 of the Plan, no adjustment shall be made pursuant to section 10.1 of the Plan to any outstanding Approved Options without the prior approval of the Inland Revenue. 9. In relation to an Approved Option any Key U.K. Employee shall make arrangements satisfactory to the Company for the satisfaction of any tax withholding or deduction -- at -- source obligations that arise by reason of the grant to him or her of such option, or its subsequent exercise. 10. In relation to an Approved Option, in addition to the provisions set out in section 15.2 of the Plan, no amendment which affects any of the provisions of the Plan relating to Approved Options shall be effective until approved by the Inland Revenue, except for such amendment as are required to obtain and maintain the approval of Inland Revenue pursuant to Schedule 9 to the Taxes Act. 17 ~~THE CHARLES SCHWAB CORPORATION ANNUAL EXECUTIVE INDIVIDUAL PERFORMANCE PLAN (AMENDED AND RESTATED, EFFECTIVE JANUARY 1, 2001)~~ ~~I. PURPOSES~~

(As Amended February 27, 2002)

Purposes

The purposes of this Annual Executive Individual Performance Plan (the ~~"Plan"~~“Plan”) are: (a) to provide greater incentive for key executives to continually exert their best efforts on behalf of The Charles Schwab Corporation (the ~~"Company"~~“Company”) by rewarding them for services rendered with incentive compensation that is in addition to their regular salaries; (b) to attract and to retain in the employ of the Company persons of outstanding competence; and (c) to further align the interests of such employees with those of the ~~Company's~~Company’s stockholders through a strong performance-based reward system. ~~II. FORM OF AWARDS~~

II.	Form of Awards

Incentive compensation awards under this Plan shall be generally granted in cash, less any applicable withholding taxes; provided that the Committee may determine, from time to time, that all or a portion of any award may be paid in the form of an equity based incentive, including without limitation stock options, restricted shares, or outright grants of Company stock. The number of shares and stock options granted in any year, when added to the number of shares and stock options granted for such year pursuant to the ~~Company's~~Company’s Corporate Executive Bonus Plan, shall in no event exceed .5% of the outstanding shares of the Company. III. DETERMINATION OF AWARDS 1. Incentive awards for participants shall be determined annually. The participants in the Plan shall be the executive officers who are selected by the Compensation Committee of the Board of Directors (the "Committee") to participate in the Charles Schwab Corporate Executive Bonus Plan (the "CEB Plan"), except that the President and Co-Chief Executive Officer shall not be eligible to participate in the Plan. Payouts under the CEB Plan are defined by reference to a target percentage of base salary determined, from time to time, by the Committee and pursuant to a payout matrix, adopted from time to time by the Committee, that uses net revenue growth and consolidated pretax profit margin as the financial performance criteria to determine awards. Each participant shall have a bonus target under the Plan equal to such Participant's bonus target under the CEB Plan, multiplied by 160%. Payouts described in this subsection shall be calculated and paid on an annual basis. 2. With respect to payments made pursuant to Section III.1, the amount of base salary included in the computation of incentive awards pursuant to the CEB Plan shall not exceed 250% of the base salary in effect for the officer holding the same or substantially similar position on March 31, 2000. In addition, (i) the maximum target incentive percentage pursuant to the CEB Plan shall be 100% of base salary and (ii) the maximum award pursuant to the CEB Plan shall be 400% of the participant's target award. 3. Notwithstanding anything to the contrary contained in this Plan, the Committee shall have the power, in its sole discretion, to reduce the amount payable to any Participant (or to determine that no amount shall be payable to such Participant) with respect to any award prior to the time the amount otherwise would have become payable hereunder. In the event of such a reduction, the amount of such reduction shall not increase the amounts payable to other participants under the Plan. IV. ADMINISTRATION 1. Except as otherwise specifically provided, the Plan shall be administered by the Committee. The Committee members shall be appointed pursuant to the Bylaws of the Company, and the members thereof shall be ineligible for awards under this Plan for services performed while serving on said Committee. 2. The decision of the Committee with respect to any questions arising as to interpretation of the Plan, including the severability of any and all of the provisions thereof, shall be, in its sole and absolute discretion, final, conclusive and binding. V. ELIGIBILITY FOR AWARDS 1. Awards under the Plan shall be granted by the Committee to those employees who are eligible to participate in the CEB Plan. This is intended to include the Vice Chairmen, Executive Vice Presidents, and other officers having comparable positions.

