SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934

Filed by the Registrant  x

Filed by a Party other than the Registrant  ¨

Check the appropriate box:

The Charles Schwab Corporation

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

Payment of Filing Fee (Check the appropriate box):

`

THECHARLESSCHWABCORPORATION 20072008PROXYSTATEMENT

March 30, 200728, 2008

Dear Fellow Stockholders,

We cordially invite you to attend our 20072008 Annual Meeting of Stockholders. The meeting will be held on Thursday, May 17, 2007,15, 2008, at 2:00 p.m., Pacific Time, at the Four SeasonsWestin Hotel, 757 Market50 Third Street, San Francisco, California.

At the meeting we will:

We also will report on our corporate performance in 20062007 and answer your questions.

On behalf of the Board of Directors, I extend our sincerest thanks to Anthony M. Frank, whose service as an emeritus director will end at the annual meeting, and to David B. Yoffie, whose service as a director will end at the annual meeting. We appreciate their distinguished service to the company.

We are pleased to offer you the convenience of viewing our annual meeting by webcast atwww.schwabevents.com. If you prefer to attend the meeting in person, please follow the advance registration instructions as outlined in this proxy statement. We look forward to your participation.

Sincerely,

CHARLES R. SCHWAB

CHAIRMAN AND CHIEF EXECUTIVE OFFICER

TABLE OF CONTENTS

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TABLE OF CONTENTS

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TABLE OF CONTENTS

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NOTICE OF 20072008 ANNUAL MEETING OF STOCKHOLDERS

The 20072008 Annual Meeting of Stockholders of The Charles Schwab Corporation will be held on Thursday, May 17, 2007,15, 2008, at 2:00 p.m., Pacific Time, at the Four SeasonsWestin Hotel, 757 Market50 Third Street, San Francisco, California, to conduct the following items of business:

Stockholders who owned shares of our common stock at the close of business on March 19, 200717, 2008 are entitled to attend and vote at the meeting and any adjournment or postponement of the meeting. A complete list of registered stockholders will be available prior to the meeting at our principal executive offices at 120 Kearny Street, San Francisco, California 94108.

By Order of the Board of Directors,

CARRIE E. DWYER

EXECUTIVE VICE PRESIDENT,

GENERAL COUNSEL AND

CORPORATE SECRETARY

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PROPOSALSPROPOSAL FOR WHICH WE REQUEST YOUR VOTE

ThisproxyThis proxy statement describes the proposals on which you may vote as a stockholder of The Charles Schwab Corporation. We, the company’s Board of Directors, are sending these proxy materials to you on or about March 30, 2007.28, 2008.

Stockholders who owned the company’s common stock at the close of business on March 19, 200717, 2008 may attend and vote at the annual meeting. Each share is entitled to one vote. There were 1,251,892,0101,146,948,645 shares of common stock outstanding on March 19, 2007.17, 2008.

PROPOSALSPROPOSAL FOR WHICH WE REQUEST YOUR VOTE

We recommend that you votefor: the election of five directors for three-year terms.

There are also two stockholder proposals that we recommend that you vote against. Those proposals are described in the section “Stockholder Proposals.”

PROPOSAL NO. 1:

ELECTION OF DIRECTORS

Nominees for directors this year are:

Each nominee is presently a director of the company and has consented to serve a three-year term. Biographical information about each of the nominees is contained in the section “The Board of Directors – Members of The Board of Directors.”

PROPOSAL NO. 2:

EMPLOYEE STOCK PURCHASE PLAN

The Board has approved the Employee Stock Purchase Plan, subject to approval by stockholders. If approved by stockholders, the plan would allow employees to purchase shares at a discount of 15% through payroll deductions. A total of 50,000,000 shares of the company’s common stock have been reserved for issuance under the Employee Stock Purchase Plan.

The plan was established to provide eligible employees with an opportunity to increase their ownership of the company by purchasing stock from the company at a discount and to pay for such purchases through payroll deductions. The Employee Stock Purchase Plan is intended to qualify for favorable tax treatment under section 423 of the Internal Revenue Code.

Key terms of the Employee Stock Purchase Plan are described below.

