The company’s Board of Directors is sending these proxy materials to you on or about March 30, 2009. Stockholders who owned the company’s common stock at the close of business on March 16, 2009 may attend and vote at the annual meeting. Each share is entitled to one vote. There were 1,158,323,238 shares of common stock outstanding on March 16, 2009.

PROPOSAL FOR WHICH WE REQUEST YOUR VOTE

We recommend that you vote for the election of three directors for three-year terms.

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 following section.

MEMBERS OF THE BOARD OF DIRECTORS

WILLIAM F. ALDINGER III

DIRECTOR SINCE 2005

Mr. Aldinger, age 61, served as Chairman, President and Chief Executive Officer of Capmark Financial Group Inc., a financial services company, from 2006 until December 2008. 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 specialty finance company. Mr. Aldinger’s term expires in 2010.

NANCY H. BECHTLE

DIRECTOR SINCE 1992

Ms. Bechtle, age 71, 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 served as a director of the National Park Foundation from 2002 until January 2008 and was its Vice Chairman from 2005 until 2008. Ms. Bechtle is a nominee for election this year.

WALTER W. BETTINGER II

DIRECTOR SINCE 2008

Mr. Bettinger, age 48, was named President and Chief Executive Officer of The Charles Schwab Corporation and a member of the Board of Directors effective October 2008. He also serves on the Board of Directors of Charles Schwab & Co., Inc. and Charles Schwab Bank, and as a trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios, all registered investment companies. Prior to assuming his current role, he served as President and Chief Operating Officer of the company. He also served as Executive Vice President and President – Schwab Investor Services from 2005 until 2007, Executive Vice President and Chief Operating Officer – Individual Investor Enterprise from 2004 until 2005, and Executive Vice President – Corporate Services from 2002 until 2004. Mr. Bettinger joined the company in 1995. He is a nominee for election this year.

C. PRESTON BUTCHER

DIRECTOR SINCE 1988

Mr. Butcher, age 70, has been Chairman and Chief Executive Officer of Legacy Partners (formerly Lincoln Property Company N.C., Inc.), a real estate development 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 is a nominee for election this year.

DONALD G. FISHER

DIRECTOR SINCE 1988

Mr. Fisher, age 80, is the founder of Gap Inc., an international specialty retail clothing chain. He is Chairman Emeritus and a director of Gap Inc. He also was Chief Executive Officer of Gap Inc. from 1969 to 1995. His term expires in 2010.

FRANK C. HERRINGER

DIRECTOR SINCE 1996

Mr. Herringer, age 66, 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; and Cardax Pharmaceuticals, a biotechnology company. Mr. Herringer’s term expires in 2011.

STEPHEN T. MCLIN

DIRECTOR SINCE 1988

Mr. McLin, age 62, 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 2011.

CHARLES R. SCHWAB

DIRECTOR SINCE 1986

Mr. Schwab, age 71, has been Chairman and a director of The Charles Schwab Corporation since its incorporation in 1986. Mr. Schwab served as Chief Executive Officer of the company from 1986 to 1997 and from 2004 until October 2008. He served as Co-Chief Executive Officer of the company from 1998 to 2003. Mr. Schwab was a founder of Charles Schwab & Co., Inc. in 1971, has been its Chairman since 1978, and served as its Chief Executive Officer from 2004 until October 2008. Mr. Schwab is Chairman of Charles Schwab Bank and Chairman 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 2011.

PAULA A. SNEED

DIRECTOR SINCE 2002

Ms. Sneed, age 61, is Chairman and Chief Executive Officer of Phelps Prescott Group, LLC, a strategy and management consulting firm. She 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 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 held a variety of management positions. Ms. Sneed is a director of Airgas, Inc., a national distributor of industrial, medical and specialty gases and related equipment, and Tyco Electronics, a manufacturer of engineered electronic components, network solutions, wireless systems and telecommunications systems. Ms. Sneed’s term expires in 2010.

ROGER O. WALTHER

DIRECTOR SINCE 1989

Mr. Walther, age 73, 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 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. Mr. Walther served as Chairman and a director of First Republic Bank from 1985 until 2007. Mr. Walther’s term expires in 2011.

ROBERT N. WILSON

DIRECTOR SINCE 2003

Mr. Wilson, age 68, is Chairman of Still River Systems, a medical device company. Mr. Wilson was Chairman of Caxton Health Holdings, LLC, a healthcare-focused investment 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 joined Johnson & Johnson in 1964. Mr. Wilson is also a director of Hess Corporation, an integrated oil and gas company, and Synta Pharmaceuticals Corporation, a bio-pharmaceutical company. Mr. Wilson’s term expires in 2011.

