Report of the Board in relation to remuneration policy and practice
continued

10.3.2 Short Term Incentive Plan – HBOS Executive Directors

All Executive Directors, excluding Benny Higgins, who did not join the Group until 2006, have conditional entitlements to shares arising from sharekicker. Where the annual incentive for 2002 and/or 2003 and/or 2004 and/or 2005 was taken in shares and these shares are retained in trust for three years, additional shares may also be transferred to the Directors. Details of these shares are set out below.

The basic and additional shares shown below which vested in 2006 are also included in Table 4. The additional shares shown below which vested in 2006 are also included in Table 1a.

Table 5a

Notes to Table 5a

Note 1:

Note 2:

Shares will be released after three years, subject only to the basic shares still being held and to the participant still being in the Group’s employment at that time or being a qualifying leaver.

Note 3:

Because the basic shares are the participants’ entitlements, they are shown net of original income tax and National Insurance liability. The additional incentive shares are shown in a like manner. In practice, the value of the grossed-up equivalent additional shares (inclusive of associated income tax and National Insurance) has been shown in Table 1a at the time of release, as is the case with those released in the year on 21 March 2006. Those released in 2006 represented the basic shares purchased by the Director’s own annual cash incentive in March 2003 plus the additional shares, as shown in Table 1a, arising as a result of sharekicker. The closing market price of the Group’s ordinary shares on the date of release was £9.85.

Note 4:

Certain former Executive Directors also have entitlements to shares arising from sharekicker. Details of these shares are set out below.

Table 5b

These remain subject to the same plan rules as apply to existing Executive Directors and the Notes apply in like manner.

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