Administration

The Compensation Committee of the Board of Directors acts as the administrator of the Employee Stock Purchase Plan and has the authority to interpret and resolve any ambiguities in the terms of the plan. The committee has the right to delegate responsibility for administering or interpreting the plan to a designated officer or officers.

Eligibility; Price of Shares

Employees – including executive officers – who have been employed for at least three months on an enrollment date are eligible to participate in the Employee Stock Purchase Plan. There are approximately 11,500 employees eligible to participate in the plan (this number excludes U.S. Trust employees, since the sale of U.S. Trust is expected to close before the first offeringfollowing section.

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period begins). An employee may not participate in the Employee Stock Purchase Plan if, immediately after electing to purchase stock, the employee would own stock of the company (including stock the employee may purchase under outstanding options) representing 5% or more of the total combined voting power or value of all classes of stock of the company. In addition, an employee may not purchase stock with a fair market value in excess of $25,000 per calendar year.

Under the Employee Stock Purchase Plan, each calendar year is divided into two six-month “purchase periods” commencing February 1 and August 1 of each year. If the plan is approved by the stockholders, the initial purchase period will commence on August 1, 2007. At the end of each purchase period, the company will apply the amount contributed by the participant during that period to the purchase of shares of common stock. The purchase price will be equal to 85% of the market price of common stock on the last business day of the purchase period. The maximum number of shares that may be purchased during any purchase period is the lesser of 1,250 shares of common stock, or 10% of a participant’s eligible compensation (as defined in the plan). While the purpose of the plan is to encourage employees to increase their ownership of the company, there is no required period of time to hold shares, and employees may sell their shares immediately after the purchase.

Withdrawal from the Employee Stock Purchase Plan; Termination of Employment

Participants may withdraw from the Employee Stock Purchase Plan at any time up to the 15^th day of the last month of a purchase period. As soon as practicable after withdrawal, payroll deductions will cease and all amounts credited to the participant’s account will be refunded in cash, without interest. A participant who has withdrawn from the Employee Stock Purchase Plan cannot be a participant in future offering periods unless he or she re-enrolls pursuant to the plan’s guidelines.

Termination of a participant’s status as an eligible employee is treated as an automatic withdrawal from the plan. In the event of the death of a participant, the company will deliver shares and/or cash to the executor or administrator of the estate of the participant.

Amendment and Termination

The Employee Stock Purchase Plan may be amended, modified or terminated at any time by the Board of Directors or the Compensation Committee, subject to applicable laws.

Effect of Certain Corporate Events

In the event of an increase or decrease in the number of outstanding shares of stock resulting from a subdivision or consolidation of shares or any other capital adjustment, the payment of a stock dividend, or other similar event, the Compensation Committee will adjust the number of shares available under the plan.

In the event of a dissolution or liquidation of the company, or a merger or consolidation to which the company is a party, the plan will terminate, unless the plan of merger, consolidation or reorganization provides otherwise. If terminated, the amounts that each participant has paid toward the purchase price of stock would be distributed, without interest.

A new plan benefits table is not provided because no grants have been made under the Employee Stock Purchase Plan and the number of awards will depend on the number of employees who elect to participate. The level of future participation is uncertain and cannot be currently estimated.

The complete text of the proposed Employee Stock Purchase Plan is set forth as Exhibit A.

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PROPOSAL NO. 3:

AMENDMENTS TO 2004 STOCK INCENTIVE PLAN

On recommendation of the Compensation Committee, the Board has approved amendments to the 2004 Stock Incentive Plan relating to director compensation, subject to approval by stockholders. The recommendations were based on the Compensation Committee’s review of the non-employee directors’ compensation program. The review included a comparison to non-employee directors’ compensation at peer group companies.

Currently, non-employee directors receive an initial grant of 10,000 stock options upon joining the board. In addition, each non-employee director receives an annual, automatic grant of 5,000 stock options and a number of restricted shares equal to $60,000 divided by the fair market value of a share of common stock on the date of the grant.

