We believe that our current policies advance the interests of the company’s stockholders and clients and that theminimal funding contributed to organizations listed above is a better use of company resources (generally in support of communities in which we live) than the expense of implementing this stockholder proposal.

We recommend a voteagainst the stockholder proposal regarding political contributions.

THIRD STOCKHOLDER PROPOSAL:

MAJORITY VOTING

The Sheet Metal Workers’ National Pension Fund, Edward F. Carlough Plaza, 601 N. Fairfax Street, Suite 500, Alexandria, VA 22314 which holds approximately 32,950 shares of company stock, has submitted the following proposal for consideration at the annual meeting.

Stockholder Resolution

Resolved: That the shareholders of Charles Schwab (“Company”) hereby request that the Board of Directors initiate the appropriate process to amend the Company’s governance documents (certificate of incorporation or bylaws) to provide that director nominees shall be elected by the affirmative vote of the majority of votes cast at an annual meeting of shareholders.

Stockholder’s Statement of Support

Our Company is incorporated in Delaware. Delaware law provides that a company’s certificate of incorporation or bylaws may specify the number of votes that shall be necessary for the transaction of any business, including the election of directors. (DGCL, Title 8, Chapter 1, Subchapter VII, Section 216). The law provides that if the level of voting support necessary for a specific action is not specified in a corporation’s certificate or bylaws, directors “shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors.”

Our Company presently uses the plurality vote standard to elect directors. This proposal requests that the Board initiate a change in the Company’s director election vote

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PROPOSALS TO VOTE ON

standard to provide that nominees for the board of directors must receive a majority of the vote cast in order to be elected or re-elected to the Board.

We [The Sheet Metal Workers] believe that a majority standard in director elections would give shareholders a meaningful role in the director election process. Under the Company’s current standard, a nominee in a director election can be elected with as little as a single affirmative vote, even if a substantial majority of the votes cast are “withheld” from that nominee. The majority vote standard would require that a director receive a majority of the vote cast in order to be elected to the Board.

The majority vote proposal received high levels of support last year, winning majority support at Advanced Micro Devices, Freeport McMoRan, Marathon Oil, Marsh & McLennan, Office Depot, Raytheon, and others. Leading proxy advisory firms recommended voting in favor of the proposal.

Some companies have adopted board governance policies requiring director nominees that fail to receive majority support from shareholders to tender their resignations to the board. We believe that these policies are inadequate for they are based on continued use of the plurality standard and would allow director nominees to be elected despite only minimal shareholder support. We contend that changing the legal standard to a majority vote is a superior solution that merits shareholder support.

Our proposal is not intended to limit the judgment of the Board in crafting requested governance change. For instance, the Board should address the status of incumbent director nominees who fail to receive a majority vote under a majority vote standard and whether a plurality vote standard may be appropriate in director elections when the number of director nominees exceeds the available board seats.

We urge your support of this important director election reform.

Board of Directors’ Recommendation Against and Statement of Opposition to the Proposal Regarding Majority Voting

While majority voting has been a highly debated topic in the investment community, we believe that it would be premature to vote on this proposal until stockholders know and can consider the outcome of the company’s proposal regarding declassification of the board. Whether or not directors continue to be elected to three-year terms is significant in deciding how to vote on this proposal, because the consequences of failing to receive a majority vote vary significantly, depending on whether the director has a one-year or three-year term.

The company is incorporated in Delaware. If this proposal were to pass, under Delaware law, a director failing to receive a majority vote (but still receiving a plurality of votes) would continue to serve “…until such director’s successor is elected and qualified.” Delaware General Corporation Law Section 141(b). This is known as a “holdover” term. If the company’s proposal regarding declassification of the board passes, and directors are elected to one-year terms, a director who fails to receive a majority vote would continue to serve with a holdover term of one year. If, however, the company’s proposal is defeated, and the board remains classified, a director would serve a holdover term of three years.

In addition, the company’s proposal to declassify the board, upon completion of declassification, would eliminate the Delaware law requirement that directors on classified boards be removed in the middle of their terms only for cause. Delaware General Corporation Law Section 141(k). If the current proposal to adopt majority voting were approved but the company’s proposal to declassify the board were rejected, absent a showing of cause, a director could not be removed who fails to garner majority support (such failure alone would not constitute “cause”). We will need to consider the effects of Delaware law in considering any potential change to voting procedures, which may limit our ability to implement this proposal.

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PROPOSALS TO VOTE ON

Before deciding whether or not to vote on a majority standard for the election of directors, we believe that it is important for stockholders to know what the effect will be on (1) the length of director “holdover” terms for directors who fail to receive a majority vote and (2) whether directors who are elected may be removed with or without cause during their terms. This is important information that may influence how a stockholder would vote on this proposal.

We recommend a voteagainst the stockholder proposal regarding majority voting.

FOURTH STOCKHOLDER PROPOSAL:

SEVERANCE PAYMENTS

The Trowel Trades S&P 500 Index Fund of the International Union of Bricklayers and Allied Craftworkers, P.O. Box 75000, Detroit, Michigan 48275, which holds approximately 35,381 shares of company stock, has submitted the following proposal for consideration at the annual meeting.

Stockholder Resolution

Resolved: that the shareholders of The Charles Schwab Corporation (“the Company”) urge the Board of Directors to seek shareholder approval of future severance agreements with senior executives that provide benefits in an amount exceeding 2.99 times the sum of the executives’ base salary plus bonus. “Future severance agreements” include employment agreements containing severance provisions, retirement agreements and agreements renewing, modifying or extending existing such agreements. “Benefits” include lump-sum cash payments and the estimated present value of periodic retirement payments, fringe benefits, perquisites and consulting fees to be paid to the executive.

Stockholder’s Statement of Support

In our [The Trowel Trades S&P 500 Index Fund’s] opinion, severance agreements as described in this resolution, commonly known as “golden parachutes”, are excessive in light of the high levels of compensation enjoyedby senior executives at the Company and U.S. corporations in general.

We believe that requiring shareholder approval of such agreements may have the beneficial effect of insulating the Board of Directors from manipulation in the event a senior executive’s employment must be terminated by the Company. Because it is not always practical to obtain prior shareholder approval, the Company would have the option if this proposal were implemented of seeking shareholder approval after the material terms of the agreement were agreed upon.

For those reasons, we urge shareholders to vote for this proposal.

Board of Directors’ Recommendation Against and Statement of Opposition to the Proposal Regarding Severance Payments

The company’s severance agreements and policies are part of the company’s overall compensation program, one designed to attract and retain highly qualified executives. The company operates in a highly competitive industry where executive talent is in high demand. We believe that this proposal would tie the hands of company management and the Compensation Committee in negotiating severance agreements they deem to be in the best interestsconsultants of the company and its stockholders.subsidiaries are eligible for awards under the 2004 Stock Incentive Plan. Under the plan, no participant may receive in any fiscal year stock options and SARs that collectively relate 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 is responsiblewill adjust these annual limits for overseeing and administering the company’s compensation programs, including severance arrangements, for senior executives. The committee is composed entirely of independent directors and has access to an independent compensation consultant to assist it with making compensation decisions. The committee reviews the terms of senior executive separation agreements (that are not part of the company’s Severance Pay Plan) for fairness and comparability to similarly situated companies. The company’s overall philosophy regarding executive compensation is described in the Compensation Committee Report in this proxy statement.any stock split, stock dividend, recapitalization or other similar event.

