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

10.3.4 Long Term Incentive Plan - Share Options

HBOS Executive Directors are not awarded executive share options.

The share options under the Bank of Scotland plans are exercisable in accordance with the rules of the plans, all performance targets having been satisfied, as set out in last year’s report.

No further share options have been or can be granted under these plans.

Details of the options outstanding under the plans in respect of Executive Directors are set out below:

Table 7

Notes to Table 7

Note 1:

On 27 September 2006, Colin Matthew exercised options over 50,000 shares granted effective from October 1996. The closing market price of the Group’s ordinary shares on the date of exercise was £10.58.

Note 2:

On 23 March 2006, George Mitchell, who retired as an Executive Director on 31 December 2005, exercised options over 50,000, 35,000, 40,000, 45,000 and 50,000 shares granted effective from October 1996, October 1997, October 1998, May 2000 and October 2000, respectively. The closing market price of the Group’s ordinary shares on the date of exercise was £9.86. He has no remaining options under the plan.

Note 3:

Details of the market price of the Group’s ordinary shares during 2006 are given in Section 10.3.8.

Note 4:

Jo Dawson has share options under the HBOS all-employee plan which were granted before she was appointed an Executive Director or to Level 9 or Level 8. She has options over 3,727 shares granted effective from April 2002 at an option price of £7.512. These are exercisable between 1 January 2007 and 14 April 2008. There are no performance conditions.

10.3.5 Sharesave Plan

The sharesave plan is available to all UK based Group colleagues.

The plan allows colleagues to save a fixed amount of money on a monthly basis. At the end of a pre-determined period, of three, five or seven years, colleagues have the right, if they so choose, to use the funds accumulated to purchase shares in the Group at a fixed price, based on a market price or an average market price determined around the invitation date and discounted by up to 20%. There are no performance conditions.

Certain Executive Directors have taken up membership of the plan and the projected numbers of shares which they would be entitled to purchase at the end of the relevant pre-determined periods are set out below:

Table 8

Notes to Table 8

Note 1:

Note 2:

On 28 March 2006, George Mitchell, who retired as an Executive Director on 31 December 2005, exercised options over 603 shares granted effective from September 2004. The closing market price of the Group’s ordinary shares on the date of exercise was £9.665. He has no remaining options under the plan.

Note 3:

On 28 December 2006, Sir James Crosby, who retired as an Executive Director on 31 July 2006, exercised options over 1,911 shares granted effective from September 2002. The closing market price of the Group’s ordinary shares on the date of exercise was £11.37. He has no remaining options under the plan.

Note 4:

On 5 January 2007, Andy Hornby exercised options over 1,607 shares granted effective from September 2003. The closing market price of the Group’s ordinary shares on the date of exercise was £11.42.

Note 5:

On 5 January 2007, Peter Cummings exercised options over 600 shares granted effective from October 2001. The closing market price of the Group’s ordinary shares on the date of exercise was £11.42.

Note 6:

Details of the market price of the Group’s ordinary shares during 2006 are given in Section 10.3.8.

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