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, Stephen T. McLin, Paula A. Sneed, Roger O. Walther, and Robert N. Wilson.

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 persons not related to the lender and do not involve more than the normal risk of collectability or present other unfavorable features.

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

CORPORATE GOVERNANCE INFORMATION

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

Directors currently serve staggered terms. Each director who is elected at an annual meeting of stockholders serves a three-year term, and the directors are divided into three classes.

The board held seven regular meetings in 2008. Each director attended at least 75% of all board and applicable committee meetings during 2008. 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 2008, ten directors attended the annual meeting.

We have an Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee. Each of these committees is composed entirely of “independent directors” as determined by the Board of Directors in accordance with Nasdaq Stock Market listing standards. In addition to those standing committees, the board may from time to time establish ad hoc committees to assist in various matters.

The Audit Committee held nine meetings in 2008 and is composed of the following members: Stephen T. McLin (Chairman), William F. Aldinger III, C. Preston Butcher, and Donald G. Fisher. None of the directors on the Audit Committee is or has been an employee of The Charles Schwab Corporation or any of its subsidiaries. None of the Audit Committee members simultaneously serves on the audit committees of more than three public companies, including ours. All of the members of the Audit 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 Audit Committee:

The Compensation Committee held six meetings in 2008 and is composed of the following members: Roger O. Walther (Chairman), Nancy H. Bechtle, Frank C. Herringer, Paula A. Sneed, and Robert N. Wilson. The Compensation Committee:

The Nominating and Corporate Governance Committee held two meetings in 2008 and is composed of the following members: Frank C. Herringer (Chairman), William F. Aldinger III, Nancy H. Bechtle, C. Preston

Butcher, Donald G. Fisher, Stephen T. McLin, Paula A. Sneed, Roger O. Walther, and Robert N. Wilson. The Nominating and Corporate Governance Committee:

The Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee have written charters. You may find a copy of these charters, as well as our Corporate Governance Guidelines and Code of Business Conduct and Ethics, on the company’s website at www.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 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 2008.

DIRECTOR NOMINATIONS

The Nominating and Corporate Governance Committee recommended all of the nominees for election included in this year’s proxy statement.

The Nominating and Corporate Governance Committee has a policy to consider candidates recommended by stockholders. The policy provides that stockholder recommendations must be in writing and 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 proposed candidate or interest in the proposed candidacy. The written recommendation must be addressed to the Assistant Corporate Secretary at the address provided in the “Corporate Governance Information” section of this proxy statement.

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.

Identifying and Evaluating Candidates 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 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 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. In such cases, the Assistant Corporate Secretary will retain a copy of such communication for review by any director upon his or her request.

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 2009 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. 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 services listed above, Deloitte provides audit services to certain unconsolidated affiliated mutual funds and foundations. The fees for such audit services are included in the expenses of the mutual funds and foundations and borne by the stockholders of the funds and foundations. Amounts billed by Deloitte for these services were $0.1 million and $0.2 million in 2008 and 2007, respectively. These amounts are not included in the expenses of The Charles Schwab Corporation.

Non-Audit Services Policies and Procedures

The Audit Committee has adopted a policy regarding non-audit services performed by Deloitte. The Audit Committee’s policy prohibits engaging Deloitte to perform the following non-audit services:

The policy requires 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, which 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:

Services not subject to pre-approval limits in one of the three categories above require specific pre-approval from the Audit Committee. Fees related to services requiring specific pre-approval are limited, on an annual basis, to 50% of the combination of audit fees, audit-related fees and 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 2008 and 2007, the Audit Committee pre-approved 100% of the services performed by Deloitte relating to “audit-related fees” and “tax fees.”

COMPENSATION DISCUSSION AND ANALYSIS

The Compensation Committee’s compensation philosophy and objectives are designed to:

How Compensation Decisions Were Made

The Compensation Committee reviews and approves compensation for the Chairman, the Chief Executive Officer, executive officers, other senior officers, and directors. It evaluates as a committee, or together with the other independent directors, the performance and compensation of the Chief Executive Officer. The Compensation Committee also considers recommendations from the Chairman and the Chief 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 Executive Vice President – Human Resources and Employee Services 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.