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PROPOSALS TO VOTE ONThrough March 19, 2007, the named executive officers (as defined in “Compensation Information – Summary Compensation Table”) have been granted options to purchase shares of company common stock under the 2004 Stock Incentive Plan as follows:

We believe that implementing this proposal will be costlyIn addition, current executive officers as a group, current non-employee directors as a group and disruptivecurrent employees (excluding executive officers and directors) have been granted options to our executive recruiting and retention efforts. In order to hirepurchase shares of company common stock under the best person for the job, the company will sometimes need to act decisively and within a short time frame. Under this proposal, however, in order to ratify a severance agreement with a potential executive, the company would either have to call a special meeting of stockholders or wait until the next occurring annual meeting of stockholders, neither of which is realistic in the context of a hiring situation. While the proposal’s supporting statement argues that the company could seek stockholder approval after the material terms are agreed, this does not provide any assurance to a potential senior executive that the employment and severance package he or she has negotiated will be honored by the company. The executive would be in the position of having to accept employment with the company (and perhaps resigning from another company) without knowing what his or her total compensation package would be. We strongly believe this would place the company at a disadvantage relative to its competitors.2004 Stock Incentive Plan, as follows:

We continue to believe that the company and its stockholders are best served by having compensation decisions, including severance arrangements, made by a Compensation Committee composed entirely of independent directors, charged with the fiduciary duty to make decisions in the best interests of the company and its stockholders, and taking into account all relevant factors.

We recommend a voteagainst the stockholder proposal regarding severance payments.

OTHER BUSINESSShares Available for Issuance

We knowThe aggregate number of no other business toshares of common stock that may be considered atissued under the meeting. However, if:plan may not exceed:

4

PROPOSALS FOR WHICH WE REQUEST YOUR VOTE

The aggregate maximum number of shares of common stock available under the predecessor plans as described above is 150 million. The Compensation Committee will adjust the limit on the number of shares to account for any stock split, stock dividend, recapitalization or other similar event.

Performance-Based Awards

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

then Charles R. Schwab and Carrie E. Dwyer will vote your shares on those matters accordingPayments of Director Fees in Awards

The plan provides that a non-employee director may elect to their best judgment.receive his or her annual cash retainer from the company in the form of nonqualified stock options, restricted stock, RSUs, other stock awards or a combination of them.

8Deferral of Awards

Subject to the requirements of section 409A of the Internal Revenue Code, the Compensation Committeemay 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, consistent with the requirements of section 409A of the Internal Revenue Code.

Federal Tax Consequences

When options are granted, there are no federal income tax consequences to the company or the option holder. On the exercise of a nonqualified 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.

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.

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.

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PROPOSALS FOR WHICH WE REQUEST YOUR VOTE

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 restricted 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.

The company may not deduct compensation of more than $1 million that is paid to certain executive officers of the company. The limitation on deductions does not apply to certain types of compensation, including qualified performance-based compensation. The company may structure the award of stock options, performance stock, performance units, SARs, performance-based restricted stock and RSUs to constitute qualified performance-based compensation which will be exempt from the $1 million limitation on deductible compensation.

For more information about the terms and conditions of stock-based grants to non-employee directors and non-employee director compensation generally, please refer to the section entitled “Compensation Information – Director Compensation.”

New Plan Benefits

The table below shows new plan benefits to be provided to the non-employee directors as a group as a result of the proposed amendments to the 2004 Stock Incentive Plan.

The complete text of the 2004 Stock Incentive Plan, as proposed to be amended, is set forth as Exhibit B.

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THE BOARD OF DIRECTORS

MEMBERS OF THE BOARD OF DIRECTORS

WILLIAM F. ALDINGER III

DIRECTOR SINCE JULY 2005

Mr. Aldinger, age 58,59, has been President and Chief Executive Officer of Capmark Financial Group Inc. and a member of its board of directors since June 2006. Prior to joining Capmark, he was the Chairman and Chief Executive Officer of HSBC North America Holdings Inc., a financial services company, from 2003 until April 2005. Mr. Aldinger also served as Chairman and Chief Executive Officer of Household International (now HSBC Finance Corporation) from 1994 until April 2005. Mr. Aldinger is a director of MasterCard International, a global payments solutions company; Illinois Tool Works, Inc., a developer and processor of engineered components, industrial systems and consumables; AT&T Inc., a voice, video and data communications company; and KKR Financial Corp., a real estate finance company. Mr. Aldinger’s term expires in 2007.Aldinger is a nominee for election this year.

NANCY H. BECHTLE

DIRECTOR SINCE 1992

Ms. Bechtle, age 68,69, served as President and Chief Executive Officer of the San Francisco Symphony from 1987 until 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 has served as Chairman and a director of Sugar Bowl Ski Corporation since 1998. She also has served as Vice Chairman and a director of the National Park Foundation since February 2005. Ms. Bechtle is a nominee for election this year.Bechtle’s term expires in 2009.

C. PRESTON BUTCHER

DIRECTOR SINCE 1988

Mr. Butcher, age 67,68, has been Chairman and Chief Executive Officer of Legacy Partners (formerly Lincoln Property Company N.C., Inc.), a real estate development anddevelopmentand management firm, since 1998. Mr. Butcher served as President, Chief Executive Officer and Regional Partner of Lincoln Property Company N.C., Inc. from 1967 until1998.until 1998. He is a director of Northstar Realty Finance Corp. Mr. Butcher is a nominee for election this year.Butcher’s term expires in 2009.

DONALD G. FISHER

DIRECTOR SINCE 1988

Mr. Fisher, age 77,78, is the founder of Gap Inc., a nationwidean international specialty retail clothing chain. He is a director and Chairman Emeritus of the Board of Gap Inc. He also was Chief Executive Officer of Gap Inc. from 1969 to 1995. Mr. Fisher 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’s term expires in 2007.Fisher is a nominee for election this year.

FRANK C. HERRINGER

DIRECTOR SINCE 1996

Mr. Herringer, age 63,64, has been Chairman of the Board of Transamerica Corporation, a financial services company, since 1996. He served as Chief Executive Officer of Transamerica from 1991 to 1999 and President from 1986 to 1999, when Transamerica was acquired by AegonAEGON N.V. From the date of the acquisition until 2000, Mr. Herringer served on the Executive Board of AegonAEGON N.V. and as Chairman of the Board of Aegon U.S.A.AEGON USA, Inc. Mr. Herringer is also a director of AEGON U.S. Corporation, the holding company for AEGON N.V.’s operations in the United States; Amgen Inc., a biotechnology company; Mirapoint, Inc., an Internet message infrastructure equipment developer; and Hawaii Biotech, Inc.,Cardax Pharmaceuticals, a biotechnology company. Mr. Herringer’s term expires in 2008.

MARJORIE MAGNER

DIRECTOR SINCE JANUARY 2006

Ms. Magner, age 56,57, is a founding partner of Brysam Global Partners, a private equity firm. She served as

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THE BOARD OF DIRECTORS

Chairman and Chief Executive Officer of the Global Consumer Group for Citigroup, Inc., a financial services company, from 2003 until October 2005. Ms. Magner joined Commercial Credit, a predecessor company to Citigroup, in 1987. She served as Chief Administrative Officer and Senior Executive Vice President, Global Consumer Group from 2000 until 2002, and Chief

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THE BOARD OF DIRECTORS

Operating Officer, Global Consumer Group from 2002 until 2003. Ms. Magner is a director of Gannett Company, Inc., a publishing company, and Accenture Ltd, a management consulting and technology services company. She also serves as Chairman of the Brooklyn College Foundation Board of Trustees and is a member of the Dean’s Advisory Council of the Krannert School of Management at Purdue University. Ms. Magner is a nominee for election this year.Magner’s term expires in 2009.

STEPHEN T. MCLIN

DIRECTOR SINCE 1988

Mr. McLin, age 59,60, has been Chairman and Chief Executive Officer of STM Holdings LLC, which offers merger and acquisition advice, since 1998. From 1987 until 1998, he was President and Chief Executive Officer of America First Financial Corporation, a finance and investment banking firm, and parent of EurekaBank. Before that, he was an Executive Vice President of Bank of America. Mr. McLin is an advisory director of Headwaters MB, a merchant bank;bank, and Financial Technology Ventures, a private equity fund; and Webify, Inc., a software company.fund. Mr. McLin’s term expires in 2008.

