Compensation, shareholdings and loans

Actual 2005 senior executive compensation

Key elements for decision-making process within the Compensation Committee

Actual process and decisions taken:

– In February 2005 the Compensation Committee defined personal incentive targets for each senior executive for 2005 based on both financial performance and qualitative indicators. The 2004 results (Group net profit attributable to UBS shareholders / Business Group profit before tax and goodwill amortization) were compared against the 2005 operational plan (budget) and the resultant percentage change applied to 2004 target incentives to derive individual target incentives for 2005. Increases or decreases to these calculated targets were applied at the discretion of the Committee, taking into account future potential, changing roles and competitive positioning.

– In early February 2006, actual 2005 results were then assessed against the operational plan and with reference to UBS’s Group and Business Group financial targets as well as similar metrics of key competitors. These measurements and assessments defined a theoretical level of incentive award for each senior executive.

– This theoretical incentive award was finally measured against various additional factors: individually defined criteria, further potential, leadership qualities and contributions to overall success of UBS. This qualitative assessment led to increases or decreases from the theoretical target incentive by up to 25%.

– Long-term incentive option awards were granted in February 2005, based on the individual past performance of each senior executive, their contribution to the overall success of the firm, and their future potential.

Assessment elements for Chairman’s compensation

The Compensation Committee determined the Chairman’s incentive award applying the same process as for all senior executives. His defining contribution to the design and implementation of a very successful strategy, based on efficiently taking advantage of growth opportunities without compromising on a stringent risk policy, were taken into account, as well as Marcel Ospel’s contributions to developing a strong and highly motivated executive management team.

Actual compensation 2005 for executive members of the Board of Directors and the Group Executive Board

At the Group level, 2005 financial results exceeded internal performance targets and outperformed those of many competitors. From continuing operations (excluding the extraordinary gain from the sale of Private Banks & GAM and its operating result), UBS achieved a return on equity of 27.6%, exceeding the target range of 15–20% in place until the end of 2005, outperforming its peers. The increase in pre-goodwill basic earnings per share of 22% is well in line with UBS’s target of double-digit average annual growth. Total shareholder returns for the year under review were 35.3%, 103.3% cumulatively over a three-year period and 61.0% over a five-year period. The UBS share price outperformed the DJ Stoxx Banks Europe Index over the last three years. UBS’s share price appreciation and its total shareholder returns achieved over the last one, three and five years were significantly better than the average performance recorded by the nine peers UBS compares its compensation to. At Business Group level, performance improved in all core businesses, with market share and competitiveness significantly enhanced.

In determining the total compensation of senior executives, the Compensation Committee took into account these superior results, specifically valuing the facts that EPS growth was strongly driven by profit and not by share buybacks, and that profit increased primarily through revenue growth, not only by cost cuts. Average total compensation per senior executive increased by 15.1% over 2004. This compares favorably with the increase in UBS’s Group profits of 19% (and 18% for the financial businesses).

However, changes in the composition of the two corporate bodies as well as new definitions of roles impact the disclosed total compensation number and should be taken into consideration when making year-on-year comparisons. Walter Stuerzinger was appointed to the GEB in his capacity as Group Chief Risk Officer in March 2005. The combination of Wealth Management US with Wealth Management & Business Banking in July 2005 has led to Marcel Rohner assuming the role of Chairman and CEO of the newly created Global Wealth Management & Business Banking. To support Marcel Rohner in his expanded role, Raoul Weil was appointed to the GEB in his capacity as Head of Wealth Management International. Mark Sutton, formerly Chairman and CEO of Wealth Management US became Chairman and CEO, Americas. Also in July 2005, Huw Jenkins, formerly Global Head of Equities was appointed to the GEB as CEO of the Investment Bank, following John Costas’ decision to focus on a new business opportunity within Global Asset Management. John Costas remained Chairman of the Investment Bank and a member of the GEB until the end of 2005. Finally, Alberto Togni did not stand for re-election to the Board of Directors as an executive member in April 2005 due to reaching the statutory age limit. However, Marco Suter, formerly Group Chief Credit Officer was elected to the Board of Directors as an executive member in April 2005.

The total of all compensation for the financial year 2005 (base salary, incentive awards, options, employer’s contributions to retirement benefit plans, benefits in kind and fringe benefits) for the three executive members of the Board of Directors, the ten members of the Group Executive Board in charge as of 31 December 2005 and Alberto Togni, who retired as a member of the Board of Directors in April 2005, was CHF 222,556,467. Details are shown in the table on page 118. Total incentive awards granted to the senior executives represent 2.1% of the overall incentive awards, distributed to the employees of UBS for 2005.