The Compensation Committee set compensation in 2008 based on each executive’s experience, role, past and expected future performance, and pay relative to internal peers in a similar role and external peers. It engaged Hewitt Associates as its compensation consultant to provide benchmarking data on external peers and general advice and counsel with respect to management programs, market practices and trends. The Compensation Committee also reviewed reports prepared by the company’s Human Resources

Department on pay history, total 2007 compensation, projected 2008 compensation, the value and vesting schedule of outstanding long-term awards (including equity awards and long-term cash awards), 401(k) balances, deferred compensation balances, each component of pay as a percentage of total compensation, and earnings from long-term compensation. The Compensation Committee did not use a formula or assign a weighting to various factors considered in setting compensation. It did not target a specific percentage mix between cash compensation and long-term equity or any specific percentage of total compensation for each compensation component.

The Compensation Committee reviewed benchmarking data for individual executive officers based on title (where available) and ranking (based on proxy disclosures). The benchmarking data was used as reference points to assess the competitiveness of compensation but was not used as a target to set compensation. In 2008, Hewitt Associates provided benchmarking data on each component of compensation for each named executive officer and on total direct compensation, which includes salary, bonus and long-term incentives valued at grant, excluding any promotional awards. For total direct compensation, the Compensation Committee used the 50^th and the 75^th percentiles of total direct compensation as market reference points.

The companies in the peer group were selected based on quantitative factors such as revenue, market capitalization and number of employees and qualitative factors such as business model, geographical coverage, mergers and acquisitions, and competition for business and for employees. In 2008, the peer group was: AG Edwards, Inc.; Ameriprise Financial, Inc.; Comerica, Inc.; E*Trade Financial Corp.; Fidelity Investments; Fifth Third Bancorp; Franklin Resources Inc.; Janus Capital Group Inc.; KeyCorp; Legg Mason Inc.; Northern Trust Corp.; PNC Financial Services Group Inc.; Raymond James Financial Corp.; State Street Corp.; TD Ameritrade Holding Co.; and T. Rowe Price Group, Inc.

The Compensation Committee believes that it is generally in the best interests of stockholders to structure compensation plans so that compensation is performance based and therefore deductible under Section 162(m) of the Internal Revenue Code. However, depending on business needs, the Compensation Committee may use its discretion to approve compensatory arrangements that are not deductible under Section 162(m). In 2008, compensation of the named executive officers was deductible under Section 162(m) except for vesting of past equity awards that are not considered performance based such as time-vested restricted stock, bonus amounts awarded outside of the Corporate Executive Bonus Plan due to promotions, and cash payments in lieu of in-kind perquisites or dividends on restricted stock that may cause the overall compensation of a named executive officer to exceed $1 million.

What Compensation Was Awarded and Why

The Compensation Committee believes that base salary, annual cash incentives and long-term incentive awards are the key elements of compensation to achieve its compensation objectives.

Base Salary

The Compensation Committee believes that base salary is a key element to attract, motivate and retain executive officers. In 2008, after reviewing the officer’s experience, role, past and expected future performance, and pay relative to internal peers in a similar role and external peers, the Compensation Committee increased base salaries for Mr. Schwab, Mr. Bettinger, Mr. Martinetto, and Mr. McCool. Subsequently, the Compensation Committee increased Mr. Bettinger’s base salary and reduced Mr. Schwab’s base salary upon Mr. Bettinger’s promotion to Chief Executive Officer effective October 1, 2008 to reflect changes in their respective leadership roles and scope of responsibility. The Compensation Committee increased Mr. McCool’s base salary upon his promotion to Executive Vice President –

Institutional Services. The amounts and percentages of the salary adjustments are contained in the narrative to the Summary Compensation Table.

Annual Cash Incentives

The Compensation Committee believes that annual cash incentives align the executive officers with the interests of the company and its stockholders and link executive pay with performance. Generally, annual cash incentive awards in 2008 for the named executive officers were made pursuant to the Corporate Executive Bonus Plan. In the first quarter of the year, the Compensation Committee set performance goals and a target award for each executive officer, expressed as a percentage of base salary. The performance goals were based on overall corporate financial performance measured by revenue growth and pre-tax profit margin and were set forth in a matrix approved by the Compensation Committee. In 2008, award payouts could range from 0% to 200% of the target award.