III.	Determination of Awards

Incentive awards for participants shall be determined annually. The participants in the Plan shall be the executive officers who are selected by the Compensation Committee of the Board of Directors (the “Committee”) to participate in the Charles Schwab Corporate Executive Bonus Plan (the “CEB Plan”), except that the President and Co-Chief Executive Officer shall not be eligible to participate in the Plan. Payouts under the CEB Plan are defined by reference to a target percentage of base salary determined, from time to time, by the Committee and pursuant to a payout matrix, adopted from time to time by the Committee, that uses corporate performance criteria, to be selected by the Committee from among the following: revenue growth, operating revenue growth, consolidated pretax profit margin, consolidated pretax operating margin, customer net new asset growth, stockholder return, return on net assets, earnings per share, return on equity, and return on investment. Each participant shall have a bonus target under the Plan equal to such Participant’s bonus target under the CEB Plan, multiplied by 160%. Payouts described in this subsection shall be calculated and paid on an annual basis.

With respect to payments made pursuant to Section III.1, the amount of base salary included in the computation of incentive awards pursuant to the CEB Plan shall not exceed 250% of the base salary in effect for the officer holding the same or substantially similar position on March 31, 2000. In addition, (i) the maximum target incentive percentage pursuant to the CEB Plan shall be 100% of base salary and (ii) the maximum award pursuant to the CEB Plan shall be 400% of the participant’s target award.

IV.	Administration

V.	Eligibility for Awards

Awards under the Plan shall be granted by the Committee to those employees who are eligible to participate in the CEB Plan. This is intended to include the Vice Chairmen, Executive Vice Presidents, and other officers having comparable positions.

No award may be granted to a member of the ~~Company's~~Company’s Board of Directors except for services performed as an employee of the Company. 2. Except in the event of retirement, death, or disability, to be eligible for an award an employee must be employed by the Company as of the date awards are calculated and approved by the Committee under this Plan. 3. For purposes of this Plan, the term "employee" shall include an employee of a corporation or other business entity in which this Company shall directly or indirectly own 50% or more of the outstanding voting stock or other ownership interest. VI. AWARDS 1. The Committee shall determine each year the payments, if any, to be made under the Plan. Awards for any calendar year shall be granted not later than the end of the first quarter of the calendar year, and payments pursuant to the Plan shall be made as soon as practicable after the close of the calendar year. 2. Upon the granting of awards under this Plan, each participant shall be informed of his or her award by his or her direct manager and that such award is subject to the applicable provisions of this Plan. VII. DEFERRAL OF AWARDS 1. A participant in this Plan who is also eligible to participate in The Charles Schwab Corporation Deferred Compensation Plan may elect to defer payments pursuant to the terms of that plan. VIII. RECOMMENDATIONS AND GRANTING OF AWARDS 1. Recommendations for awards shall be made to the Committee by the Co-Chief Executive Officers. 2. Any award shall be made in the sole discretion of the Committee, which shall take final action on any such award. No person shall have a right to an award under this Plan until final action has been taken granting such award. IX. AMENDMENTS AND EXPIRATION DATE

Except in the event of retirement, death, or disability, to be eligible for an award an employee must be employed by the Company as of the date awards are calculated and approved by the Committee under this Plan.

VI.

Awards

VII.	Deferral of Awards

A participant in this Plan who is also eligible to participate in The Charles Schwab Corporation Deferred Compensation Plan may elect to defer payments pursuant to the terms of that plan.

VIII.

Recommendations and Granting of Awards

Recommendations for awards shall be made to the Committee by the Co-Chief Executive Officers.

