PNC Financial Services (PNC)

Performance Measures

The committee has determined that the benchmark that will be used in making the comparative measurements for these performance goals will be the same benchmark performance index that we use internally to evaluate the portfolio management performance of our asset and liability management group. We implemented this index in 2005 to help us enhance portfolio returns through a thoughtful

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asset allocation process, to help better quantify the residual risks on the balance sheet and the income generating potential of the index, and to help measure the risk-adjusted performance of the portfolio and to make the portfolio managers more disciplined and accountable for risks taken in the portfolio. The index is designed to have superior risk-adjusted total return performance, be an approximate economic hedge for the residual risks of our balance sheet, broadly reflect the portfolio of investments held by our peer group and other large banks, and be highly liquid and transparent. The index is composed of three broad product components: swap and swap-like products; structured and securitized products (such as asset-backed securities and collateralized mortgage-backed securities); and mortgage-backed securities. Our asset and liability management group outperformed the index by 57 basis points in 2005 (prior to its use as a performance benchmark for these grants) and by 67 basis points in 2006 (the first year used as a performance benchmark). As we may adjust the composition of the index from time to time to reflect portfolio changes, changes in corporate strategy, and other internal and external factors, the benchmark against which the asset and liability management group performance will be measured for each year of the overall performance period for each grant will be the benchmark in effect as of March 30 of that year.

After the end of each performance period, the committee will determine the calculated maximum actual award payout permitted under this grant for the asset and liability management group performance achieved. The committee will have the discretion to award any amount up to, but not exceeding, the maximum amount determined by the levels of performance achieved, if any. Any such award will be paid in cash.

The committee intends to engage in a careful review process following the end of each performance period in determining whether and to what extent it will exercise this discretion, and expects to take into account such factors as absolute asset and liability unit financial performance, absolute proprietary trading results, adherence to risk parameters and contributions to the success of our other businesses.

Post-Employment Compensation. We provide post-employment compensation to our employees, including our named executive officers. The committee believes that offering such compensation allows us to attract and retain qualified employees and executives in a highly competitive marketplace. The principal elements of our post-employment compensation include a qualified defined benefit cash balance pension plan, as well as a non-qualified cash balance pension plan. We also maintain a separate supplemental retirement benefit plan for most of our executive officers.

Cash Balance Pension Plan. We maintain a non-contributory pension plan for most of our full-time employees. The pension plan is a defined benefit cash balance pension plan under the Employee Retirement Income Security Act of 1974, as amended (ERISA), and is qualified under Section 401(a) of the Internal Revenue Code. We contribute an actuarially determined amount necessary to fund the total benefits payable to participants. The amount of our annual contribution with respect to a specific participant is not calculated. The plan’s actuaries calculate contributions in the aggregate.

Benefits under the pension plan are determined as follows: effective January 1, 1999, a recordkeeping “account” was established for each participant. The initial account balance was determined as the present value of each participant’s accrued benefit as of December 31, 1998, using the plan provisions in effect on December 31, 1998. For each calendar quarter ending after January 1, 1999, eligible participants receive “earnings credits” expressed as a percentage of covered earnings, in accordance with a schedule based on the participant’s age plus years of credited service. In addition, employees who were at least age 40 and had at least 10 years of credited service as of January 1, 1999 receive additional quarterly “Transitional Credits” for up to 10 years. Participants also receive quarterly “interest credits” at the prevailing 30-year U.S. Treasury Bond rate.

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“Covered earnings” is defined as an employee’s regular earnings plus eligible variable compensation, such as paid bonuses. Deferred bonus payments are applied to our excess pension plan, discussed below. Eligible variable compensation for employees is limited to the greater of $25,000 or 50% of the employee’s total eligible variable compensation for the calendar year. Eligible variable compensation is generally limited to $250,000 for purposes of the 50% calculation, except in the case of a select group of our executive officers.

Excess Pension Plan. We also maintain an ERISA excess pension plan, which is a supplemental non-qualified pension plan. The excess pension plan provides retirement benefits equal to the difference, if any, between the maximum benefit allowed under the Internal Revenue Code and the amount that would be provided by the pension plan if no limits were applied. The excess pension plan also recognizes deferred bonuses that are not included in the pension plan as covered earnings.