In the first quarter of 2008, after reviewing each officer’s role and pay relative to market practices and to emphasize variable pay for performance, the Compensation Committee increased target awards as a percentage of base salary for the named executive officers. The percentage increases and target awards expressed as a percentage of base salary are contained in the narrative to the Summary Compensation Table. Upon Mr. Bettinger’s promotion to Chief Executive Officer, the Compensation Committee increased his target award for the remainder of the year from 300% to 375% of base salary and reduced Mr. Schwab’s target award for the remainder of the year from 400% to 250% of base salary. Bonus amounts attributable to the increase in Mr. Bettinger’s target award were awarded outside of the Corporate Executive Bonus Plan.

The Compensation Committee approved performance criteria of revenue growth and pre-tax profit margin to focus executives on earnings growth and the creation of stockholder value. The goals set by the Compensation

Committee (assuming awards would be paid at 100% of target), as well as the actual results achieved, are as follows:

The Compensation Committee reserves discretion to reduce payouts below the levels supported by the matrix for revenue growth and pre-tax profit margin. The Compensation Committee did not exercise this discretion other than to round down the payout percentage to a whole number.

At the end of the year, the Compensation Committee reviewed individual performance and the company’s financial performance against the performance goals established at the beginning of the year. It determined that the formula-based matrix supported award payouts of 76.4% of target amounts. No adjustments were made for individual performance. The Compensation Committee approved award payouts of 76.0% for each of the named executive officers.

In the first quarter of 2009, the Compensation Committee selected performance criteria for 2009 annual cash incentive awards under the Corporate Executive Bonus Plan. The performance criteria are based on overall corporate performance as measured by revenue and pre-tax profit margin.

Long-Term Incentives

The Compensation Committee believes that long-term incentives help achieve the three objectives of the executive compensation program. In 2008, it granted equity awards of stock options, restricted stock and performance-based restricted stock based on its review of each officer’s experience, role, past and expected future performance, and pay relative to internal peers in a similar role and external peers. The Compensation

Committee granted long-term equity awards of 80% stock options and 20% performance-based restricted stock to the named executive officers, except Mr. Schwab and Mr. Bettinger. The stock options vest 25% annually over four years and the performance-based restricted stock vests if annual performance goals for pre-tax adjusted income divided by revenue (“pre-tax contribution margin”) and revenue growth are achieved. The Compensation Committee selected revenue growth and pre-tax contribution margin to focus executives on earnings growth and creating stockholder value. The performance goals are based on a matrix that includes the following points at which the performance shares will vest: revenue growth of 1% and pre-tax contribution margin of 29.5%, and revenue growth of 4.0% and pre-tax contribution margin of 28.0%.

Mr. Schwab, who stepped down as Chief Executive Officer as of October 1, 2008, did not receive an equity grant in 2008.

The Compensation Committee also granted equity awards to Mr. Bettinger and Mr. McCool upon their promotions. Upon his promotion to Chief Executive Officer, Mr. Bettinger received a grant of stock options with a grant date value of $7 million as his long-term incentive award for 2008 and restricted stock with a grant date value of $3 million in recognition of his promotion. The Compensation Committee reviewed Mr. Bettinger’s outstanding equity awards and modified the standard vesting schedule (25% vesting annually over four years) to emphasize the importance of long-term financial performance. Mr. Bettinger’s stock options vest 15% on each of the first, second, third and fourth anniversaries of the grant date and 40% on the fifth anniversary of the grant date. Mr. Bettinger’s restricted stock vests 25% on the third anniversary of the grant date and 75% on the fourth anniversary of the grant date.

The Compensation Committee granted Mr. McCool additional stock options with a grant date value of $200,000 and restricted stock with a grant date value of

$50,000 upon his promotion to Executive Vice President – Institutional Services. Mr. McCool’s awards vest 25% annually over four years.

In 2004, the Board of Directors adopted stock ownership guidelines to promote significant equity ownership by executives and further align their long-term financial interests with that of other stockholders. To further this objective, in 2008 the Compensation Committee recommended, and the Board of Directors approved, amendments to the guidelines to express the target ownership levels as a percentage of salary and to provide for penalties if the target ownership levels are not met within five years. Under the guidelines, the Chief Executive Officer is expected to maintain an investment position in company stock equal to at least five times base salary. All other executive officers are expected to maintain an investment position equal to at least three times base salary. Shares owned directly, beneficially owned under company benefit plans, restricted stock, restricted stock units, and deferred stock units are included in determining ownership levels, but stock options are not.