IX.	Amendments and Expiration Date

While it is the present intention of the Company to grant awards annually, the Committee reserves the right to modify this Plan from time to time or to repeal the Plan entirely, or to direct the discontinuance of granting awards either temporarily or permanently; provided, however, that no modification of this plan shall operate to annul, without the consent of the beneficiary, an award already granted hereunder; provided, also, that no modification without approval of the stockholders shall increase the maximum amount which may be awarded as hereinabove provided. ~~X. MISCELLANEOUS~~

X.	Miscellaneous

All expenses and costs in connection with the operation of this Plan shall be borne by the Company and no part thereof shall be charged against the awards anticipated by the Plan. Nothing contained herein shall be construed as a guarantee of continued employment of any participant hereunder. This Plan shall be construed and governed in accordance with the laws of the State of California.

EXHIBIT B

SUMMARY OF SCM INCENTIVE PLAN

Schwab Capital Markets Incentive (“SCM Incentive”)

As a participant in the SCM Incentive Plan, Mr. Gorman will be eligible for annual incentive compensation on the basis of the performance of Schwab Capital Markets and other related capital markets businesses under his authority. The SCM Incentive will fund on the basis of the financial performance of SCM as measured by the actual adjusted pretax contribution margin for the combined performance of all capital markets-related businesses that report to Mr. Gorman. The target SCM Incentive for Mr. Gorman is $3 million and the maximum SCM Incentive payable to Mr. Gorman is $7 million. No bonus payment from this plan will be made unless SCM attains the threshold of 80% of its financial goals and Mr. Gorman is employed by SCM on the date of payment.

SCM performance vs. plan and the resulting SCM Incentive, if any, will be pro-rated for performance between levels ( e.g., performance at 110% of goal would result in a bonus of between $3 million and $4 million, as calculated by Corporate Finance based on the matrix inExhibit C (which matrix may be revised each year as specified in Section 4(c) of the Agreement)) and for partial years worked by Mr. Gorman.

Form Of SCM Incentive Payment

The first $1 million in annual SCM Incentive payable under this Plan, if any, shall be paid entirely in cash. Any amount earned above $1 million will be paid 50% in cash and 50% in restricted shares (e.g., if an SCM Incentive of $3 million is payable, $2 million will be paid in cash and $1 million in restricted shares).

The restricted share grant amount will be determined by TCSC on the date of grant, so that the total dollar value of restricted shares is converted into TCSC shares by dividing the total dollar value by the average of the high and low price of TCSC stock on the date of grant. E.g., if a $1 million value is to be granted in restricted shares, an average TCSC stock price of $13 on the date of grant, would result in a restricted share grant of 76,923 shares (rounded).

Restricted shares grants in lieu of cash incentive will vest following the below vesting schedule:


Time Period	Annual Vesting %	Cumulative Vesting %
1st year	0%	0%
2nd year	50%	50%
3rd year	50%	100%

Timing Of SCM Incentive Payment

The cash portion of any SCM Incentive will be paid by the end of February of each year, based on performance for the prior year (e. g., incentive for year 2002 will be paid in February, 2003), unless Mr. Gorman elects to defer the payment under Schwab’s Officer Deferred Compensation Plan. Assuming that the cash portion of any SCM Incentive is determined prior to the February Compensation Committee meeting of TCSC Board of Directors, then any restricted grant portion of the SCM Incentive payable to Mr. Gorman will be granted at the February meeting of the Committee. In 2002, this meeting was held February 27.

SCM Incentive Plan Subject to TCSC Stockholder Approval in 2003

The SCM Incentive Plan (and any payments payable to Mr. Gorman under said plan) with respect to any calendar year after 2002 are expressly contingent upon the approval by a majority of TCSC’s stockholders at TCSC’s 2003 annual meeting, of a proposal to approve the potential SCM Incentive payments which may be payable to Mr. Gorman under said plan. If a majority of TCSC’s stockholders fails to approve such a proposal at the TCSC 2003 annual meeting the SCM Incentive Plan shall be null and void and of no further force and effect with respect to any calendar year after 2002.