Proposed Amendments to the 2004 Stock Incentive Plan

Under the proposed amendments, the initial grant of 10,000 stock options would be eliminated. If approved by stockholders, non-employee directors would receive an annual, automatic equity grant equal to $125,000, paid 50% in stock options and 50% in restricted stock. The number of restricted shares would be calculated by dividing $62,500 by the fair market value of a share of common stock on the date of grant, and the number of stock options by dividing $62,500 by the fair value of an option as valued by a binomial stock option pricing model (binomial value) on the date of grant. Non-employee directors would receive the pro-rata amount of the annual grant in the first calendar year the director joins the board.

The proposed amendments to the 2004 Stock Incentive Plan would align non-employee directors’ interests more directly with stockholders by increasing the equity component of annual director compensation from approximately 50% to 60%. This proposed change is part of overall amendments to director compensationapproved by the Compensation Committee. Separately, the Compensation Committee has approved changes to non-employee director cash retainers by eliminating per-meeting fees. Those changes are described in more detail in the section “Compensation Information – Director Compensation.” If stockholders do not approve the proposed amendments to the 2004 Stock Incentive Plan, non-employee directors will continue to receive the initial grant of options and the automatic equity grants authorized by the current plan.

The proposed amendments to the 2004 Stock Incentive Plan also make changes to clarify the terms of the plan, by providing that the number of shares granted under the plan will adjust automatically upon the occurrence of certain events, such as a stock split or stock dividend. The amendments also specify that the fair market value for a share of common stock is calculated using the closing price on the date of grant (or, in the case of a share of restricted stock, the average of the high and low price on the date of grant). The amendments also clarify that deferrals by directors of cash retainers into restricted stock units and stock options are governed by the terms of the Directors’ Deferred Compensation Plan II in compliance with section 409A of the Internal Revenue Code, and that the terms of those equity grants are made in accordance with the 2004 Stock Incentive Plan.

Description of the 2004 Stock Incentive Plan

The company’s stockholders approved the 2004 Stock Incentive Plan at the 2004 Annual Meeting of Stockholders. The 2004 Stock Incentive Plan permits the grant of stock options, restricted stock, restricted stock units (RSUs), performance shares, performance units and stock appreciation rights (SARs). The Compensation Committee may also grant other incentives payable in cash or in common stock under the plan subject to such terms and conditions as it deems appropriate. As of March 19, 2007, the market value of a share of the company’s common stock was $18.41, based on its closing price on that date.

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The Compensation Committee administers the plan. The committee is responsible for approving the aggregate benefits and the individual benefits for executive officers and non-employee directors. The committee may delegate its authority for certain other matters under the 2004 Stock Incentive Plan in accordance with its terms. Awards may be subject to such terms and conditions as the Compensation Committee deems appropriate, including provisions relating to a “change in control.”

Stock options awarded under the plan provide a right to acquire common stock at an exercise price at least equal to the fair market value of the company’s stock on the date of grant. Stock options include nonqualified and incentive stock options. Incentive stock options are intended to qualify for special tax treatment. Stock options vest according to a schedule established by the Compensation Committee. The plan permits for payment of the stock option exercise price by cash, check, other shares of common stock (with some restrictions), broker-assisted same-day sales, or any other form of consideration permitted by applicable law. The term of an option cannot exceed ten years. The plan does not give the Compensation Committee authority to reprice outstanding options if the fair market value of the stock declines.

Eligibility

Employees, non-employee directors and consultants of the company and its 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 will adjust these annual limits for any stock split, stock dividend, recapitalization or other similar event.

Through 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:

In addition, current executive officers as a group, current non-employee directors as a group and current employees (excluding executive officers and directors) have been granted options to purchase shares of company common stock under the 2004 Stock Incentive Plan, as follows:

Shares Available for Issuance

The aggregate number of shares of common stock that may be issued under the plan may not exceed:

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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:

Payments of Director Fees in Awards

The plan provides that a non-employee director may elect to 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.

Deferral 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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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 2005

Mr. Aldinger, age 59, has been60, is President and Chief Executive Officer of Capmark Financial Group Inc., a financial services company, and a member of its board of directors since June 2006.directors. Prior to joining Capmark, he was the Chairman and Chief Executive Officer of HSBC North America Inc., a financial services company, from 2003 until 2005. Mr. Aldinger also served as Chairman and Chief Executive Officer of Household International, Inc. (now HSBC Finance Corporation) from 1994 until 2005. Mr. Aldinger is a director of 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 estatespecialty finance company. Mr. Aldinger is a nominee for election this year.Aldinger’s term expires in 2010.

