HSBC 2004 Annual Report Download - page 219

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prevailing market practice; and
• HSBC has a long history of paying close
attention to its customers in order to provide
value for shareholders. This has been achieved
by ensuring that the interests of HSBC and its
employees are aligned with those of its
shareholders and that HSBC’s approach to risk
management serves the interests of all.
Accordingly, employees are encouraged to
participate in the success they help to create,
through participating in the HSBC Holdings
savings-related share option plans and in local
share ownership and profit sharing
arrangements.
During 2004, a comprehensive review of share-
based remuneration arrangements was conducted.
This review was undertaken in light of changing
business needs, taking into account HSBC’ s
expansion in certain markets and an evolving
external environment.
Approval for The HSBC Share Plan will be
sought at the forthcoming Annual General Meeting.
The proposed arrangements for the most senior
executives of HSBC are described under ‘Long-term
incentive plan’ on page 219. Shareholders and their
representatives were consulted and the proposed
arrangements reflect feedback that has been
received.
Below the senior executive level and in the
context of an employee’s total remuneration
package, the practice of awarding share options at all
levels within HSBC has been reconsidered. In future
and commencing with awards to be made in 2005,
restricted shares will be granted to a substantially
smaller number of executives than those who
previously received share options, with awards
focused on those individuals who bring key talents
and high levels of performance to the Group. These
awards will normally vest after three years, subject
to the individual remaining in employment. Awards
of share options will only be granted in limited
circumstances. For those who will normally no
longer be eligible to receive awards of shares or
share options, variable bonus arrangements have
been reviewed and enhanced, as appropriate, taking
account of local markets. Such changes may include
an element of deferral.
To encourage greater participation in the HSBC
Holdings Savings-Related Share Option Plan:
(International), two amendments to existing
arrangements will be proposed for approval at the
forthcoming Annual General Meeting. The first is
the introduction of the facility to save in US dollars,
Hong Kong dollars and euros as well as in pounds
sterling. The maximum savings limit of £250 per
month will continue to apply but be converted to the
other currencies on a consistent and appropriate date.
The second proposal is to offer individuals the
choice of options over one year in addition to the
existing three and five year terms. This change will
carry tax advantages in certain jurisdictions.
The impact on existing equity of granting share
options which are to be satisfied by the issue of new
shares is shown in diluted earnings per share on the
face of the consolidated profit and loss account, with
further details disclosed in Note 10 of the ‘Notes on
the Financial Statements’ on page 261. The effect on
basic earnings per share of exercising all outstanding
share options would be to dilute it by 0.6 per cent.
At the Annual General Meeting in 2000,
shareholders approved a limit of 848,847,000
ordinary shares (approximately 10 per cent of the
ordinary shares then in issue), which may be issued
or become issuable under all employee share plans in
any ten year period. Within this limit, not more than
5 per cent of the ordinary shares in issue from time
to time (approximately 560,000,000 ordinary shares
at 28 February 2005) may be put under option under
the HSBC Holdings Group Share Option Plan and
the HSBC Holdings Restricted Share Plan 2000. In
the ten year period to 31 December 2004, less than
650 million ordinary shares had been issued or could
become issuable under all employee share plans and
less than 350 million ordinary shares had been issued
or could become issuable under discretionary
employee share plans, including the HSBC Holdings
Group Share Option Plan and the HSBC Holdings
Restricted Share Plan 2000. At the forthcoming
Annual General Meeting, revised limits on the
number of shares that may be issued or become
issuable under employee share plans will be
proposed to reflect the increase in share capital since
2000.
Directors and Senior Management
HSBC’ s operations are substantial, diverse and
international; for example, over 73 per cent of profit
before tax is derived from outside the United
Kingdom.
With effect from 1 March 2005 the HSBC
Holdings’ Board will comprise 15 non-executive
Directors and seven executive Directors. With
businesses in 77 countries and territories, HSBC
aims to attract Directors with a variety of experience,
both in its key areas of activity and internationally.
The Board currently includes nationals of five
different countries. The seven executive Directors,
four Group Managing Directors and 23 Group