CHARLES R. SCHWAB

DIRECTOR SINCE 1986

Mr. Schwab, age 68,69, has been Chairman and a director of The Charles Schwab Corporation since its incorporation in 1986. Mr. Schwab was re-appointed as Chief Executive Officer of the company in July 2004. He served as Co-Chief Executive Officer of the company from 1998 to 2003, and Chief Executive Officer of the company from 1986 to 1997. Mr. Schwab was a founder of Charles Schwab & Co., Inc. in 1971, has been its Chairman since 1978, and its Chief Executive Officer since JulyOfficersince 2004. Mr. Schwab is currently a director of U.S. Trust Corporation and United States Trust Company of New York (which are subsidiaries of The Charles Schwab Corporation). He is also Chairman of Charles Schwab Bank, N.A., and a trustee of The Charles Schwab Family of Funds, Schwab Investments, SchwabCapitalSchwab Capital Trust and Schwab Annuity Portfolios, all registered investment companies. Mr. Schwab’s term expires in 2008.

PAULA A. SNEED

DIRECTOR SINCE 2002

Ms. Sneed, age 58, has been59, served as Executive Vice President, Global Marketing Resources and Initiatives, of Kraft Foods, Inc., a global food and beverage company since July 2005. She served asfrom 2005 until her retirement in December 2006; Senior Vice President, Global Marketing Resources and Initiatives from 2004 to 2005; and Group Vice President and President of E-Commerce and Marketing Services for Kraft Foods North America, part of Kraft Foods, Inc., from 2000 until 2004, and Senior Vice President, Global Marketing Resources and Initiatives from December 2004 to July 2005.2004. She joined General Foods Corporation (which later merged with Kraft Foods) in 1977 and has held a variety of management positions, including Vice President, Consumer Affairs; Senior 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 director of Airgas, Inc., a national distributor of industrial, medical and specialty gases and related equipment. Ms. Sneed’s term expires in 2007.Sneed is a nominee for election this year.

ROGER O. WALTHER

DIRECTOR SINCE 1989

Mr. Walther, age 70,71, has served as Chairman and Chief Executive Officer of Tusker Corporation, a real estate and business management company, since 1997. He served as Chairman and Chief Executive Officer of ELS Educational Services, Inc., a provider in the United States and internationally of courses in English as

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THE BOARD OF DIRECTORS

a second language, between 1992 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.

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THE BOARD OF DIRECTORS

Since 1985, Mr. Walther has served as Chairman and has been a director of First Republic Bank. Mr. Walther’s term expires in 2008.

ROBERT N. WILSON

DIRECTOR SINCE 2003

Mr. Wilson, age 65, has been66, is Chairman and Chief Executive Officer of Caxton Health Holdings, LLC, a healthcare-focused investment firm, since April 2004.firm. Prior to his association with Caxton Health Holdings, Mr. Wilson was Vice Chairman of the board of directors of Johnson & Johnson, a manufacturer of health care products, from 1989 until 2003. Mr. Wilson had joined Johnson & Johnson in 1964. Mr. Wilson is Chairman and a director of Still River Systems, a medical device company. He is also a director of U.S. Trust Corporation and United States Trust Company, of New York; AmeradaNational Association; Hess Corporation, an integrated oil and gas company; and Synta Pharmaceuticals Corporation, a bio-pharmaceutical company. Mr. Wilson’s term expires in 2008.

DAVID B. YOFFIE

DIRECTOR SINCE 2003

Professor Yoffie, age 51,52, is Senior Associate Dean, Chair, Executive Education at the Harvard Business School. He has been the Max and Doris Starr Professor of InternationalofInternational 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, a maker of microcomputer and communications components; and Spotfire, Inc., a provider of analytic and visualization software applications. ProfessorMr. Yoffie’s term expires in 2007.at the annual meeting of stockholders this year, and he is not standing for reelection.

NUMBER OF DIRECTORS AND TERMS

The authorized number of directors is currently twelve and the company currently has twelve directors. However, the board has approved a decrease in the authorized number of directors to eleven, effective when Mr. Yoffie’s service ends at the annual meeting. Three directors are nominees for election this year and nineeight directors will continue to serve the terms described in their biographies.

Our directors currently serve staggered terms. This is accomplished as follows:

If the proposal to amend the certificate of incorporation and bylaws to provide for the annual election of directors is approved, directors will be elected annually after their current three-year terms expire, beginning with the 2007 annual meeting.

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THE BOARD OF DIRECTORS

BOARD AND COMMITTEE MEETINGS

The board held seven regular meetings and one special meeting in 2005.2006. Each director attended at least 75% of all board and applicable committee meetings during 2005.2006. 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 2005, all of the2006, eleven directors attended the annual meeting.

This table describes the board’s standing committees.

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CORPORATE GOVERNANCE INFORMATION

You may find our Corporate Governance Guidelines, Code of Business Conduct and Ethics, and the charters for the Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee on the company’s website atwww.aboutschwab.com/governance. You also may obtain a paper copy of these items, without charge, from:

Assistant Corporate Secretary

The Charles Schwab Corporation

Mailstop SF120KNY-04

101 Montgomery Street

San Francisco, California 94104

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No member of the Compensation Committee (the members of which are listed in the table in the “Board and Committee Meetings” section) is or has been an officer or employee of the company or any of its subsidiaries. There were no Compensation Committee interlocks as defined under Securities and Exchange Commission rules during 2005.

DIRECTOR COMPENSATION

All Directors

All directors are reimbursed first-class air travel, hotel, meals and related expenses for attending board and committee meetings.

Employee Directors

Directors who are also employees receive no additional compensation for their service as directors.

Non-Employee Directors

Non-employee directors received the following retainers and fees in 2005:

Non-employee directors also are entitled to receive non-discretionary equity grants under the 2004 Stock Incentive Plan, which was approved by stockholders in May 2004. In 2005, non-employee directors were entitled to grants as follows:

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THE BOARD OF DIRECTORS

Non-employee directors receive the initial grant of options on the date of the first board meeting after joining the board. They receive the annual grants of options and restricted stock on the second business day after each annual meeting of stockholders. Non-employee director equity grants are subject to the following terms and conditions:

Non-employee directors also may participate in the Directors’ Deferred Compensation Plan. This plan allows them to defer receipt of all or a portion of their retainers and fees and, at their election, either to:

- or -

We also have stock ownership guidelines for non-employee directors. Under our guidelines, each non-employee director should own company stock with a fair market value equal to or exceeding $200,000. A new director should reach this target level upon completing five years of service. Once this target level is reached, the director is deemed to meet this target so long as he or she continues to hold an equivalent number of shares as on the date the target level was met.

Shares owned outright, deferred shares and restricted stock and stock units are counted in determining the threshold under our stock ownership guidelines. In addition, each non-employee director is expected to hold for at least one year 50% of the net after-tax value of company stock acquired through the exercise of a stock option or the vesting of restricted shares. Thereafter, the shares may be sold as of any date the target ownership level is met.

DIRECTOR INDEPENDENCE

We have considered the independence of each member of the board in accordance with the Nasdaq Stock Market corporate governance rules. We have determined that the following directors are independent: William F. Aldinger III, Nancy H. Bechtle, C. Preston Butcher, Donald G. Fisher, Frank C. Herringer, Marjorie Magner, Stephen T. McLin, Paula A. Sneed, Roger O. Walther, Robert N. Wilson, and David B. Yoffie. All of the members of the Audit, Compensation and Nominating and Corporate Governance Committees are independent as determined in accordance with the listing standards of the Nasdaq Stock Market.

In determining independence, the Board of Directors considers broadly all relevant facts and circumstances regarding a director’s relationships with the company. All non-employee directors receive compensation from the company for their service as a director, as disclosed in the section “Compensation Information – Director Compensation,” and are entitled to receive reimbursement for their expenses in traveling to and participating in board meetings. As disclosed in the “Transactions with Related Persons” section of this proxy statement, some directors and entities with which they are affiliated have credit transactions with the company’s banking and brokerage subsidiaries, such as mortgage loans, revolving lines of credit, or other extensions of credit. These transactions with directors and their affiliates are made in the ordinary course of business and to the extent permitted by the Sarbanes-Oxley Act of 2002. Such transactions are on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and do not involve more than the normal risk of collectibility or present other unfavorable features.