NANCY H. BECHTLE

DIRECTOR SINCE 1992

Ms. Bechtle, age 69,70, 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 was appointed a director of the Presidio Trust in January 2008. She also has served as Vice Chairman and a director of the National Park Foundation since February 2005.from 2002 until January 2008 and was its Vice Chairman from 2005 until 2008. Ms. Bechtle’s term expires in 2009.

C. PRESTON BUTCHER

DIRECTOR SINCE 1988

Mr. Butcher, age 68,69, has been Chairman and Chief Executive Officer of Legacy Partners (formerly Lincoln Property Company N.C., Inc.), a real estate developmentanddevelopment and management firm, since 1998. Mr. Butcher served as President, Chief Executive Officer and Regional Partner of Lincoln Property Company N.C., Inc. from 1967 until 1998. He is a director of Northstar Realty Finance Corp. Mr. Butcher’s term expires in 2009.

DONALD G. FISHER

DIRECTOR SINCE 1988

Mr. Fisher, age 78,79, is the founder of Gap Inc., an international specialty retail clothing chain. He is a director and Chairman Emeritus of the Boardand a director 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 is a nominee for election this year.Education. His term expires in 2010.

FRANK C. HERRINGER

DIRECTOR SINCE 1996

Mr. Herringer, age 64,65, 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 AEGON N.V. From the date of the acquisition until 2000, Mr. Herringer served on the Executive Board of AEGON N.V. and as Chairman of the Board of 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; Safeway, Inc., a food and drug retailer; Mirapoint, Inc., an Internet message infrastructure equipment developer; and Cardax Pharmaceuticals, a biotechnology company. Mr. Herringer’s term expires in 2008.Herringer is a nominee for election this year.

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THE BOARD OF DIRECTORS

MARJORIE MAGNER

DIRECTOR SINCE 2006

Ms. Magner, age 57,58, is a founding partner of Brysam Global Partners, a private equity firm. She served as

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Chairman and Chief Executive Officer of the Global Consumer Group for Citigroup, Inc., a financial services company, from 2003 until 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 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’s term expires in 2009.

STEPHEN T. MCLIN

DIRECTOR SINCE 1988

Mr. McLin, age 60,61, 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, and Financial Technology Ventures, a private equity fund. Mr. McLin’s term expires in 2008.McLin is a nominee for election this year.

CHARLES R. SCHWAB

DIRECTOR SINCE 1986

Mr. Schwab, age 69,70, 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 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 OfficersinceOfficer since 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 aChairman and trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios, all registered investment companies. Mr. Schwab’s term expires in 2008.Schwab is a nominee for election this year.

PAULA A. SNEED

DIRECTOR SINCE 2002

Ms. Sneed, age 59,60, served as Executive Vice President, Global Marketing Resources and Initiatives, of Kraft Foods, Inc., a global food and beverage company from 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. 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.positions. Ms. Sneed is a director of Airgas, Inc., a national distributor of industrial, medical and specialty gases and related equipment.equipment, and Tyco Electronics, a manufacturer of engineered electronic components, network solutions, wireless systems and telecommunications systems. Ms. Sneed is a nominee for election this year.Sneed’s term expires in 2010.

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ROGER O. WALTHER

DIRECTOR SINCE 1989

Mr. Walther, age 71,72, 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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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 1993. Since 1985, Mr. Walther has served as Chairman and has been a director of First Republic Bank. Mr. Walther’s term expires in 2008.Bank from 1985 until November 2007.Mr. Walther is a nominee for election this year.

ROBERT N. WILSON

DIRECTOR SINCE 2003

Mr. Wilson, age 66,67, is Chairman and Chief Executive Officerof Still River Systems, a medical device company. Mr. Wilson was Chairman of Caxton Health Holdings, LLC, a healthcare-focused investment firm. Prior to his association with Caxton Health Holdings, Mr. Wilsonhealthcare-focusedinvestment firm, from 2004 through 2007, and 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, National Association; Hess Corporation, an integrated oil and gas company;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 52,Wilson is Senior Associate Dean, Chair, Executive Education at the Harvard Business School. He has been the Max and Doris Starr Professor ofInternational Business Administration 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. Mr. Yoffie’s term expires at the annual meeting of stockholdersnominee for election this year, and he is not standing for reelection.year.