EXHIBIT C

SCM INCENTIVE MATRIX ILLUSTRATION


SCM Bonus
If Actual Adjusted Pretax Contribution Margin is:	SCM Performance		SCM Bonus		Payout as % of Target Bonus		Bonus Paid As:
If Actual Adjusted Pretax Contribution Margin is:	SCM Performance		SCM Bonus		Payout as % of Target Bonus		Cash		Shares $ Value		Shares $13.00*
Less than $111.1mm	<80	%	$	0	0	%	$	0	$	0	0
$111.1 mm	80	%	$	1,000,000	33	%	$	1,000,000	$	0	0
$124.9 mm	90	%	$	2,000,000	67	%	$	1,500,000	$	500,000	38,462
$138.8 mm	100	%	$	3,000,000	100	%	$	2,000,000	$	1,000,000	76,923
$156.2 mm	112.5	%	$	4,000,000	133	%	$	2,500,000	$	1,500,000	115,385
$173.5 mm	125	%	$	5,000,000	167	%	$	3,000,000	$	2,000,000	153,846
$190.9 mm	137.5	%	$	6,000,000	200	%	$	3,500,000	$	2,500,000	192,308
$208.2 mm	150	%**	$	7,000,000	233	%	$	4,000,000	$	3,000,000	230,769

*	In this example, the dollar amount represents the number of shares granted by dividing the shares’ dollar value by the appropriate SCH stock price.

**	150% or greater; the plan payout is capped at $7 million

The plan is based on a SCM 2002 revenue goal of $437 million and an adjusted 2002 pretax contribution margin goal of $138.8 million, or 31.77%. These figures do not include AMPS. The adjusted pretax contribution margin goal is derived by starting with an unadjusted pretax contribution margin of 34.3% and subtracting the cost of equity applied to the equity capital maintained in SCM and the equity capital required by the Securities Lending business. At the end of 2001, SCM’s equity capital was $66.9 million and the equity implied in the Securities Lending business was $7.5 million (i.e., loan balance of $602 million multiplied by an equity requirement of 1.25%). TCSC’s cost of equity at the end of 2001 was about 15%; thus, the pretax contribution margin has been adjusted down by $11.2 million, or 15% of $74.4 million (i.e., $66.9 million plus $7.5 million).

The adjusted actual pretax contribution margin calculated to determine the achieved performance measure will also include an adjustment to cover the cost of equity required to support any acquisition by SCM.

EXHIBIT D

EXECUTIVE’S INVENTIONS

[to be inserted]

SUPPLEMENTAL AGREEMENT

This Supplemental Agreement (the “Agreement”) is entered into as of August 30, 2002 by and among the Charles Schwab Corporation, a Delaware corporation (“TCSC”), Schwab Capital Markets, L.P., a New Jersey Limited partnership (“SCM”) and Lon Gorman, an individual (“Executive”).

WHEREAS TCSC, SCM and Executive entered into an Executive Employment Agreement (the “Employment Agreement”) in July, 2002 but inadvertently failed to fill in the Effective Date for the Employment Agreement when executing it; and

WHEREAS, TCSC, SCM and Executive wish to avoid any misunderstanding and confirm the Effective Date of the Employment Agreement.

NOW, THEREFORE, in consideration of the mutual premises set forth herein, and for other good and valuable consideration, the parties hereby agree as follows:

AGREEMENT

1.	Defined Terms

Any term used in this Agreement that is defined in the Employment Agreement shall have the same meaning as set forth in the Employment Agreement.

2.	Effective Date

The parties acknowledge and agree that the Effective Date of the Employment Agreement is July 16, 2002.

3.	No Other Addition or Deletion

Except as set forth herein, no addition or deletion to the Employment Agreement has been made.

4.	Other Provisions

Sections 11, 12, 13, 14, 15(other than second sentence), 16, 17, 19, 20(other than reference to Sections 6 and 12), 21, 22(other than reference to $25,000) and 23 of the Employment Agreement shall be deemed to be set forth in this Agreementmutatismutandis.

