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The Act to amend the Act respecting the Caisse de dépôt et

placement du Québec provides for the creation of a Human

Resources Committee. This Committee, formed on May 18, 2005, partially replaces the Human Resources, Ethics and Corporate Governance Committee.

Composition of the Committee

The Human Resources Committee consists of three inde- pendent members:

Chairman: Pierre Brunet

Members: Steven M. Cummings and John T. Wall

The Committee has one guest member, Sylvie Dillard, who attends the meetings and takes part in the discussions but may not constitute a quorum or vote.

Number of meetings and attendance

The Human Resources Committee met 11 times in 2005, including seven times after May 18. The members’ rate of attendance at the Committee meetings was 92%.

Director Meetings attended/total meetings

Pierre Brunet 7 / 7 Steven M. Cummings 6 / 7 John T. Wall 10 / 11 Sylvie Dillard 11 / 11

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Committee mandate

The Human Resources Committee has a mandate to review the guidelines and strategies for human resources manage- ment, including those concerning remuneration and man- power planning, particularly for senior management. The Committee reviews human resources policies, submits them to the Board for approval and ensures they are put in place.

The Committee develops and submits to the Board, for approval, the expertise and experience profile for the appoint- ment of the President and Chief Executive Officer. Using this profile, the Committee reviews and recommends to the Board the appointment of the President and Chief Executive Officer and evaluates him.

On the recommendation of the President and Chief Executive Officer, the Committee reviews and submits to the Board, for approval, the appointment and remuneration of the Caisse’s senior officers. The Committee also reviews the responsibilities of the members of senior management and ensures succession-planning mechanisms are in place. It reviews the evaluation of the senior officers’ performance by the President and Chief Executive Officer.

With respect to remuneration, the Committee receives information each year on remuneration on the Caisse’s ref- erence market. It reviews and submits to the Board the appropriate recommendations to determine the remunera- tion and other employment conditions of the President and Chief Executive Officer, as well as the other officers and employees of the Caisse.

Lastly, in co-operation with the Governance and Ethics Committee, the Committee develops expertise and experi- ence profiles for the appointment of the Board’s independ- ent members and submits the profiles to the Board for approval.

Activity report of the Human Resources Committee

The Human Resources Committee carried out the following activities over the past year:

• The Committee examined the salary reviews of the Caisse’s employees for 2005 and recommended that the Board approve them. It carried out the same procedure to determine employee bonuses for the previous year. • The Committee evaluated the performance of the

Caisse’s most senior officer. It also reviewed the perform- ance evaluations for members of senior management done by the most senior officer. On the basis of its review, the Committee recommended that the Board approve the salary increases and bonuses of each member of senior management.

• The Committee closely monitored the progress of the Caisse’s staffing plan and considered the matter of reten- tion of human resources so that the institution can meet its needs in this area.

• The Committee met several times with an independent external consultant to obtain expertise and a perspective on trends and practices on the Caisse’s reference market with respect to remuneration programs and the remuner- ation of the President and Chief Executive Officer. • The Committee reviewed the market data in the

study prepared by the independent external consultant regarding the remuneration of the President and Chief Executive Officer. Pursuant to the new provisions of the

Act respecting the Caisse, it recommended to the Board

of Directors, for recommendation to the government, the parameters enabling the Board to set the remuneration and other employment conditions of the President and Chief Executive Officer.

• The Committee considered the proposed modifications to the variable remuneration program for the Caisse’s employees, taking into account practices in the reference market. The Committee suggested continued analysis of these changes in 2006. It reported on its work to the Board of Directors.

Committee

• The Committee reviewed the human resources forecast for the period from 2006 to 2008. It considered the chal- lenges facing the Caisse, specifically staffing, succession, remuneration, skills development, contribution to per- formance. The forecast was submitted to the Board of Directors for approval.

• In co-operation with the Governance and Ethics Committee, the Committee drafted the experience and expertise pro- file for the Board’s independent members and submitted it to the Board for approval.

• The Committee reviewed and approved or, as the case may be, recommended that the Board approve, the hir- ing and salary conditions of employees whose hiring is a matter for the Committee or the Board.

• The Committee supported the restructuring of certain business units of the Caisse and redefinition of certain positions and, as necessary, recommended that the Board of Directors approve such changes.

• After each of its meetings, the Committee reported on its activities to the Board of Directors.

• The Committee worked with the Governance and Ethics Committee on the review of its mandate statement.

Report of the Human Resources Committee on the remuneration of the President and Chief Executive Officer and the five most highly remunerated officers reporting directly to him

The Caisse is a financial institution whose performance depends essentially on the talent of its employees. Its offi- cers are responsible for putting in place and carrying out business plans in line with the Caisse’s mission, which is “to receive moneys on deposit as provided by law and manage them with a view to achieving optimal return on capital within the framework of depositors’ investment policies while at the same time contributing to Québec’s economic development."