In addition to the equity compensation granted in 2008, the Compensation Committee approved cash payouts to the named executive officers under the Long Term Incentive Plan in connection with awards granted in 2005. The 2005 grant under the Long Term Incentive Plan had a performance period beginning July 1, 2005 and ending December 31, 2008. Amounts earned under the performance schedule could range from $0.50 per unit based on cumulative earnings per share of at least $2.22, up to a maximum of $4.00 per unit based on cumulative earnings per share equal to or greater than $3.42. At the end of the performance period, the company had cumulative earnings per share of $3.11 (excluding the gain on the sale of U.S. Trust and the related tax benefit, the gain on the resolution of a legal matter, and a $15 million tax benefit resulting from the payment of a special dividend in August 2007). Based on the previously approved performance schedule, the Compensation Committee certified the performance

goals had been met and approved a payout of $2.76 per unit for the performance period. The Compensation Committee no longer grants awards under the Long Term Incentive Plan.

Guidelines for Equity Awards

The company has no program, plan or practice to time the grant of stock-based awards relative to the release of material non-public information or other corporate events. All equity grants to directors and executive officers are approved 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. The grant date is the meeting date or a fixed, future date specified at the time of the grant. Under the terms of the company’s stock incentive plan, the exercise price of 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 equity awards and to require disgorgement of any profit realized from equity awards.

Other Compensation

While the Compensation Committee does not believe that perquisites are or should be a significant portion of compensation, it recognizes that perquisites may help attract and retain key executive officers. In 2005, the company replaced its car and parking allowance, financial planning reimbursement and executive medical benefit with a perquisite allowance. The allowance is not a reimbursement for perquisites but is simply a cash payment. Executives are not required to spend the cash payment or report on how the amounts are used. In 2008, the named executive officers, other than Mr. Bettinger and Mr. Schwab, received a perquisite allowance in the amount of $36,000.

In connection with his promotion to President and Chief Executive Officer, the Compensation Committee

approved certain benefits for Mr. Bettinger, including a car service for commuting purposes and use of fractionally-owned aircraft consistent with company policies.

In connection with his promotion to Executive Vice President – Institutional Services, the Compensation Committee approved certain benefits for Mr. McCool to assist with his relocation to the San Francisco Bay Area, including relocation benefits and a special, one-time cash payment of $800,000 in lieu of in-kind perquisites to compensate him for expenses that he will incur for a period of time, including rental housing and family travel expenses.

Pursuant to a security study performed by an independent, third-party consulting firm, the company incurs costs for a driver and for the maintenance of security systems and equipment for Mr. Schwab that are necessary for his protection as the company’s founder and its Chairman.

Executive officers may participate in the company’s 401(k) plan and employee stock purchase plan available to all eligible employees subject to Internal Revenue Service limits, and a deferred compensation plan available to officers and other key employees. The company offers no defined benefit plan, special retirement plan for executives or other nonqualified excess plans.

All employees, including executive officers other than Mr. Schwab, are eligible to receive severance benefits under the company’s Severance Pay Plan, which is described in the narrative following the Termination and Change in Control Benefits Table. Benefits are available under this plan only in the event of termination of employment on account of job elimination. After a review of market data on severance benefits in 2008, the Compensation Committee amended the Severance Pay Plan to reduce severance benefits for officers effective April 1, 2009. Under the amended program, executive vice presidents will be eligible to receive 15 days of base salary for each year of service with a minimum of seven months and a maximum of 12 months of severance pay. Mr. Schwab is entitled to severance benefits pursuant to his employment agreement described in the narrative to the Summary Compensation Table.

NARRATIVE TO SUMMARY COMPENSATION AND GRANTS OF PLAN-BASED AWARDS TABLES

Salary and Cash Incentives

The Compensation Committee raised base salaries in the beginning of 2008 after reviewing the officer’s experience, role, past and expected future performance, and pay relative to internal peers in a similar role and external peers as follows: Mr. Bettinger, from $700,000 to $775,000 (11%); Mr. Schwab, from $900,000 to $1,000,000 (11%); Mr. Martinetto, from $410,000 to $450,000 (10%); and Mr. McCool, from $425,000 to $435,000 (2%). The Committee also made the following adjustments to base salaries for changes in job responsibilities: Mr. Bettinger, from $775,000 to $900,000 (16%) upon his promotion to the position of Chief Executive Officer; Mr. Schwab, from $1,000,000 to $500,000 (-50%) upon Mr. Bettinger’s assumption of the position of Chief Executive Officer; and Mr. McCool, from $435,000 to $475,000 (9%) for his promotion to the position of Executive Vice President – Institutional Services.