IN WITNESS WHEREOF, the parties have executed the Agreement as of the date first written above.



Schwab Capital Markets, L.P.:

By:		/s/ James Leonard

Its:		SVP of General Partner

The Charles Schwab Corporation:

By:		/s/ David S. Pottruck

Its:		President and Co-CEO

By:		/s/ Carrie E. Dwyer

		Carrie E. Dwyer
Its:		Executive Vice-President, General Counsel and
		Corporate Secretary

Executive:

/s/ Lon Gorman

Lon Gorman

THE CHARLES SCHWAB CORPORATION

ANNUAL MEETING OF STOCKHOLDERS ~~MONDAY, MAY 7, 2001~~

Monday, May 17, 2004

2:00 ~~P.M.~~p.m. (PST) THE PALACE HOTEL 2 NEW MONTGOMERY STREET SAN FRANCISCO, CALIFORNIA THE ANNUAL MEETING OF STOCKHOLDERS WILL BE BROADCAST OVER THE INTERNET. FOR INFORMATION ABOUT THE REAL-TIME WEBCAST, VISIT WWW.SCHWABEVENTS.COM. - -------------------------------------------------------------------------------- [CHARLES SCHWAB THE CHARLES SCHWAB CORPORATION LOGO APPEARS 101 MONTGOMERY STREET HERE] SAN FRANCISCO, CA 94104 PROXY - -------------------------------------------------------------------------------- THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL MEETING ON MAY 7, 2001.

Yerba Buena Center for the Arts Theater

701 Mission Street

San Francisco, California

The Annual Meeting of Stockholders will be broadcast over the Internet.

For information about the real-time webcast, visitwww.schwabevents.com.

THE CHARLES SCHWAB CORPORATION

101 Montgomery Street

San Francisco, CA 94104

proxy

This proxy is solicited by the Board of Directors for use at the Annual Meeting on May 17, 2004.

The shares of stock you hold in your account, as well as any shares you hold under The Charles Schwab Corporation Dividend Reinvestment and Stock Purchase Plan and/or The SchwabPlan Retirement Savings and ~~Invest-ment Plan, the 401(k) Plan and ESOP of United States Trust Company of New York and Affiliated Companies, and/or the U.S. Trust Corporation Employee Stock Purchase~~Investment Plan will be voted as you specify on the reverse side. ~~IF NO CHOICE IS SPECIFIED, YOUR SHARES WILL BE VOTED "FOR" ITEMS~~

If you sign and return your proxy card and no choice is specified, your shares will be voted “FOR” Items 1 ~~2, 3 AND 4.~~ and 2.

By signing the proxy, you revoke all prior proxies and appoint Charles R. Schwab and David S. Pottruck, and each of them, with full power of substitution, to vote your shares on the matters shown on the reverse side and any other matters which may come before the Annual Meeting and all adjournments. ~~SEE REVERSE FOR VOTING INSTRUCTIONS.~~

See reverse for voting instructions.

COMPANY # CONTROL # THERE ARE THREE WAYS TO VOTE YOUR SHARES YOUR TELEPHONE OR INTERNET VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR SHARES IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY CARD.

There are three ways to vote your Proxy

Your Internet or telephone vote authorizes the Named Proxies to vote your shares in the same manner as if you marked, signed and returned your proxy card.

VOTE BY ~~TELEPHONE --~~INTERNET — http://www.eproxy.com/sch/ — QUICK««« EASY««« IMMEDIATE

Use the Internet to vote your proxy 24 hours a day, 7 days a week, until 12:00 p.m. (CT) on May 14, 2004.

Please have your proxy card and the last four digits of your Social Security Number available. Follow the simple instructions to obtain your records and create an electronic ballot.

VOTE BY PHONE — TOLL FREE -- 1-800-240-6326 -- QUICK*** EASY***— 1-800-560-1965 — QUICK««« EASY«««IMMEDIATE o

Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a week, until 12:00 p.m.~~, Central time,~~ (CT) on May ~~4, 2001. o You will be prompted to enter~~14, 2004.