Actual remuneration 2005 for non-executive members of the Board of Directors

The eight non-executive members of the Board of Directors were paid in aggregate CHF 6,065,277 (in cash and restricted shares) for the term between the 2005 and 2006 AGMs. Fees are paid 50% in cash and 50% in restricted UBS shares. However, non-executive Board members can elect to have 100% of their remuneration paid in restricted UBS shares. These UBS shares are issued at a discount of 15% and are blocked for four years. Details are shown in the table on page 119.

Explanations:

– Number of senior executives:

2003: two executive BoD, ten GEB members in office as of 31 December and one executive BoD who stepped down during the year

2004: three executive BoD, seven GEB members in office as of 31 December and two who stepped down during the year

2005: three executive BoD, and ten GEB members in office as of 31 December and one executive BoD who retired during the year

– Benefits in kind: car leasing, company car allowance, staff discount on banking products and services, health and welfare benefits, general expenses allowances

– Shares valued at CHF 141.50 per share (average price of UBS shares at virt-x over the last ten trading days of February 2006), and USD 107.86 per share (average price of UBS shares at the NYSE over the last ten trading days of February 2006).

Value per share 2004: CHF 101.80 / USD 86.74; 2003: CHF 95.30 / USD 76.40.

– Options on UBS shares were granted at a strike price of CHF 111.50 and USD 95.50 respectively, ten percent above the average high and low price at the virt-x and the NYSE respectively on the last trading day in February 2005. Options vest three years after grant and will expire ten years from the date of grant.

Fair values per option at grant: CHF 12.46 / USD 13.46 for options granted in February 2005 and CHF 20.80 for options granted to match higher share elections in February 2006. No US dollar options will be issued from now on.

Fair values per option at grant 2004: CHF 23.90 / USD 20.51; 2003: CHF 12.33 / USD 9.90.

– Retirement benefit plans: In Switzerland, senior executives participate in UBS’s general pension plans, which comprise a basic component operated on the defined benefit principle, a savings plan to bridge the income gap between UBS retirement age and the age defined for the start of social security payments, and a defined contribution plan. The cap compensation amount to be included in these plans was set at CHF 774,000 for all employees in 2005. This translates into a maximum annual pension of CHF 313,708 after retirement plus a one-off payout of accumulated capital from the savings plan in the maximum amount of CHF 297,617. There are no special pension schemes offered to senior executives.

Senior executives outside Switzerland participate in the relevant local pension plans. In the US there are two different plans, one operating on a cash balance basis, which entitles the participant to receive a contribution based on compensation limited to USD 250,000. This plan is available to employees of the Investment Bank only. The other plan is a defined contribution plan with compensation included up to a limit of USD 210,000. US senior executives may also participate in the UBS 401K defined contribution plan open to all employees. In the UK senior executives participate in a pension plan operated on a defined contribution basis, with compensation for pension purposes limited to the UK earnings cap of GBP 102,000.

Note 30 to the UBS Group financial statements describes the various retirement benefit plans established in Switzerland and in major foreign markets.

Highest total compensation for a BoD member

Total compensation of the highest paid member of the Board of Directors, Chairman Marcel Ospel, amounted to CHF 23,975,954 for the financial year 2005:

Additional honorariums and remuneration

No additional honorariums or remuneration were paid to any of the Board or GEB members.

Additional severance payments

UBS does not pay any additional severance in addition to the salary and bonus entitlements of a departing member of the Board or the GEB. All payments are included in the numbers reported under compensation for members of the Board and the GEB.

Compensation for former members of the Board and GEB

Six former senior executives of Union Bank of Switzerland and Swiss Bank Corporation benefited from the use of office space and administrative support, mostly in connection with mandates they are still holding on behalf of or in the interests of UBS. The total value of these benefits was CHF 1,421,565 in 2005.

Explanations:

– Number of non-executive BoD members:

2003: seven acting members as of 31 December, one for nine months only

2004: seven acting members as of 31 December.

2005: eight acting members as of 31 December.

– Shares valued at CHF 141.50 (average price of UBS shares at virt-x over the last ten trading days of February 2006), discount price CHF 120.30. The shares are blocked for four years. Related parties of non-executive BoD members are not granted any shares.

Value per share 2004: CHF 101.80; 2003: CHF 95.30

– Allowance for “Out of pocket” expenses (CHF 15,000) in addition.