NUMBER OF DIRECTORS AND TERMS

The authorized number of directors is currently twelveeleven and the company has twelveeleven 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. ThreeFive directors are nominees for election this year and eightsix directors will continue to serve the terms described in their biographies.

Our directors currently serve staggered terms. ThisEach director who is accomplished as follows:elected at an annual meeting of stockholders serves a three-year term, and the directors are divided into three classes.

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BOARD AND COMMITTEE MEETINGS

The board held seven regular meetings and onetwo special meetingmeetings in 2006.2007. Each director attended at least 75% of all board and applicable committee meetings during 2006.2007. 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 2006,2007, eleven directors attended the annual meeting.

This table describes the board’s standing committees.

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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, and Robert N. Wilson, and David B. Yoffie.Wilson. 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 not related to the lender 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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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 2006.2007.

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.listing standards.

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. SneedAll nominees have been previously elected by stockholders as directors. Mr. Aldinger was appointed to the board in July 2005, and this is the first year that he is a candidate for stockholder election to the board. An independent director suggested Mr. Aldinger’s name as a candidate to the Nominating and Corporate Governance Committee, and the committee recommended Mr. Aldinger’s nomination as a candidate.

The Nominating and Corporate Governance Committee willhas a policy to consider candidates nominatedrecommended by stockholders for next year’s meeting if the nomination is madestockholders. The policy provides that stockholder recommendations must be in writing no later than November 30, 2007. Stockholder nominations must be made in accordanceand include the following information: (i) the name, address and contact information of the recommending stockholder; (ii) proof of the stockholder’s share ownership; (iii) a resume or statement of the candidate’s qualifications; and (iv) a statement of the stockholder’s relationship with the procedures outlinedproposed candidate or interest in the company’s bylaws andproposed candidacy. The written recommendation must be addressed to the Assistant Corporate Secretary at the address provided in the “Corporate GovernanceInformation” section of this proxy statement. The bylaws are available on the company’s website atwww.aboutschwab.com/governance.

Director Qualifications

The qualifications for directors are described in our Corporate Governance Guidelines, which are available on the 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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Identifying and Evaluating NomineesCandidates for Director

The Nominating and Corporate Governance Committee reviews the appropriate skills and characteristics required of board members in the context of the current composition of the board. Candidates considered for nomination to the Board of Directors may come from several sources, including current and former directors, professional search firms and stockholder nominations.recommendations. 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.candidates.

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 the Assistant Corporate Secretary 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.

CORPORATE 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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AUDIT 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.

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 Audit 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, 2006,2007, for filing with the SEC.

AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

Stephen T. McLin, Chairman

William F. Aldinger III

C. Preston Butcher

Donald G. Fisher

Marjorie Magner

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AUDIT INFORMATION

AUDITOR SELECTION AND FEES

Auditor Selection

The Audit Committee has selected Deloitte & Touche LLP and the member firms of Deloitte Touche Tohmatsu (collectively referred to as Deloitte) as the company’s independent registered public accounting firm for the 20072008 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 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 feesservices listed above, Deloitte provides audit fees in the amount of $1.8 million in 2005 and $2.0 million in 2006 were billed by Deloitte with respectservices to certain unconsolidated affiliated mutual funds managed by subsidiaries ofand foundations. The Charles Schwab Corporation. Ongoing mutual fund fees for such audit services are included in the expenses of the mutual funds and arefoundations and borne by the stockholders of the funds. Accordingly, theymutual funds and foundations. Amounts billed by Deloitte for these services were $0.2 million and $2.0 million in 2007 and 2006, respectively. These amounts are not included in the expenses of The Charles Schwab Corporation.