Please have your ~~3-digit Company~~proxy card and the last four digits of your Social Security Number ~~and your 7-digit Control Number which are located above. o~~available. Follow the simple instructions the voice provides you. VOTE BY INTERNET -- HTTP://WWW.EPROXY.COM/SCH/ -- QUICK***EASY***IMMEDIATE o Use the Internet to vote your shares 24 hours a day, 7 days a week, until 12:00 p.m., Central time, on May 4, 2001. o You will be prompted to enter your 3-digit Company Number and your 7-digit Control Number which are located above to obtain your records and create an electronic proxy. o You will have the option to receive all future materials via the Internet.

VOTE BY MAIL

Mark, sign and date your proxy card and return it in the postage-paid envelope ~~we've~~we’ve provided or return it to The Charles Schwab Corporation, c/o Shareowner ~~ServicesSM,~~Services^SM, P.O. Box 64873, St. Paul, MN 55164-0873. ~~IF YOU VOTE BY PHONE OR INTERNET, PLEASE DO NOT MAIL YOUR PROXY CARD.~~

If you vote by Internet or Phone, please do not mail your Proxy Card

ò Please detach here ~~THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, 3 AND 4. 1. Election~~ò

The Board of ~~directors: 01 Donald G. Fisher 02 Anthony M. Frank 03 Jeffrey S. Maurer 04 Arun Sarin [ ]~~Directors Recommends a Vote FOR all nominees (except as marked) [ ] Vote WITHHELD from all nominees (INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDICATED NOMINEE, ______ WRITE THE NUMBER(S) OF THE NOMINEE(S) IN THE BOX PROVIDED TO THE RIGHT.)|______|Items 1 and 2. Approval of Amendment to Certificate of Incorporation to increase the number of authorized shares of common stock. [ ]For [ ] Against [ ] Abstain 3. Approval of 2001 Stock Incentive Plan. [ ]For [ ] Against [ ] Abstain 4. Approval of Annual Executive Individual Performance Plan, as amended. [ ]For [ ] Against [ ] Abstain


1. Election of directors:	01 Donald G. Fisher 02 Paula A. Sneed	03 David B. Yoffie	¨ Vote FOR all nominees (except as marked)	¨ Vote WITHHELD from all nominees

(Instructions: To withhold authority to vote for any indicated nominee, write the number(s) of the nominee(s) in the box provided to the right.)


2. To approve the 2004 Stock Incentive Plan.			¨ For ¨ Against ¨ Abstain

WHEN THIS PROXY IS PROPERLY EXECUTED YOUR SHARES WILL BE VOTED: (1) AS DIRECTED; (2) ~~FOR EACH PROPOSAL~~ IF NO DIRECTION IS ~~GIVEN;~~GIVEN,FOR PROPOSALS 1 AND 2; AND (3) ACCORDING TO THE BEST JUDGMENT OF CHARLES R. SCHWAB AND DAVID S. POTTRUCK IF ANY OTHER MATTER COMES BEFORE THE ANNUAL MEETING FOR A VOTE. Address Change? Mark Box [ ] Indicate changes below: Date ------------------------------------------ Signature(s) in Box Please sign exactly as your name(s) appear on the proxy card. If held in joint tenancy, all persons must sign. Trustees, administrators, etc., should include title and authority. Corporations should provide full name of corporation and title of authorized officer signing the proxy.


Address Change? Mark Box ¨ Indicate changes below:		Date

Signature(s) in Box

Please sign exactly as your name(s) appear on the proxy card. If held in joint tenancy, all persons must sign. Trustees, administrators, etc., should include title and authority. Corporations should provide full name of corporation and title of authorized officer signing the proxy.


		Company:
ATTEST		THE CHARLES SCHWAB CORPORATION

By:	Carrie Dwyer	By:	Mary McLeod

Corporate Secretary		Title:	Executive Vice President - Human Resources

		Executive:	/s/ Charles R. Schwab

			Charles R. Schwab

Preliminary Proxy Statement

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material Pursuant to Section 240.14a-12