All annual cash awards received by the named executive officers were in the form of incentive awards under the Corporate Executive Bonus Plan, unless the officer was promoted after the first quarter of the performance period. In the first quarter of 2008, after reviewing each officer’s role and pay relative to market practices and to emphasize variable pay for performance, the Compensation Committee increased target awards as follows: Mr. Schwab, 50%; Mr. Bettinger, 50%; Mr. Martinetto, 50%; Ms. Dwyer, 20%; Ms. Saeger, 25% and Mr. McCool, 50%. The new target awards expressed as a percentage of base salary for each named executive officer are: Mr. Schwab, 400%; Mr. Bettinger, 300%; Mr. Martinetto, 150%; Ms. Dwyer, 150%; Ms. Saeger, 125%; and Mr. McCool, 150%. Upon Mr. Bettinger’s promotion to Chief Executive Officer, the Compensation Committee increased his target award for the remainder of the year to 375% of base salary and

reduced Mr. Schwab’s target award for the remainder of the year to 250% of base salary.

Defined Benefits and Deferred Compensation

The company does not offer defined benefit and actuarial pension plans, special retirement plans for executives or other nonqualified excess plans. The company does not offer above-market or preferential earnings under nonqualified deferred compensation plans or defined contribution plans.

All Other Compensation

Restricted stock dividends are included in the “all other compensation” section of the Summary Compensation Table, because these dividends are not included in the fair value of the stock on the grant date as shown in the Grants of Plan-Based Awards Table.

Employment Agreement for Mr. Schwab

The company and Mr. Schwab entered into an amended employment agreement effective March 31, 2003. Stockholders approved the amended employment agreement. The amended agreement has an initial term of five years, and provides that as of each March 31, the term of the employment agreement is automatically extended by an additional year, under the same terms and conditions, unless beforehand either party provides notice to the other of an intention not to extend it. To address potential penalty taxes on deferred compensation pursuant to Section 409A of the Internal Revenue Code and associated regulations, the Board of Directors and Mr. Schwab agreed to amendments to his employment agreement in 2008 to specify the timing of payments, establish definitions of triggering events that are consistent with the Internal Revenue Service’s guidance under Section 409A and delay certain payments until six months after Mr. Schwab leaves employment as required by Section 409A for certain employees. The amendments do not impact the amount of the payments.

The amended employment agreement provides for an annual base salary of $900,000, subject to annual review by the board, and provides that Mr. Schwab will be entitled to participate in all compensation and fringe benefit programs made available to other executive officers, including stock-based incentive plans. Mr. Schwab’s bonus is determined under the Corporate Executive Bonus Plan, as described in the Compensation Discussion and Analysis.

The employment agreement also provides that certain compensation and benefits will be paid or provided to Mr. Schwab (or his immediate family or estate) if his employment is terminated involuntarily, except for cause. “Cause” is defined as the commission of a felony, or willful and gross negligence, or misconduct that results in material harm to the company. “Involuntary termination” includes a material change in Mr. Schwab’s capacities or duties at the company.

If an involuntary termination is not due to death, disability or cause:

If an involuntary termination is due to disability, Mr. Schwab will be entitled to receive:

If an involuntary termination is due to death, a lump sum payment will be made to Mr. Schwab’s estate equal to five times his then base salary.

If Mr. Schwab voluntarily resigns his employment within 24 months of a change in control of the company, he will be entitled to receive his base salary up to the date of resignation, plus a prorated portion of any bonus or incentive payments payable for the year in which the resignation occurs. In addition, Mr. Schwab has the right (but not the obligation) to enter into a consulting arrangement with the company if he voluntarily resigns his employment upon 6 months’ written notice to the company, or within 24 months of a change in control of the company if he voluntarily resigns or his employment is involuntarily terminated. Under that arrangement, Mr. Schwab would provide certain consulting services to the company for a period of five years for an annual payment equal to $1 million or 75% of his then base salary, whichever is less.

For estimated termination and change in control payments and benefits to Mr. Schwab, please refer to the “Termination and Change in Control Benefits Table.”

The employment agreement prohibits Mr. Schwab from becoming associated with any business competing with the company during the term of the agreement and for a period of five years following a voluntary resignation of employment. (However, that restriction does not apply if Mr. Schwab resigns his employment within 24 months of a change in control of the company.)

