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Remuneration Committee - Terms of reference

CONSTITUTION

The Board has established a Committee of the Board to be known as the Remuneration Committee.

MEMBERSHIP

The Committee shall be appointed by the Board from amongst the Non-Executive Directors.

The Committee shall consist of not less than three members. A quorum shall be three members.

The Board shall appoint the Chairman of the Committee. In the absence of the Committee Chairman, the remaining members present shall elect one of themselves to chair the meeting.

The Company Secretary or their nominee shall be the Secretary to the Committee.

FREQUENCY OF MEETINGS

Meetings shall be held as and when appropriate, but at least once a year. The Chairman of the Committee may convene additional meetings if deemed necessary.

ATTENDANCE AT MEETINGS

Only members of the Committee have the right to attend Committee Meetings. However, other individuals may be invited to attend all or part of any meetings as and when appropriate.

PURPOSE

The purpose of the Committee is to:

• Set remuneration for all Executive Directors and the Chairman, including pension rights and any compensation payments. The Committee will also recommend and monitor the level and structure of remuneration for the Company Secretary and the Senior Executives who report to an Executive Director (the Senior Management).
• The Committee will also have an oversight role in respect of the remuneration policy of the Company as it applies to all employees.

Authority

The Committee is authorised by the Board to investigate any matter within its terms of reference. It is authorised to seek any information it requires from any employee and all employees are directed to co-operate with any requests made by the Committee.

Approval of HM Treasury (the Shareholder) is required for remuneration packages and any incentivisation arrangements for Directors. The Shareholder's interest is primarily in ensuring that remuneration levels are sufficient to attract and motivate high calibre individuals to drive delivery of the Company's strategic and funding plan (the Plan) and that incentives for Directors are aligned with the stated objectives of the Tripartite Authorities.

The Chairman of the Committee will discuss proposals at an early stage with the Shareholder in order to input the Shareholders views to the process.

The Committee is authorised by the Board to obtain outside professional advice, and is responsible for the appointment of any Consultants in respect of Executive Director remuneration.

DUTIES

Subject to the Committee's purpose and authority (set out above), the Committee shall be responsible for all elements of the remuneration of the Executive Directors, and the Chairman of the Company, including pension rights and compensation payments, and the duties of the Committee shall include:-

• determining the basic salary paid to the Executive Directors and the Chairman and considering any recommendations made by the Chairman of the Company and/or Chief Executive for changes to that basic salary;
• considering the eligibility of Executive Directors and the Chairman for annual (or other) bonuses and benefits under incentive schemes;
• considering any bonuses, including retention payments, to be paid to the Executive Directors and the Chairman and in respect of any element of remuneration which is performance related, advising on and determining suitable performance-related criteria and monitoring their operation and considering any recommendations of the Chairman of the Company and/or Chief Executive regarding bonuses or performance related remuneration;
• considering other benefits granted to the Executive Directors and the Chairman and any recommendations of the Chairman and/or Chief Executive for changes in those benefits;
• considering the pension arrangements applicable to the Executive Directors and the Chairman;
• agreeing the policy for authorising claims for expenses from the Chief Executive and Chairman;
• considering and making recommendations in respect of any other terms of the service contracts of the Executive Directors and any proposed changes to these contracts having regard for the principle in the Combined Code that notice or contract periods should be set at one year or less and that consideration should be given to compensation commitments on the early termination of a director's contract;
• considering the circumstances of the termination of Executive Directors with the broad aim of avoiding the reward of poor performance while dealing fairly with cases where departure is not due to poor performance; and
• considering other matters relating to the purpose of the Committee as are referred to it by the Board.

In accordance with the Directors' Remuneration Regulations 2002 the Committee shall assist the Board to prepare the Directors' Remuneration Report for approval at the annual general meeting.

The Committee will normally receive recommendations from and shall consult with the Chairman and/or Chief Executive about all those matters forming the purview of the Committee save in relation to the Chairman or Chief Executive's own remuneration or contract matters.

The Committee may obtain external independent advice, in writing or orally, as necessary.

The Committee may form sub-committees from its membership to address specific aspects of its duties.

The Committee may delegate such of its powers as it thinks necessary to designated individuals to assist them in carrying out work required by the Committee.

The Committee's responsibility and authority covers the entire Northern Rock Group of companies and any joint ventures which may be entered into.

EXCLUSIONS

The terms of reference of the Committee do not encompass decisions to employ or dismiss Executive Directors. The Committee does not have responsibilities for nominations to the Board.

REVIEW

The Committee will conduct an annual review of its performance and ensure that it is provided with sufficient resources to undertake its duties, and that sufficient training is provided to members on appointment and on an ongoing basis, and recommend any changes that it considers necessary to the Board for approval.

These terms of reference shall be reviewed by the Committee and, where necessary updated, at least once a year.

REPORTING PROCEDURES

The Secretary to the Committee shall circulate the minutes of the meetings of the Committee to all members of the Board.

The Chairman of the Remuneration Committee or another of its members will be available at the Company's Annual General Meeting to answer questions on matters falling within the Remuneration Committee's remit.

© Northern Rock plc. 2008