(Effective November 1, 2007)

How Were the Bank's Directors Compensated in 2007? (a)

notes:
(a) Directors' compensation is only paid to non-employee directors. Directors are reimbursed for travel and out-of-pocket expenses incurred in attending Board and Committee Meetings.
(b) Includes meetings of The Pension Fund Society of Bank of Montreal.
(c) The Chairman of the Board receives no additional fees in his capacity as a director.
(d) Effective March 1, 2007, the Conduct Review Committee was merged with the Audit Committee.

With a view to aligning directors’ compensation with shareholders’ interests, directors are required to hold at least six times their annual retainer in Common Shares and/or Deferred Share Units and, until this level is achieved, directors must take 100% of their remuneration in the form of either Common Shares or Deferred Share Units. Once this threshold has been reached, directors must take 50% of their annual retainer in Common Shares (which are purchased on the open market) or in Deferred Share Units. Directors have the option to receive up to 100% of their annual retainer and meeting fees in this manner. 

In fiscal 2007, 11 of 16 non-employee directors elected to take 100% of their annual retainer and meeting fees in Deferred Share Units.  As at January 3, 2008, all non-employee directors were in compliance with the share ownership requirements with the exception of Mr. Cope and Dr. Piper (who both joined the Board in July 2006).

The granting of options under the Non-Officer Director Stock Option Plan was discontinued effective November 1, 2003. 

Options to purchase a total of 147,000 Common Shares, representing 0.03% of the Bank’s issued and outstanding Common Shares as at October 31, 2007, were granted under the Non-Officer Director Stock Option Plan. Such options have a 10-year expiry date and a strike price equal to the closing price of the Bank’s Common Shares on the trading day immediately preceding the date of grant. 

Options vest 25% per year over four years from the date of grant. Except for directors who have reached 62 years of age at the time of the grant, one half of the options granted to each director cannot be exercised unless the price of the Bank’s Common Shares has increased by 50% since the date of grant. If such price threshold is not met, the options expire worthless. Options under the Non-Officer Director Stock Option Plan cannot be transferred or assigned by a participant under the plan, other than by will or pursuant to the laws of succession.

Under the terms of the Non-Officer Director Stock Option Plan, options expire on the earlier of (i) the fifth anniversary of the participant ceasing to be a director, (ii) the third anniversary of the participant ceasing to be a director due to death or disability, and (iii) the expiry of the option. 

The Board of Directors of the Bank, subject to any regulatory or required shareholder approval, has the power under the Plan to amend or terminate the Plan at any time, provided, however, that any such amendment or termination shall not decrease the entitlements of a participant which have accrued prior to the date of such amendment or termination.