Supplemental Retirement Benefit Plan. We also maintain a separate supplemental retirement benefit plan applicable to our executive officers. Executive officers who were age 50 and had five years of credited service as of January 1, 1999 receive benefits based on the formula in effect prior to January 1, 1999. All other executive officers participating in this plan will receive a benefit based upon the cash balance pension plan formula described above. In order to mitigate the effect of the transition to a cash balance pension plan formula, we doubled the “earnings credit” percentages for all executive officers at or above a certain organizational level who previously participated in the supplemental retirement benefit plan in effect before January 1, 1999. For any executive participating in this supplemental retirement benefit plan, “earnings credits” were only applied to eligible bonuses, however.

Defined Contribution Plans—ISP and SISP. We maintain an incentive savings plan (ISP), which is a qualified defined contribution plan (401(k) plan) and a supplemental incentive savings plan (SISP), which is a non-qualified excess defined contribution plan. The committee has capped the company’s match on SISP contributions at $5,000, beginning in 2006. For example, in 2005, before we instituted the cap, the company’s SISP match for our CEO was $138,450. The limitation on the SISP match does not affect the company’s match on the ISP.

Other Compensation. Other compensation includes our qualified and non-qualified defined contribution plans, a split dollar insurance arrangement, long-term disability insurance and perquisites received by our executive officers.

Insurance Arrangements. We pay premiums for most of our executive officers, including the named executive officers, in connection with the Key Executive Equity Plan, a split-dollar insurance arrangement. In addition, we pay long-term disability premiums on behalf of our named executive officers.

Perquisites. The committee believes that perquisites should be a minor part of executive compensation. We value perquisites on the basis of their incremental cost to us. In 2004, the committee determined that the annual incremental cost to us of perquisites should not exceed $50,000 for each executive officer.

We consider a benefit to be a perquisite or personal benefit unless its purpose is clearly and exclusively business related. The principal categories of benefits that may be provided by us to some or all of our executive officers that we consider perquisites include: personal use of corporate aircraft, regardless of whether the use is dictated by security concerns; dues we pay for club memberships not

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used exclusively for business purposes and all tax gross-ups for club dues; the services of outside professionals and financial consultants; the incidental costs of medical examinations not covered by health insurance; and home security devices.

For 2006, the committee approved management’s recommendation to eliminate a club membership allowance that we had previously provided as a perquisite for certain executive officers. In addition, the committee approved management’s request to eliminate any company car usage or car allowance for the same executive officers for 2007.

In light of the committee’s cap on perquisites, we have asked officers to reimburse us, as soon as practicable after a final determination of the cost of the perquisites, for any perquisites that exceed $50,000 in cost, and for 2006, Messrs. Rohr, Guyaux and Demchak each made partial reimbursements to us in connection with some of the perquisites that they received.

Existing Federal Aviation Administration (“FAA”) rules and regulations limit our ability to accept reimbursement for personal aircraft usage. The committee previously approved the execution of time sharing agreements between us and Messrs. Rohr and Guyaux with respect to use of our corporate aircraft. Such agreements provide a mechanism for obtaining reimbursement from the officer of the incremental cost of corporate aircraft use that may otherwise result in an officer exceeding the $50,000 cap, while complying with the FAA rules and regulations. The costs paid by our executive officers under the terms of the time sharing agreements include a federal excise tax and other fees and exceed the aggregate incremental cost that we report in this proxy statement as the value of the corporate aircraft perquisite. For flights subject to these time sharing agreements, the officer is required to pay us the maximum amount permissible under FAA regulations.

We did not have such an agreement with Mr. Demchak during 2006 and, as a result, he was unable to reimburse us for any of his personal aircraft use. Even after reimbursing us for all other perquisites received during 2006, his aircraft use led to Mr. Demchak’s perquisites for 2006 exceeding the $50,000 cap.

Based on the committee’s previous authorization of Mr. Demchak’s use of the corporate aircraft for personal flights, and in light of Mr. Demchak’s aircraft usage for 2006 and his restrictions on reimbursing us, the committee approved the execution of a time sharing agreement between us and Mr. Demchak, in substantially the same form as the agreements executed by Messrs. Rohr and Guyaux. We executed a time sharing agreement with Mr. Demchak in March 2007.