In addition to the relationships outlined above, the board considered the following types of relationships for the following directors:

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THE BOARD OF DIRECTORS

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No member of the Compensation Committee is or has been an officer or employee of the company or any of its subsidiaries. There were no Compensation Committee interlocks as defined under Securities and Exchange Commission rules during 2006.

DIRECTOR NOMINATIONS

The Nominating and Corporate Governance Committee is composed entirely of “independent directors” as determined by the Board of Directors in accordance with the Nasdaq Stock Market corporate governance rules.

The Board of Directors has adopted a written Nominating and Corporate Governance Committee charter. The charter is available on our website atwww.aboutschwab.com/governance. 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 for election included in this year’s proxy statement. Mr. Fisher and Ms. Bechtle and Mr. ButcherSneed have been previously elected by stockholders as directors. Ms. MagnerMr. Aldinger was appointed to the board in January 2006,July 2005, and this is the first year that shehe is a candidate for stockholder election to the board. The ChairmanAn independent director suggested Ms. Magner’sMr. Aldinger’s name as a candidate to the Nominating and Corporate Governance Committee, and the committee comprised of independent directors, recommended Ms. Magner’sMr. Aldinger’s nomination as a candidate.

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, 2006.2007. Stockholder nominations must be made in accordance with the procedures outlined in the company’s bylaws and must be addressed to:

to the Assistant Corporate Secretary

The Charles Schwab Corporation

Mailstop SF120KNY-04

101 Montgomery Street

San Francisco, California 94104

at the address provided in the “Corporate GovernanceInformation” section of this proxy statement. The bylaws are available on ourthe company’s website atwww.aboutschwab.com/governance.

Director Qualifications

The qualifications for directors are described in our Corporate Governance Guidelines, which are available on ourthe company’s website. In addition, the committee believes that the following specific, minimum qualifications must be met by a nominee for the position of director:

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

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.

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THE BOARD OF DIRECTORS

Identifying and Evaluating Nominees for Director

The Nominating and Corporate Governance Committee reviews the appropriate skills and characteristics

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THE BOARD OF DIRECTORS

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:

to the Assistant Corporate Secretary

The Charles Schwab Corporation

Mailstop SF120KNY-04

101 Montgomery Street

San Francisco, California 94104

at the address provided in the “Corporate Governance Information” section of this proxy statement. 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. 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.

17CORPORATE GOVERNANCE INFORMATION

In 2007, the Board of Directors adopted amendments to the Corporate Governance Guidelines to addresssituations in which a director does not receive a majority of affirmative votes cast in an uncontested election at an annual meeting of stockholders. Those amendments provide the following:

If a director nominee recommended by the board in an uncontested election at the annual meeting of stockholders receives a plurality of votes cast but fails to receive an affirmative majority of votes cast (i.e., the number of “withhold” votes exceeds the number of “for” votes) in the election of the director, the Nominating and Corporate Governance Committee (without the participation of the affected director) is expected to meet within 90 days after the final certification of the vote at the annual meeting to consider whether or not the director should continue on the board or board committees. In evaluating the director’s continued service, the Nominating and Corporate Governance Committee should consider the following:

In making its evaluation, the Nominating and Corporate Governance Committee may determine that:

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THE BOARD OF DIRECTORS

If the Nominating and Corporate Governance Committee determines that the affected director should not continue service on the board or on one or more board committees, the director will be expected to submit his or her resignation from the board or board committees to the full board immediately upon such determination. The Nominating and Corporate Governance Committee’s determination, including the reasons for such determination, will be publicly disclosed on a Form 8-K filed with the Securities and Exchange Commission.

You may find our Corporate Governance Guidelines, Code of Business Conduct and Ethics, and the charters for the Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee on the company’s website atwww.aboutschwab.com/governance. You also may obtain a paper copy of these items, without charge, from:

Assistant Corporate Secretary

The Charles Schwab Corporation

Mailstop SF120KNY-04

101 Montgomery Street

San Francisco, California 94104

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AUDITINGAUDIT INFORMATION

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 Nasdaq Stock Market. None of the directors on this committee is or has been an employee of The Charles Schwab Corporation or any of its subsidiaries. None of the committee members simultaneously serves on the audit committees of more than three public companies, including ours. All of the members of our committee are able to read and understand fundamental financial statements, including the company’s balance sheet, income statement, and cash flow statement. The board has determined that William F. Aldinger III 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/governance. A copy of the charter is attached to this proxy statement as Exhibit B.

The committee has met and held discussions with management and the company’s independent registered public accounting firm. As part of this process, the committee has:

Based on the review and discussions referred to above, the committeeAudit 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, 2005,2006, for filing with the SEC.

AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

Stephen T. McLin, Chairman

William F. Aldinger III

Nancy H. Bechtle

C. Preston Butcher

Donald G. Fisher

Marjorie Magner

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AUDITINGAUDIT INFORMATION

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 registered public accounting firm for the 20062007 fiscal year. Deloitte has served in this capacity since the company’s inception. We expect representatives of Deloitte to attend the annual meeting of stockholders, where 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 audits of the consolidated annual financial statements and management’s assessment of the effectiveness of internal control over financial reporting, and reviews of the consolidated financial statements included in quarterly reports on Form 10-Q were:

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:

Tax Fees

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

All Other Fees

All other services represent fees not included in “audit fees,” “audit-related fees,” and “tax fees.” The aggregate fees billed by Deloitte for these services were:

In addition to the fees above, audit fees in the amount of $1.6 million in 2004 and $1.8 million in 2005 and $2.0 million in 2006 were billed by Deloitte with respect to mutual funds managed by subsidiaries of The Charles Schwab Corporation. Ongoing mutual fund fees are included in the expenses of the mutual funds and are borne by the stockholders of the funds. Accordingly, they are not included in the expenses of The Charles Schwab Corporation.

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:

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AUDITINGAUDIT INFORMATION

The policy requires the pre-approval of the Audit Committeeprovides for other non-audit services performed by Deloitte. The policy contains liststhree separate categories of non-audit services contained in three separate categories, whichthat 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. The three categories are:

These three categories of services are considered “audit-related fees” and “tax fees.” Services that are not listedincluded in one of the categories above“audit fees,” “audit-related fees” or “tax fees” require specific pre-approval from the Audit Committee. On an annual basis, the policy limits the fees related tothese “all other non-audit services performedfees” by Deloitte to 50% of the combination of audit“audit fees, audit-related fees” “audit-related fees” and tax“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 years 20042005 and 2005,2006, the Audit Committee pre-approved 100% of the services performed by Deloitte relating to “audit-related fees” and “tax fees.”

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EXECUTIVE COMPENSATION INFORMATION

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

Membership and ResponsibilitiesDISCUSSION AND ANALYSIS

The Compensation Committee is composed entirely of “independent directors” as determined by the Board of Directors in accordance with the listing standards of the Nasdaq Stock Market.

Our committee is responsible for overseeingreviewing and administering the company’sapproving compensation programs for the Chairman and Chief Executive Officer, executive officers and other senior officers of the company. We report regularlyThe committee oversees compensation programs for these officers to ensure that compensation is consistent with objectives set by the board regarding our activities. In carrying out our responsibilities, we have direct access to an independent and experienced compensation consultant who provides advice on existing and new executive compensation practices and arrangements. If you would like further information about the committee’s membership and responsibilities, please refer to the Compensation Committee charter, which is available on the company’s website atwww.aboutschwab.com/governance.committee.