Pre-ApprovalNon-Audit Services 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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AUDIT INFORMATION

The policy providesrequires the pre-approval of the Audit Committee for other non-audit services performed by Deloitte. The policy divides non-audit services into three separate categories, of non-audit services thatwhich 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:

TheseServices not subject to pre-approval limits in one of the three categories of services are considered “audit-related fees” and “tax fees.” Services that are not included in “audit fees,” “audit-related fees” or “tax fees”above require specific pre-approval from the Audit Committee. OnFees related to services requiring specific pre-approval are limited, on an annual basis, the policy limits these “all other fees” by Deloitte to 50% of the combination of “auditaudit fees,” “audit-related fees” audit-related fees and “taxtax 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 20052006 and 2006,2007, the Audit Committee pre-approved 100% of the services performed by Deloitte relating to “audit-related fees” and “tax fees.”

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COMPENSATION INFORMATION

COMPENSATION DISCUSSION AND ANALYSIS

The Compensation Committee is responsible for reviewing and approving compensation for the Chairman and Chief Executive Officer, executive officers and other senior officers of the company. The committee oversees compensation programs for these officers to ensure that compensation is consistent with objectives set by the committee.

COMPENSATION PHILOSOPHY AND OBJECTIVES

TheAs approved by the Compensation Committee, the company’s executive compensation programs are designed to:

Link pay with performance

Pay-for-performance isThese objectives are achieved primarily through a key element in rewarding executives who achieve superior results. To do this, a significant portioncombination of executive pay is dependent on company performance. To determinebase salary, 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 ofand 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 paying competitive executive compensation is critical to attracting, motivating and retaining key executives. Accordingly, in setting compensation, the Compensation Committee reviews competitive compensation data for the peer group companies, including data for base salary, annual cash and long-term incentive compensation.

The Compensation Committee views annual cash incentives and long-term incentives as important tools not only for attracting, retaining and motivating employees, but also for aligning executive officer and stockholder interests. The Compensation Committee ties annual cash incentives and long-term incentives to performance criteria based on revenue growth and profit margin are key measures in driving earnings growthto focus executive officers on making disciplined investments that will lead to sustained profitability, and creatingultimately drive stockholder value.

The committee generally targets total cash compensation (which includes base salary andreturns. Specifically, executive officers only receive 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,bonuses 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 andvesting on their 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 unlesswhen the company achieves the associated performance goals for revenue growth and profit margin. In addition, executive officers only realize gain from their premium-priced options when the stockprice rises above a specifiedpremium threshold, ensuring a minimum level of stockholder 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 performance 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.before executive officers benefit.

The Compensation Committee also sets executive compensation to link pay with individual performance and the company’s financial performance. The Compensation Committee considers individual performance based on performance evaluations, job responsibilities and roles within the company as factors in determining base salary, individual cash incentive targets and long-term incentive awards. The Compensation Committee has structured annual cash and long-term incentives to reward sustained financial performance that results in stock price increases, and so that executive officers’ compensation opportunity increases with the company’s financial performance.

COMPENSATION PROCESS

Role of the Compensation Committee and Management

The Compensation Committee reviews and approves compensation for the Chairman and Chief Executive Officer, executive officers, other senior officers and directors. The Compensation Committee oversees compensation programs for these officers to ensure consistency with the compensation objectives it sets. For these officers, the Compensation Committee:

The Compensation Committee, as a committee or together with the other independent directors, evaluates the performance and determines the compensation of the Chairman and Chief Executive Officer. The Compensation Committee also considers recommendations from the Chairman and Chief

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COMPENSATION INFORMATION

Executive Officer regarding compensation for the other executive officers and performance criteria for annual and long-term incentives. These recommendations are developed in consultation with the President and Chief Operating Officer, the Executive Vice President – Human Resources, and with respect to performance criteria for annual and long-term incentives, the Chief Financial Officer. While the Compensation Committee considers these recommendations, it does not delegate authority to management for compensation decisions.

Role of Compensation Consultants

The Compensation Committee has sole authority to retain compensation consultants to advise the committee and sole authority to approve fees and other terms related to their retention. The Compensation Committee directly engages Hewitt Associates to provide consulting services for executive compensation decisions. In 2007, the Compensation Committee directed Hewitt Associates to provide competitive pay assessments for the Chairman and Chief Executive Officer and all executive vice presidents, an analysis of the peer group used for compensation benchmarking, and advice and counsel regarding management recommendations, market trends and technical developments throughout the year. Hewitt Associates did not provide the company with any other ongoing consulting or administrative services in 2007.