The Caisse must rely on highly competent employees, whom it recruits on markets for occupations similar to its own. To attract such people, it must adopt a remuneration policy aligned with that of its reference market. This is the only way it can hope to attract, retain and motivate employees whose talent will enable it to achieve its business objectives in an environment where competition for talent is intense. Long perceived as Québec’s investment school, the Caisse has often lost talented employees recruited by other Canadian and foreign investment firms that can offer more advantageous compensation conditions than those in effect at the Caisse. To contain this trend, the Caisse has had to define programs enabling it to offer total remuneration that is competitive in its reference market while respecting the remuneration parameters included in its internal manage- ment regulation since 1996.

Total remuneration is comprised of all aspects of an officer’s remuneration and includes normally base salary, annual bonus, long-term incentive plan, benefits programs, pension plans and other remuneration.

The reference market for investment positions is defined as the Canadian institutional investment market and includes a representative sample of institutions, insurance companies, trust companies, pension funds, investment advisers, bro- kerage firms and fund managers or managers in similar industries. Reference may be made to the North American market for positions related to international investment. The reference market for non-investment positions is Québec, and includes the public sector.

The parameters incorporated into the internal management regulation specify that the maximum level of total remuner- ation for investment positions must fall within the upper decile (90th centile) of the reference market. It should be noted that these maximums are in fact rarely reached. The total remuneration for other positions must be at the third quartile (75th centile) of the reference market.

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Although the internal management regulation enables the Caisse to pay up to those limits, the approach to total remu- neration is generally to offer remuneration near the median when the Caisse’s performance is itself at the median in rela- tion to Canadian pension fund managers. The Caisse offers 75th-centile remuneration and, in certain exceptional cases, remuneration approaching the upper limit established by the internal management regulation when its performance is in the first quartile.

To ensure that its remuneration programs are competitive and respect the parameters of the internal management reg- ulation, the Caisse asks recognized firms to advise it on the analysis of its remuneration programs. An analysis is done regularly for more than 40 strategic positions in a data bank covering the reference market. The results are used to com- pare the total remuneration offered at the Caisse for each matching job. The latest market analysis, completed early in 2006, shows that the total remuneration offered to the Caisse’s officers is within the parameters of the internal man- agement regulation and the policy followed by the Caisse.

Remuneration of the President and Chief Executive Officer

As then stipulated in the Act respecting the Caisse de dépôt et placement du Québec, the remuneration and other employment conditions of Henri-Paul Rousseau were determined by the Québec government when he was hired in September 2002. Mr. Rousseau’s remuneration included a base salary increased by $75,000 for his duties as Chairman of the Board of Directors.

After the amendments to the Act respecting the Caisse came into force on January 15, 2005, the position of Chairman and Chief Executive Officer was divided into two separate positions. When the new Chairman took up his position on May 16, 2005, Mr. Rousseau’s annual salary was decreased, at his request, by $75,000 because he was no longer acting as Chairman.

Mr. Rousseau’s salary was therefore paid on the basis of $460,000 from January 1 to May 15, and $385,000 for the remainder of the year. The total amount paid to him in

The Act respecting the Caisse also provides that the Board of Directors shall determine the remuneration and other employment conditions of the President and Chief Executive Officer in keeping with parameters set by the government after consultation with the Board. This consul- tation is currently in progress.

Officers’ remuneration

Officers’ remuneration consists of the following components: base salary, annual bonus program, long-term incentive plan, other compensation and pension plans.

Base salary

An officer’s base salary falls within a salary structure aligned with the reference market. It is determined on the basis of the level of responsibility related to the position as well as the officer’s experience, expertise and performance.

Variable remuneration

The variable remuneration programs in effect at the Caisse, described hereunder, are based on Canadian practices in this area. They represent a large portion of officers’ total remu- neration and link their remuneration to achievement of per- formance objectives and value added by the various invest- ment groups and to those of the Caisse generally. These are the annual bonus program and the long-term incentive plan. To align officers’ interests with depositors’ expectations, the Caisse gives considerable weight to variable remuneration, which may range from 0% to 80% of remuneration depend- ing on the results obtained.

Annual bonus program

At the beginning of each year, the Board of Directors approves budgets, business plans and performance objectives in terms of value added for each specialized portfolio in rela- tion to predetermined thresholds and market indexes. At the end of the year, as a function of the results obtained, it approves the annual bonus for each Caisse officer reporting to the President and Chief Executive Officer.

The amount of the bonus depends on the performance of the investment groups and the performance of the Caisse.

Committee

The performance is based on achievement of value-added objectives over and above predetermined thresholds aligned with depositors’ expectations. The performance of the specialized portfolios and that of the Caisse are meas- ured over a moving three-year period (five years for the Private Equity and Real Estate portfolios) to evaluate the results on a horizon corresponding to a longer-term invest- ment philosophy.

The bonuses for the officers in the investment groups are calculated on the basis of the performance of their special- ized portfolios as well as their personal evaluation. The bonuses of officers in the general services groups are cal- culated on the basis of the Caisse’s overall performance as well as their personal evaluation. Allowing for exceptions, that portion of the bonus tied to performance remains by far the largest.