License Agreement for Mr. Schwab

The company and Charles Schwab & Co., Inc. also are parties to an assignment and license agreement with Mr. Schwab that was approved in July 1987 by the company’s non-employee directors. Under the agreement, Mr. Schwab has assigned to the company all service mark, trademark, and trade name rights to

Mr. Schwab’s name (and variations on the name) and likeness. However, Mr. Schwab has the perpetual, exclusive, irrevocable right to use his name and likeness for any activity other than the financial services business, so long as Mr. Schwab’s use of his name does not cause confusion about whether the company is involved with goods or services actually created, endorsed, marketed or sold by Mr. Schwab or by third parties unrelated to the company. The assignment and license agreement defines the “financial services business” as the business in which Charles Schwab & Co., Inc. is currently engaged and any additional and related business in which that firm or the company is permitted to engage under rules and regulations of applicable regulatory agencies.

Beginning immediately after any termination of his employment, Mr. Schwab will be entitled to use his likeness in the financial services business for some purposes (specifically, the sale, distribution, broadcast and promotion of books, videotapes, lectures, radio and television programs, and also any financial planning services that do not directly compete with any business in which the company or its subsidiaries are then engaged or plan to enter within three months). Beginning two years after any termination of his employment, Mr. Schwab may use his likeness for all other purposes, including in the financial services business, as long as that use does not cause confusion as described above.

No cash consideration is to be paid to Mr. Schwab for the name assignment while he is employed by the company or, after his employment terminates, while he

is receiving compensation under an employment agreement with the company. Beginning when all such compensation ceases, and continuing for a period of 15 years, Mr. Schwab or his estate will receive three-tenths of one percent (0.3%) of the aggregate net revenues of the company (on a consolidated basis) and those of its unconsolidated assignees and licensees that use the name or likeness. These payments may not, however, exceed $2 million per year, adjusted up or down to reflect changes from the cost of living prevailing in the San Francisco Bay Area during specified months in 1987, and they will terminate if the company and its subsidiaries cease using Mr. Schwab’s name and likeness. For estimated payments to Mr. Schwab under his license agreement, please refer to the table below entitled “Termination and Change in Control Benefits.”

The license agreement permits the company to continue using Mr. Schwab’s name and likeness even after he is no longer affiliated with the company and, under most circumstances, limits Mr. Schwab’s separate use of his name and likeness in the financial services business. However, the company’s ability to assign the license agreement, or to permit others to use Mr. Schwab’s name and likeness, is limited during Mr. Schwab’s lifetime. Thus, without Mr. Schwab’s consent, the company may not transfer the license, or any of the company’s rights under the license, to a third party, including by means of mergers or reorganizations in which the stockholders who held shares prior to the transaction do not retain the ability to elect the majority of the board immediately following such transaction (among other circumstances).

Charles Schwab Severance Pay Plan

Employees are eligible for benefits under the Severance Plan in the event of job elimination, as defined in the plan.

In 2008, executive officers of the company were eligible to receive a lump-sum severance pay benefit in an amount equal to a specified number of months (a minimum of eight months and a maximum of 16 months) based upon years of service, multiplied by one-twelfth of his or her base salary. This amount is in addition to the 60-day notice period provided in the plan.

In December 2008, the Compensation Committee amended the Severance Plan effective as of April 1, 2009 to reduce the lump-sum amount that executive officers are eligible to receive. Under the amended plan, an executive officer will receive a lump-sum severance pay benefit in an amount equal to 15 business days multiplied by his or her full years of service not to be less than the base salary that would have been payable to the executive officer for seven months and no more than the

base salary that would have been payable to the executive officer for twelve months. Pro-rated benefits will be provided for partial years of service. The lump-sum amount is in addition to the 60-day notice period provided in the plan.

An executive officer who becomes entitled to severance benefits under the plan is also eligible to receive a lump-sum payment to cover a portion of the cost of group health plan coverage. The amount of the payment is based upon the period of time for which he or she is eligible to receive severance pay and current COBRA rates for group health plan coverage. In addition, the portion of the executive officer’s long-term equity and cash compensation awards, except performance-based restricted stock or similar performance-based awards, which would have vested had the officer remained employed during the severance period will vest following his or her termination date. Executive officers are treated as employees during their severance period for purposes of determining their vesting in performance-based awards to the extent performance goals are met for the period.