Process for Determining Compensation

When setting executive compensation, the Compensation Committee reviewed pay history information, base salary, annual cash and long-term incentive data and competitive data. It also considered the executive’s experience, role, past and expected future performance, and pay relative to internal peers in making individual compensation decisions. To give the committee a guideline to compare the competitiveness of compensation, Hewitt Associates prepared competitive pay assessments. The Compensation Committee did not use a formula or weighting to the factors considered in setting compensation. TheCompensation Committee awards a significant amount of total compensation in annual and long-term incentive compensation, but it does not target a specific percentage mix between cash compensation and long-term equity, nor does it target any specific percentage of total compensation for each compensation component.

The Compensation Committee also reviewed a report of total 2006 compensation and projected 2007 compensation prepared by the committee consider the appreciationcompany’s Human Resources Department. This report showed dollar values for base salary, annual incentive awards, perquisite allowances, relocation benefits, restricted stock dividends, miscellaneous items reported as all other compensation, and long-term incentive awards 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(including both vested and unvested awards).

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COMPENSATION INFORMATION

decrease stock-based awards to account for appreciation or depreciationWhen appropriate, the Compensation Committee reviewed and approved individual contracts and the other components 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,program, including retirement benefits, perquisites, termination and the overall mix of equity awards that the committee deems to be appropriate.change-in-control benefits, and other plans.

Align executive performance with long-term interestsSelection of the companyPeer Group and its stockholdersBenchmarking

In addition to rewarding executives for operating performance success, the compensation program is designed to alignThe Compensation Committee reviews competitive information based on ranking among named executive performance with the long-term interests of the companyofficers, 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 focuswhen available, 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,individual role or title (e.g., the Chairman and Chief Executive Officershould have an investment position in company stock equal to at least $5 million. All otherOfficer, Chief Financial Officer and Chief Operating Officer). The Compensation Committee also reviews benchmark data for 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 theas a group. In 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. Although a significant portion of an executive’s pay package is dependent on company performance, the Compensation Committee believes thatused this information as a reference point to assess the company must pay base salaries and provide target incentive opportunities that are competitive withcompetitiveness of compensation, rather than as a specific factor in setting individual compensation.

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COMPENSATION INFORMATION

peer companies to attract and retain key executives. The Compensation Committee therefore targets base salary atIn 2007, the median of peer companies to meet these objectives.

To ensure that pay is competitive, the Compensation Committee asks its independent compensation consultants, Hewitt Associates, to provide benchmark data with respect to peer companies. The companies that comprised the company’s primary peer group in 2006 consisted of:for compensation benchmarking was:

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COMPENSATION INFORMATION

The selection process forCompensation Committee also used the peer group takes into account multiple factors, including: industry (with an emphasis on financial services), size, performance, leadership status in the industry, and the extent to which each company may compete with the 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.

Because of the difficulty in measuring the roles of certain executive officers against those reported by peer companies, the compensation consultants may look to other 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 from McLagan Partners’Investment Management Survey for officers of U.S. Trust.

COMPENSATION PROCESS

ELEMENTS OF COMPENSATIONRole of the Compensation Committee and Management

The committeeCompensation Committee reviews and approves all components ofcompensation for the Chairman and Chief Executive Officer, executive officer compensation.officers, other senior officers and directors. The principal elements of executiveCompensation Committee oversees compensation are:programs for these officers to ensure consistency with the compensation objectives it sets. For these officers, the Compensation Committee:

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 operatesCompensation Committee, as a voluntary supplemental savings vehiclecommittee or together with the other independent directors, evaluates the performance 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 overalldetermines the compensation package in light of the compensation objectives set byChairman and Chief Executive Officer. The Compensation Committee also considers recommendations from the committee. However, the committee generally uses base salary, annual cash incentive awards,Chairman and long-term incentive awards as the key elements in meeting compensation objectives.Chief