Compensation PoliciesCOMPENSATION OBJECTIVES

The company’s executive compensation philosophy is to programs are designed to:

Link pay with performance

Pay-for-performance is a key element in rewarding executives who achieve superior results. To do this, a significant portion of executive pay is dependent on company performance. To determine annual cash incentive awards, the Compensation Committee uses targets that are tied to specific measures of financial performance. The Compensation Committee also provides a significant portion of long-term incentive compensation in equity awards. These elements of an executive’s total pay package create an opportunity for executives to earn more than at peer companies if the company achieves superior results. However, executives risk earning less than at peer companies if the company’s results fall short of its objectives.

In 2006, the Compensation Committee selected performance measures of revenue growth and profit margin for payment of annual cash incentive awards. The Compensation Committee believes that revenue growth and profit margin are key measures in driving earnings growth and creating stockholder returnsvalue.

The committee generally targets total cash compensation (which includes base salary and annual cash incentive awards) at the 75^th percentile paid by peer companies. Because the committee sets aggressive measures for financial performance, the committee believes that the 75^th percentile for total cash compensation is an appropriate target if executives meet the objectives. A payout at the 75^th percentile for total cash compensation should occur if: (1) the company meets or exceeds its targeted performance objectives, and (2) other companies perform and pay out at market average rates.

In 2006, the committee granted 100% of long-term incentive awards to executive officers in the form of premium-priced stock options and performance-based restricted shares. The premium establishes an exercise price that is higher than the fair market value on the date of grant and ensures that executive officers do not realize a gain from the options until after stockholders realize a gain in stock price, thereby introducing greater performance risk and rewarding officers for sustaining significant growth in the company’s market valuation. The performance-based restricted shares are forfeited unless the company achieves a specified return on equity.

In prior years (2003 through 2005), in addition to equity awards, the committee approved long-term cash awards under the Long-Term Incentive Plan (LTIP). For these awards, the committee set performance targets of cumulative earnings per share over the long termperformance periods to determine cash payouts. The committee believed that cumulative earnings per share based on the company’s long-range strategic plan was a target that measured the success of executives in growing earnings over time and delivering superior returns to stockholders.

The committee does not target a specific percentage mix between cash compensation and long-term equity, nor does the committee consider the appreciation of equity granted in past periods in determining future grants. The committee believes that it would be inconsistent with its pay-for-performance objective to increase or

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COMPENSATION INFORMATION

decrease stock-based awards to account for appreciation or depreciation of the stock to equalize total compensation in the present pay period. Factors that the committee considers when granting long-term equity awards include: equity pay practices of competitor companies, annual expense to the company of equity awards, the company’s own past practices in granting equity awards, and the overall mix of equity awards that the committee deems to be appropriate.

Align executive performance with long-term interests of the company and its stockholders

In addition to rewarding executives for operating performance success, the compensation program is designed to align executive performance with the long-term interests of the company and its stockholders. Specifically, the performance goals selected by the committee for annual cash incentive awards measure growth and profitability, two key drivers of returns for stockholders. The performance targets therefore directly reward the achievement of operating objectives and also align executives’ performance with the interests of stockholders.

Realized gains from long-term equity awards are a function of stock price performance, and the committee believes that equity awards align executives’ pay opportunity directly with stockholders (i.e., executives achieve greater pay opportunity if the company delivers superior results to stockholders). The premium-priced stock options and performance-based restricted shares granted in 2006 promote equity participation only after stockholders realize a minimum return. The annual grants of long-term equity also encourage executives to focus on the company’s long-term performance and increase their equity stake in the company’s future success.

The Board of Directors adopted stock ownership guidelines in 2004 to promote significant equity ownership in the company and align executive officers’ interests with stockholders. Under the stock ownership guidelines, the Chairman and Chief Executive Officershould have an investment position in company stock equal to at least $5 million. All other executive officers should have an investment position in company stock equal to at least $1.5 million. Shares owned directly, shares beneficially owned under company benefit plans, restricted stock units, deferred stock units, and restricted stock are included in determining ownership levels. The ownership levels should be attained within five to seven years after the later of (i) establishment of the guidelines or (ii) the date the officer becomes an executive officer. Each executive officer also is expected to hold for at least one year at least 50% of the net after-tax value of company stock acquired through the exercise of stock options or the vesting of restricted shares. While the guidelines do not contain mandatory enforcement provisions, the Board of Directors expects that executive officers will comply with the ownership guidelines.

The Board of Directors approved an Employee Stock Purchase Plan, subject to stockholder approval at the 2007 annual meeting. All employees, including the named executive officers (except for Mr. Schwab, who beneficially owns more than 5% of the company’s common stock), would be eligible to participate in the plan. If approved by stockholders, employees may purchase shares through payroll deductions at a discount of 15% to market value. Offering periods are limited to six months in duration, and there are two offering periods per year. Employees are limited to a maximum payroll deduction of up to 10% of eligible compensation (as defined in the plan) in an amount not to exceed $25,000 of the fair market value of stock per year (up to a maximum of 1,250 shares during each offering period).

Attract and retain key executives

Payment of compensation that is competitive with what executives could earn at similar companies is a critical component of the company’s ability to attract and retain key executives who are critical to the company’s long-term success. Pay is linked to the company’s long-term growth and stockholder returns by requiring thatexecutives. Although a significant portion of an executive’s totalpay package is dependent on company performance, the Compensation Committee believes that the company must pay base salaries and provide target incentive opportunities that are competitive with

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COMPENSATION INFORMATION

peer companies to attract and retain key executives. The Compensation Committee therefore targets base salary at the median of peer companies to meet these objectives.

To ensure that pay is competitive, the Compensation Committee asks its independent compensation package be in the form of stock, stock-based incentives and cash incentives (under the Long-Term Incentive Plan) based exclusively on corporate long-term performance. Pay also is linkedconsultants, Hewitt Associates, to provide benchmark data with respect to peer companies. The companies that comprised the company’s financial performance by requiring that executives’ cash incentive compensation be subject to performance-based criteria with significant upside potential and downside risk.primary peer group in 2006 consisted of:

When establishing salaries, bonus levels and long-term incentive and stock-based awards for executive officers,we consider the individual’s role, responsibilities and performance during the past year, and the amount of overall compensation paid to executive officers in similar positions of peer group companies. When reviewing compensation, we look at each element of the executive officers’ compensation package, as well as the overall package of compensation, including the value of perquisites provided by the company. The absence of any traditional pension or supplemental executive retirement pension benefit for executive officers (other than officers of U.S. Trust, a subsidiary of the company) makes the long-term incentive and stock programs an even more critical, performance-based component of executive officers’ longer-term capital accumulation opportunity.

A fundamental objective is to provide executive officers with the opportunity to earn total compensation that is competitive with total compensation that peer companies 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 companies in the peer group takes into account multiple factors, includingincluding: industry (with an emphasis on financial services), size, performance, leadership status in theirthe industry, and the extent to which each company competesmay compete with ourthe company for executive talent. The peer group may change from time to time based on these criteria. In 2004, theCompensation Committee modified the peer group to be more closely aligned with the company’s current size and business operations, by deleting some companies with larger market capitalizations and replacing them with companies more like ours.

Further,Because of the difficulty in measuring the roles of certain executive officers against those reported by peer companies, the compensation consultants may look to link pay with performance, we considerother sources (external surveys or other companies not in the primary peer group) in providing benchmark data for executives. In addition, because the primary peer group is not directly applicable to U.S. Trust’s wealth management business, the committee uses benchmark data provided by our independent consultant to establishfrom McLagan Partners’Investment Management Survey for officers of U.S. Trust.

ELEMENTS OF COMPENSATION

The committee reviews and approves all components of executive officer compensation. The principal elements of executive compensation targets that provide executive officers with total compensation that:are:

The committee also reviews and approves all other forms of compensation, including personal benefits and termination or severance payments. The company offers retirement benefits, which consist of a 401(k) program available for all employees (U.S. Trust also offers all of its employees a defined benefit plan). The company offers a deferred compensation plan to officers, which operates as a voluntary supplemental savings vehicle and does not provide above-market earnings or any matches on deferred compensation. The committee will consider these additional elements in reviewing an executive’s overall compensation package in light of the compensation objectives set by the committee. However, the committee generally uses base salary, annual cash incentive awards, and long-term incentive awards as the key elements in meeting compensation objectives.

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EXECUTIVE COMPENSATION INFORMATION

Base Salary

Base salary is frequentlyprovides executive officers with a significant factor in attracting, motivating and retaining key executive officers. Accordingly, webase level of income. The Compensation Committee annually reviewreviews executive officers’ base salaries and makemakes appropriate adjustments based on a number of factors, including: the executive’s experience, sustained level of performance in the job, performance in the previous year, internal pay relationships withrelative to other executives, and average base salaries paid to comparable executives of peer group companies. In 2004, we modified ourSince it may be difficult to obtain compensation data for some executive officers based on their unique scope or responsibility, the Compensation Committee may look at compensation data for senior executives at companies other than the primary peer group of companiesin setting base salary. In addition, the Compensation Committee also considers an executive’s leadership role within the company when determining adjustments to be more closely aligned with our company’s current size and business operations. Overall, ourbase salary.

Based on a competitive executive officers’pay analysis completed by Hewitt Associates, base salariespay in 2005 are2006 was generally above the median base salaries paid to executives of the peer group of companies. Ourgroup. The Compensation Committee’s objective is to have the base salaries of our executive officers approximate the median base salaries of peer companies over time. The committee did not raise salaries in 2006 for the named executive officers, other than for Mr. Bettinger. The Compensation Committee believed that Mr. Bettinger’s assumption of increased job responsibilities, with his appointment to his position leading the Schwab Investor Services enterprise in December 2005, merited a salary increase.

Annual Cash BonusesIncentive Awards

The bonusannual cash incentive award of the Chairman and Chief Executive Officer and each other executive officer is calculated and paid in accordance with the company’s Corporate Executive Bonus Plan (CEBP). Under the CEBP, we setthe Compensation Committee sets a target bonusaward for each executive officer in the first quarter of eachthe year expressed as a percentage of his or herthe executive’s base salary. The target bonusaward is based on a number of factors, including the executive officer’s individual experience andexperienceand performance, internal relationships of the executive leaders,leadership role, and competitive market data and recommendations provided by ourthe independent compensation consultant. For 2006, the Compensation Committee set target awards for the named executive officers as a percentage of base salary as follows: 350% for Mr. Schwab, 140% for Mr. Dodds, 175% for Mr. Bettinger, 125% for Ms. Dwyer, and 400% for Mr. Scaturro.

Under the criteria approved by the Compensation Committee, incentive awards for certain executives were based solely on overall corporate performance, while the awards for executives who lead business units were based on both overall corporate performance and the performance of their business units. For the named executive officers, the CEBP funding mix approved by the Compensation Committee in 2006 was as follows: For Mr. Schwab, Mr. Dodds, and Ms. Dwyer, 100% on overall corporate performance; for Mr. Bettinger, 40% on overall corporate performance and 60% on the performance of the Schwab Investor Services enterprise; and for Mr. Scaturro, 30% on overall corporate performance and 70% on the performance of U.S. Trust.

In 2005, awards2006, award payouts could range from 0% to 200% of the target bonusaward based on the performance matrices that wethe Compensation Committee adopted when weit established target bonusesawards for executive officers. In 2005, we usedofficers under the CEBP. For 2006, the Compensation Committee approved performance criteria of revenue growth and profit margins as the key performance measures to determine the level of performance and bonus payoutsmargin under the matrices. Some executive officersThe targets under the matrices (assuming awards would be paid at 100% at target), as well as the actual results achieved, were paid bonuses based solely on overall corporate performance, while other executives who lead either an enterprise or a business unit were paid bonuses based on a combination of overallcorporate performance and the performance of the enterprise or business unit that they oversee as follows:

All 2005 bonuses for named executive officers are set forth in the Summary Compensation Table, which follows this report.

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EXECUTIVE COMPENSATION INFORMATION

As indicated in the table, overall corporate performance and Schwab Investor Services performance exceeded target on both revenue growth and profit margin in 2006. U.S. Trust met its profit margin target but fell short of its target on revenue growth. The Compensation Committee reserves discretion to reduce funding at all levels indicated in the matrices (the committee does not reserve discretion to raise funding). Using the approved performance measures, the formula-based matrices (using the blended percentages described above for corporate and business unit performance) supported the following award payouts for the named executive officers: For Mr. Schwab, Mr. Dodds, and Ms. Dwyer, 137.0% of target; for Mr. Bettinger, 137.6% of target; and for Mr. Scaturro, 100.6% of target. The committee authorized actual 2006 annual cash incentive awards as follows: For Mr. Schwab, Mr. Dodds, and Ms. Dwyer, 135.0% of target; for Mr. Bettinger, 134.1% of target; and for Mr. Scaturro, 100.0% of target.

While the committee targets the 75^th percentile for total cash opportunities, it is often difficult to compare roles of executive officers with peer companies and calibrate the award structure to operate the same as at peer companies. Based on a competitive executive pay analysis completed by Hewitt Associates, target annual incentive award opportunities in 2006 for the named executive officers, as a percentage of salary, appeared to be in the third quartile (between the median and the 75^th percentile) of the peer group of companies. Actual annual cash incentive awards paid (as a percentile of the market paid by peer companies) may vary widely year to year, due to factors including the company’s actual performance and variance in awards paid by peer companies.

In the first quarter of 2007, the Compensation Committee selected performance criteria for 2007annual cash incentive awards under the CEBP. The performance criteria included revenue growth and pre-tax profit margin and, in the case of Mr. Scaturro, net income. The committee believed that it was appropriate to approve a simplified incentive plan for Mr. Scaturro. Mr. Scaturro will only be eligible to receive performance payments under the CEBP if he is employed by the company at the end of the performance period (December 31, 2007) and the performance targets are met. If the transaction to sell U.S. Trust to Bank of America closes on or before September 30, 2007, Mr. Scaturro will receive the benefits under his retention agreement, and he will not be eligible to receive the 2007 annual cash incentive payment under the CEBP.

Long-Term Incentives

Equity grants are made under the 2004 Stock Incentive Plan that was approved by stockholders. In 2006, stock-based awards to executive officers other than the Chairman and Chief Executive Officer consisted of 50% premium-priced stock options and 50% performance-based restricted share grants. The Chairman and Chief Executive Officer received 100% of his stock-based awards in the form of premium-priced stock options. The exercise prices of the options were set at a premium of 6% above the fair market value of the company’s common stock on the date of grant. The options vest 25% on each of the first, second, third and fourth anniversary of the grant date and have a term of seven years. The performance-based restricted shares require 15% corporate annual return on equity for each year of vesting. The performance-based restricted shares vest 25% on each of the first, second, third and fourth anniversary of the grant date. If the performance hurdle of at least 15% return on equity is not met for that year, the shares that would otherwise vest that year are forfeited. The size of each executive officer’s award was determined based on scope of responsibility, performance ratings, and an analysis of long-term compensation values for executive officers of peer companies.

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COMPENSATION INFORMATION

Long-Term Incentive PlanThe company has no program, plan or practice to time the grant of stock-based awards in coordination with the release of material non-public information. All equity grants to directors and executive officers are approved solely by the Compensation Committee or the independent directors at regularly scheduled meetings or, in limited cases involving key recruits or promotions, by a special meeting or unanimous written consent. If an award is made at a meeting, the grant date is the meeting date or a fixed, future date specified at the time of the grant, such as the first business day of a subsequent calendar month or the date that the grant recipient commences employment. If an award is approved by unanimous written consent, the grant date is a fixed, future date on or after the date the consent is effective under applicable corporate law (or, if later, the date the grant recipient starts employment, and the exercise price is the closing price of company stock on such date). Under the terms of the company’s stock incentive plans, the exercise price of stock options cannot be less than the closing price of company stock on the date of grant. In the event of securities law violations, the Compensation Committee reserves the right to reduce or cause the executive to forfeit awards and to require disgorgement of any profit realized from awards.

The Long-Term Incentive Plan (LTIP) is designedIn 2003, 2004, and 2005, the company designated a portion of its long-term incentive grants as cash awards to provide cash incentives to officersexecutives under the LTIP. All awards under the LTIP are based strictly on the company’s corporate performance. In 2005, we established a 3 ¹/2-year performance period beginning July 1, 2005. Cash incentives for this performance period will be based on the company’s cumulative earnings per share over thea defined performance period.

If cumulative earnings per share exceed $2.21 (the “threshold”), then The 2003 cash long-term incentive awards had a four-year performance period beginning January 1, 2003 and ending December 31, 2006. For the 2003 cash LTIP, the committee approved a performance schedule under which the amount of cash incentive payments forearned over the performance period willcould range between 50% of each officer’s target cash award (where cumulative earnings per share reach $2.22)$1.19) and 400% of the officer’s target cash award (where cumulative earnings per share reach $3.42)$2.77). If cumulativeMr. Schwab has not participated in the LTIP cash award program.

The 2003 LTIP performance period ended December 31, 2006. Under the 2003 cash LTIP, the company hadcumulative earnings per share do not exceed the threshold overof $1.99 for the performance period then cash incentive payments are entirely discretionary(including operating results of U.S. Trust through December 2006 and excluding the gain on resolution of a legal matter). The 2003 LTIP performance schedule supported, and the committee approved, a payout of 100% of target for the Committee and may be zero; however, such discretionary payments cannot exceed 49% of each officer’s target cash award.

The LTIP award opportunity granted to each of the company’s named executive officers in 2005 is set forth in the Long-Term Incentive Plan table, which follows this report.performance period.

Stock-Based AwardsPersonal Benefits

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. Significant equity participation by executive officers is encouraged through annual grants of stock-based awards and application of the company’s stock ownership guidelines.

In 2005, stock-based awards to executive officers consisted of premium priced stock options. The premium was intended to ensure that these officers do not realize a gain from the options until after stockholders realize a meaningful gain in stock price, thereby introducing greater performance risk and rewarding the officersCompensation Committee approves all personal benefits for achieving and sustaining significant growth in the company’s valuation. Theexercise prices of the options were set at premiums above the fair market value of the company’s common stock on the date of grant that are equivalent to compounded annual appreciation of 12%. For the Chairman and Chief Executive Officer, shares under the option had the following exercise prices expressed as a percentageexecutive officers, and other senior officers of the closing pricecompany. While the committee does not believe that personal benefits are or should be a significant portion of overall compensation, the company’s common stock oncommittee recognizes that personal benefits may be an element to attract and retain key executives. The committee also does not believe that it should be prescriptive in determining which personal benefits apply to all executives. Therefore, the datecommittee approved an annual “perquisite allowance” of grant: one-third at 112%, one-third at 125%, and one-third at 140%. For each other executive officer, shares under the option had the following exercise prices expressed as a percentage of the closing price of the company’s common stock on the date of grant: one-half at 112% and one-half at 125%. The size of awards$36,000 in 2006 for each executive officer, except for the Chairman and Chief Executive Officer. The perquisite allowance replaces in-kind perquisites historically received by executive officers and is paid in cash. The allowance is not a reimbursement for personal benefits, so executive officers are not required to spend the cash they receive for personal benefits.

In addition to this allowance, the Compensation Committee will review and approve any other personal benefit provided to executive officers. The company does not provide a perquisite allowance to Mr. Schwab. However, the company incurs costs for a driver, security systems and equipment that are necessary for his protection as the company’s founder and its Chairman and Chief Executive Officer. These security systems were established on the recommendation of an independent, third-party consulting firm retained in 2002 as part of the company’s business protection plans. Pursuant to the consultant’s security study, the company provided Mr. Schwab with the installation of a security system at his personal residence prior to 2006, portions of which Mr. Schwab paid for personally. The company continues

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COMPENSATION INFORMATION

to provide monitoring and maintenance of the security system, in the amount of $170,093 in 2006.

As part of the compensation package that the Compensation Committee approved for Mr. Scaturro and contained in his offer letter, the company provides Mr. Scaturro with a driver and car service for commuting to and from work and for business-related travel. The committee believed this personal benefit was appropriate as part of Mr. Scaturro’s compensation package.

The company may from time to time incur other costs that result in a personal benefit to an executive. The Compensation Committee has determined basedthat it is appropriate for the company to permit spouses to accompany executives to certain business functions with the approval of the company’s Chief Financial Officer. The costs of these travel-related expenses are treated as income to the executive and grossed up for tax purposes.

Termination and Change-in-Control Arrangements

All executive officers except Mr. Schwab are eligible to receive severance benefits under the company’s general severance plan in the event of termination of employment on title, performance ratings, potentialaccount of job elimination. Under the Severance Pay Plan, an executive officer with 5 or more years of service is entitled to salary and benefits continuation, as well as continued vesting in all outstanding long-term awards, for leadershipa 60-day period. After the 60-day period, an executive officer is entitled to receive: (i) a lump-sum payment equal to 16 months of base salary and competitive market data concerning levelsthe cost of COBRA premiums, and (ii) all outstanding long-term awards that would have vested during the 16-month severance period. To receive the severance payments and accelerated vesting of long-term awards, an employee must execute a severance agreement that contains, among other provisions, a general release and waiver of all claims.

Mr. Schwab is eligible for severance benefits under his employment agreement. Mr. Schwab’s employment agreement and the severance benefits covered by theagreement are described in the narrative accompanying the Summary Compensation Table.

As part of the sale of U.S. Trust to Bank of America, the company entered into a retention agreement with Mr. Scaturro to cover the transition period until the close of sale. In addition, Mr. Scaturro is entitled to receive certain benefits under his offer letter. The terms of those benefits are described more fully in the narrative to the Summary Compensation Table.

The company does not maintain any other special severance or change in control plans for executive officers. The Compensation Committee, however, considers the avoidance of loss and distraction of employees as a result of an actual or contemplated change in control to be essential to protecting and enhancing the best interests of the company and its stockholders. Accordingly, employees may be entitled to full vesting of their stock-based incentives and cash incentives (under the LTIP) in the event of a change in control of The Charles Schwab Corporation.

Retirement Benefits

The company offers a match up to a specified amount on its 401(k) program, which is equally available to all eligible employees. The company does not offer a traditional pension or supplemental executive retirement pension benefit (except for U.S. Trust, which has a defined benefit retirement plan). Mr. Scaturro is the only named executive officer who has a balance under the U.S. Trust plan, and all U.S. Trust employees hired after 2002 have an account established to which a percentage of compensation is credited on a quarterly basis. No other named executive officer participates in a defined benefit plan. The company’s long-term incentive and stock programs provide a means for executive officers of peer group companies.to accumulate capital and savings over the long-term. The premium priced stock options grantedcommittee views these programs, which reward officers for superior long-term performance, as a better means to each of the company’s named executive officers in 2005 are set forth in the table entitled “Options Granted in Last Fiscal Year,” which follows this report.support its compensation objectives than a traditional pension program.

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COMPENSATION INFORMATION

Deferred Compensation

The Boardcompany has a deferred compensation plan for officers. Under this plan, eligible officers may defer portions of Directorstheir cash compensation. In 2006, executive officers could defer part or all of their annual cash incentive awards and cash LTIP payments but could not elect to defer base salary.

The deferred compensation plan is an unfunded liability of the company. Officers may elect to defer compensation into investment choices that track returns of certain mutual funds. The company does not offer matches, preferential earnings, or any other type of compensatory arrangement on deferred compensation. Deferred compensation is intended as a long-term savings vehicle for officers, especially since the company does not offer any traditional pension or defined benefit plan (except in the case of U.S. Trust). The Compensation Committee does not consider deferred compensation accounts when setting executive pay levels, since this represents compensation that has adopted stock ownership guidelinespreviously been earned and individual accounts are a function of personal investment choices and market-based earnings.

COMPENSATION PROCESS

Under its charter, the Compensation Committee has the responsibility to do the following for executives. Under these guidelines, the Chairman and Chief Executive Officer, should have an investment position in company stock equal to at least $5 million. All other executive officers, should have an investment position in company stock equal to at least $1.5 million. These ownership guidelines should be attained within five to seven years after the later of (i) establishmentand other senior officers of the guidelines or (ii) the date the officer becomes an executive officer. Each executive officer also is expected to hold for at least one year 50% of the net after-tax value of company stock acquired through the exercise of a stock option or the vesting of restricted shares.

As of the close of business on March 20, 2006, directors and executive officers owned an aggregate of 245,384,484 shares (including restricted shares) and had the right to acquire an additional 13,662,138 shares upon the exercise of stock options or under the Directors’ Deferred Compensation Plans.

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EXECUTIVE COMPENSATION

Compensation of Chairman and Chief Executive Officer

The Chairman and Chief Executive Officer, Charles R. Schwab, is compensated in accordance with his stockholder-approved employment agreement, which is described in Exhibit C, as follows:company:

For 2005, Mr. Schwab earned a bonus of $3,937,500 based on his target bonus award and the formula-based matrix.

We believe that Mr. Schwab’s leadership is a vital factor to our corporate success. Specifically, we believe that:

FormerThe Compensation Committee has the authority, as a committee or together with the other independent directors, to evaluate the performance and determine the salary of the Chairman and Chief Executive Officers

We entered into separation agreements with William L. Atwell, who served as Executive Vice President – Individual Investor Enterprise and Alan J. Weber, who served as Executive Vice President andOfficer.With respect to other executive officers, the Compensation Committee also considers recommendations from the Chairman and Chief Executive Officer U.S. Trust Corporation. Both formerregarding total compensation for executive officers. Those recommendations include salary increases or target incentive award opportunities, based on his evaluation of their performance, job responsibilities, and leadership roles within the company. While the Compensation Committee considers these recommendations for the Chairman and Chief Executive Officer’s direct reports, the committee does not delegate authority for compensation decisions relating to the Chairman and Chief Executive Officer, executive officers, received severance benefits pursuantother senior officers as determined by the committee, and directors.

The committee has sole authority to retain compensation consultants to advise the committee and the authority to approve their fees and other terms related to their separation agreements, which are describedretention. The committee directly engaged Hewitt Associates to provide consulting services with regard to executive and director compensation. The committee directed Hewitt Associates to provide a competitive pay analysis with respect to the company’s executive compensation relative to its peers, recommendations pertaining to Chief Executive Officer pay, advice and counsel regarding management recommendations, market trends and technical developments throughout the year.

When reviewing and setting compensation for executive officers, the Compensation Committee reviewed tally sheets setting forth all components of compensation for each officer. In 2006, the tally sheets included dollar values for salary, cash incentive awards, perquisites (cash and in-kind), long-term incentive stock option grants, vested outstanding long-term stock awards, unvested outstanding long-term stock awards, deferred compensation and 401(k) account balances. The tally sheets also included estimated dollar values for potential amounts payable to each executive officer upon termination, retirement and a change in control of the Summarycompany. Staff of the company’s Compensation Table following this report and are further described in Exhibits D and E, respectively,Department prepared these tally sheets to this proxy statement.provide the

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COMPENSATION INFORMATION

committee with a “snapshot” of each executive officer’s overall compensation and as a means to compare the executive officers’ overall compensation.

Based on a review of the tally sheets, the Compensation Committee found the compensation of the executive officers, including the Chairman and Chief Executive Officer, to be reasonable and effective in promoting the company’s compensation objectives. The Compensation Committee has determined that the company’s executive compensation policies and plans provide the necessary total remuneration program to reward pay-for-performance, align the interests of executives with those of the company and its stockholders, and attract and retain key executives.

TAX CONSIDERATIONS

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 they are performance-basedperformance based and approved by the stockholders. We believeThe Compensation Committee believes that it is generally in the best interests of stockholders to structure compensation plans so that compensation is performance-basedperformance based and therefore deductible under section 162(m).

Accordingly, the Corporate Executive Bonus Plan, the Long-Term Incentive PlanCEBP, LTIP, and the 2004 Stock Incentive Plan are designed to provide performance-based compensation and have been approved by stockholders. However, we believe that thereThere are times whenthat the Compensation Committee believes that the benefit of the deduction is outweighed by other corporate objectives and strategic needs.

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 and strategic needs may not always be consistent with the requirements for full deductibility, wethe Compensation Committee may use its discretion in appropriate cases to approve compensatory arrangements that do not permit for deductibility under section 162(m). Base salaries of all the named executive officers were below the $1 million limit in 2006. Whilevesting of past equity awards that are preparednot performance- based (e.g., restricted stock granted in prior years) may cause the overall compensation of a named executive officer to use our discretion, if we believeexceed the $1 million limit, the Compensation Committee intended that all compensation that it is appropriate, to enter into compensation arrangements or provide compensation under which payments may notapproved in 2006 would be fully deductible including under section 162(m).

COMPENSATION FOR MR. BETTINGER

On February 20, 2007, the board appointed Mr. Bettinger as President and Chief Operating Officer of the company. In recognition of his new role, the independent directors approved a compensation package consisting of the following:

Mr. Bettinger’s cash payment of $1,400,000 is in lieu of in-kind perquisites and is intended to compensate him for a variety of expenses that he will incur for a period of time, including rental housing and family travel expenses.

The stock options vest 25% on each of the first, second, third and fourth anniversary of the grant date, which was February 20, 2007, and have a term of seven years. The stock options have an exercise price of $19.56, which was the closing price of the company’s common stock on the grant date. The restricted shares vest 25% on each of the second and third anniversary of the grant date and 50% on the fourth anniversary of the grant date.

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COMPENSATION INFORMATION

COMPENSATION COMMITTEE REPORT

The Compensation Committee is composed entirely of “independent directors” as determined by the Board of Directors in accordance with the listing standards of the Nasdaq Stock Market.

The Board of Directors has adopted a written Compensation Committee charter. The charter is available on our website atwww.aboutschwab.com/governance.

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management. Based on the review and discussionsreferred to above, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the company’s annual report on Form 10-K for the fiscal year ended December 31, 2006 and the proxy statement on Schedule 14A.

COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS

Roger O. Walther, Chairman

Nancy H. Bechtle

Frank C. Herringer

Paula A. Sneed

Robert N. Wilson

David B. Yoffie

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EXECUTIVE COMPENSATION INFORMATION

SUMMARY COMPENSATION TABLE

This table shows for the last three fiscal years, compensation information for Charles R. Schwab, the company’s Chairman and Chief Executive Officer, Christopher V. Dodds, the company’s Chief Financial Officer, and the next fourthree most highly compensated executive officers as of December 31, 2005. It also provides information for William L. Atwell, who served as Executive Vice President and President – Individual Investor Enterprise until November 2005, and Alan J. Weber, who served as Executive Vice President and Chief Executive Officer of U.S. Trust until May 2005.2006. We refer to each of these officers as a “named executive officer.” No bonuses were paid in 2006 to a named executive officer, except as part of a non-equity incentive plan.

2006 Summary Compensation

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COMPENSATION INFORMATION

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COMPENSATION INFORMATION

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COMPENSATION INFORMATION

GRANTS OF PLAN-BASED AWARDS

This table shows grants of plan-based awards to the named executive officers during 2006. All stock grants to named executive officers in 2006 were in the form of performance-based restricted shares.

2006 Grants of Plan-Based Awards