Long-term incentive plan

The long-term incentive plan represents a large portion of officers’ remuneration and aligns their total remuneration with the Caisse’s long-term value-added objectives. The performance is based on achievement of value-added objectives over and above a pre-determined index aligned with depositors’ expectations. The Caisse’s performance is

measured on a moving five-year period so as to evaluate the results on a horizon that corresponds to a longer-term investment philosophy. In the case of Fernand Perreault, Executive Vice-President, Real Estate, the performance used is that of the Real Estate group, taking into account his many years of service with the group’s subsidiaries before he joined Caisse senior management.

Under this plan, an officer is given an annual grant that corre- sponds to a percentage of his base salary and is vested gradually during each five-year period. The value of the grant at the end of the period varies according to the Caisse’s performance, which is measured over the duration of each five-year period.

The value of benefits accrued but not vested as at Decem- ber 31, 2005, corresponds to the various grants provided to an officer, increased or decreased according to the Caisse’s performance during the years between the start date for each grant and December 31, 2005.

Value of benefits accrued but not vested under the long-term incentive plan

table 76

Long-term incentive plan

Officer’s name and position Value of benefits accrued but not vested Payment for 2005 Fernand Perreault

President, Real Estate Group and

Executive Vice-President, Real Estate $903,827 $0 Normand Provost Executive Vice-President, Private Equity $397,701 $0 Christian Pestre Executive Vice-President, Absolute Return $396,412 $0 François Grenier Executive Vice-President, Equity Markets $437,195 $0 Richard Guay Executive Vice-President, Risk Management and

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Committee

Reports

Examples of the annual amount of pension payable, at normal retirement age, for an officer’s years of membership in the sup- plemental pension plan1

table 77

Years of membership

Pensionable earnings 10 years 15 years 20 years 25 years 30 years $150,000 $30,000 $45,000 $60,000 $75,000 $90,000 $200,000 $40,000 $60,000 $80,000 $100,000 $120,000 $250,000 $50,000 $75,000 $100,000 $125,000 $150,000 $300,000 $60,000 $90,000 $120,000 $150,000 $180,000 $350,000 $70,000 $105,000 $140,000 $175,000 $210,000

1 _{These pension amounts may be increased depending on the Caisse's performance during the years in which the officer is a member of the Supplemental}

Pension Plan for Designated Officers.

Summary of officers’ direct remuneration for 2005

table 78

Annual bonus Long-term Other Total Officers’ name and position Base salary program incentive plan compensation remuneration Fernand Perreault

President, Real Estate Group and

Executive Vice-President, Real Estate $370,800 $660,024 $0 $38,810 $1,069,634 Normand Provost Executive Vice-President, Private Equity $290,000 $510,000 $0 $32,698 $832,698 Christian Pestre Executive Vice-President, Absolute Return $309,000 $430,846 $0 $33,087 $772,933 François Grenier Executive Vice-President, Equity Markets $334,750 $0 $0 $334,881 $669,631 Richard Guay Executive Vice-President, 1 2 Other compensation

Other compensation refers to perquisites (a car and the related operating expenses, parking, health care and profes- sional consulting fees), the value of the employer’s contri- bution to the group insurance plan in effect for Caisse employees and any other amount paid to an officer under a special agreement.

Pension plans

The Caisse’s pension plan for officers has two separate com- ponents, namely the basic plan and the Supplemental Pension Plan for Designated Officers. The benefits under the supplemental plan vary according to be annual pension ceilings imposed by Revenue Canada as well as the Caisse’s performance.

Mr. Perreault is a member of SITQ’s basic pension plan and the Supplemental plan for designated Caisse officers. The total benefits are essentially the same as those in effect at the Caisse.

The present value of the pension plans from all sources (basic plan and supplemental pension plan) was $ 4,461,501 as at December 31, 2005, for the named officers.

(base salary, annual bonus and other remuneration)

Actual 2005 Reference-market Ratio

Officer’s name and position (A) (B) (A) / (B)

Fernand Perreault

President, Real Estate Group and

Executive Vice-President, Real Estate $1,069,634 $1,114,000 $ 0.96 Normand Provost Executive Vice-President, Private Equity $832,698 $1,132,000 $ 0.74 Christian Pestre Executive Vice-President, Absolute Return $772,933 $918,000 $ 0.84 François Grenier Executive Vice-President, Equity Markets $669,631 $1,145,000 $ 0.58 Richard Guay Executive Vice-President, Risk Management and

Depositors’ Accounts Management $601,882 $697,000 $ 0.86

Source : Towers Perrin, Direct Remuneration Study, Caisse de dépôt et placement du Québec, 2006.

Analysis of the reference market for senior management positions

The analysis of the reference market for senior management positions is based on a comparative group of about 60 com- panies operating in Canada’s investment sector, specifically insurance companies, pension funds and investment advisers. The Caisse’s internal management regulation specifies that the data reflecting the reference-market profile be com- puted by means of a survey, conducted by a recognized firm, administered and analyzed according to a methodology and rules generally recognized in this field.

Table 79 compares the remuneration paid to the officers for 2005 to that of the reference market for a superior per- formance. Remuneration of the Caisse’s officers is below the reference-market maximum.

Report of the Governance