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COMPENSATION INFORMATION

Base Salary

Base salary providesExecutive Officer regarding compensation for the other executive officers and performance criteria for annual and long-term incentives. These recommendations are developed in consultation with a base level of income. The Compensation Committee annually reviews executive officers’ base salariesthe President and makes appropriate adjustments based on a number of factors, including:Chief Operating Officer, the executive’s experience, sustained level ofExecutive Vice President – Human Resources, and with respect to performance incriteria for annual and long-term incentives, the job, performance in the previous year, pay relative to other executives, and average base salaries paid to comparable executives of peer companies. Since it may be difficult to obtain compensation data for some executive officers based on their unique scope or responsibility,Chief Financial Officer. While the Compensation Committee may look atconsiders these recommendations, it does not delegate authority to management for compensation data for senior executives at companies other than the primary peer group in setting base salary. In addition, the Compensation Committee also considers an executive’s leadership role within the company when determining adjustments to base salary.

Based on a competitive executive pay analysis completed by Hewitt Associates, base pay in 2006 was generally above the median of the peer group. The Compensation Committee’s objective is to have base salaries of 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.decisions.

Annual Cash Incentive AwardsRole of Compensation Consultants

The annual cash incentive award ofCompensation Committee has sole authority to retain compensation consultants to advise the committee and sole authority to approve fees and other terms related to their retention. The Compensation Committee directly engages Hewitt Associates to provide consulting services for executive compensation decisions. In 2007, the Compensation Committee directed Hewitt Associates to provide competitive pay assessments for the Chairman and Chief Executive Officer and eachall executive vice presidents, an analysis of the peer group used for compensation benchmarking, and advice and counsel regarding management recommendations, market trends and technical developments throughout the year. Hewitt Associates did not provide the company with any other ongoing consulting or administrative services in 2007.

Process for Determining Compensation

When setting executive officer is calculated and paid in accordance with the company’s Corporate Executive Bonus Plan (CEBP). Under the CEBP,compensation, the Compensation Committee setsreviewed pay history information, base salary, annual cash and long-term incentive data and competitive data. It also considered the executive’s experience, role, past and expected future performance, and pay relative to internal peers in making individual compensation decisions. To give the committee a guideline to compare the competitiveness of compensation, Hewitt Associates prepared competitive pay assessments. The Compensation Committee did not use a formula or weighting to the factors considered in setting compensation. TheCompensation Committee awards a significant amount of total compensation in annual and long-term incentive compensation, but it does not target awarda specific percentage mix between cash compensation and long-term equity, nor does it target any specific percentage of total compensation for each executive officer in the first quartercompensation component.

The Compensation Committee also reviewed a report of the year expressed as a percentage of the executive’s base salary. The target award is based on a number of factors, including the executive officer’s individual experienceand performance, internal leadership role,total 2006 compensation and competitive market data and recommendations providedprojected 2007 compensation prepared by the independentcompany’s Human Resources Department. This report showed dollar values for base salary, annual incentive awards, perquisite allowances, relocation benefits, restricted stock dividends, miscellaneous items reported as all other compensation, consultant. For 2006,and long-term incentive awards of equity (including both vested and unvested awards).

When appropriate, the Compensation Committee set target awardsreviewed and approved individual contracts and the other components of the compensation program, including retirement benefits, perquisites, termination and change-in-control benefits, and other plans.

Selection of Peer Group and Benchmarking

The Compensation Committee reviews competitive information based on ranking among named executive officers, and when available, on individual role or title (e.g., the Chairman and Chief Executive Officer, Chief Financial Officer and Chief Operating Officer). The Compensation Committee also reviews benchmark data 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 bygroup. In 2007, the Compensation Committee incentive awards for certain executives were based solely on overall corporate performance, whileused this information as a reference point to assess the awards for executives who lead business units were based on both overall corporate performance and the performancecompetitiveness of their business units. For the named executive officers, the CEBP funding mix approved by the Compensation Committeecompensation, rather than as a specific factor 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.setting individual compensation.

In 2006, award payouts could range from 0% to 200% of2007, the target award based on the performance matrices that the Compensation Committee adopted when it established target awardspeer group for executive officers under the CEBP. For 2006, the Compensation Committee approved performance criteria of revenue growth and profit margin under the matrices. The targets under the matrices (assuming awards would be paid at 100% at target), as well as the actual results achieved, were as follows:compensation benchmarking was: