HSBC 2004 Annual Report Download - page 223

221
Canada, The Royal Bank of Scotland Group plc,
Société Générale, Standard Chartered PLC, UBS
AG, UniCredit S.p.A., US Bancorp, Wachovia
Corporation, Wells Fargo & Company and Westpac
Banking Corporation.
The extent to which awards will vest will be
determined by reference to HSBC Holdings’ TSR
measured against the comparator TSR. The
calculation of the share price component within
HSBC Holdings’ TSR will be the average market
price over the 20 trading days commencing on the
day when the annual results are announced, which in
2005 is 28 February. The starting point will be,
therefore, the average over the period 28 February to
29 March inclusive. TSR for comparator group
constituents will be calculated on the same basis.
For TSR performance in line with the bank
ranked 14th, only 30 per cent of the conditional
award will vest; if HSBC’s performance is in line
with or above the bank ranked 7th in the ranked list
all of the TSR award shares will vest.
Vesting between the 14th and 7th ranked banks
will be based on HSBC’s position against the ranked
list. In simple terms, the percentage vesting will rise
in 10 per cent increments for each position that
HSBC achieves higher than the 14th bank in the
ranked list until full vesting is achieved for TSR
performance equal to or greater than the 7th bank in
the ranked list. Where HSBC’s performance falls
between these incremental steps, account will be
taken of how far above or below the next ranked
bank HSBC’s TSR performance is positioned.
For example, if HSBC’s TSR falls half way
between the bank ranked 12th (where, a release of 50
per cent of the award would occur) and the bank
ranked 13th (where a release of 40 per cent of the
award would occur), then the actual award released
would be 45 per cent, i.e. half way between 40
per cent and 50 per cent.
For the EPS element of the award, the base
measure shall be EPS for the financial year
preceding that in which the award is made (‘the base
year’ ). Absolute growth in EPS will then be
compared with the base year over three consecutive
financial years commencing with the year in which
the award is made. The EPS growth element will be
the absolute level of EPS achieved during the three-
year performance period. For this purpose, EPS
means the profit attributable to the shareholders
(expressed in US dollars), excluding goodwill
amortisation, divided by the weighted average
number of ordinary shares in issue and held outside
the Group during the year in question. In the event
that the 2004 published EPS is restated to adjust for
accounting standards changes during the
performance period, the restated published EPS will
be used for the EPS performance condition for
awards made in 2005 under The HSBC Share Plan.
The percentage of the conditional award vesting
will depend upon the absolute growth in EPS
achieved over the three years (‘the performance
period’ ). 30 per cent of the conditional shares will
vest if the incremental EPS over the performance
period is 24 per cent or more of EPS in the base year.
The percentage of shares vesting will rise on a
straight line proportionate basis to 100 per cent if
HSBC’s incremental EPS over the performance
period is 52 per cent or more of EPS in the base year.
No element of the ‘TSR award’ will vest if
HSBC’s performance is below that of the bank
ranked 14th in the ranked list and no element of the
‘EPS award’ will vest if HSBC’ s incremental EPS
over the performance period is less than 24 per cent
of EPS achieved in the base year.
To the extent that the performance conditions
have not been met at the third anniversary, the shares
will be forfeited.
In addition, awards will only vest if the
Remuneration Committee is satisfied that HSBC
Holdings’ financial performance has shown a
sustained improvement in the period since the date
of grant.
In determining whether HSBC has achieved a
sustained improvement in performance the
Remuneration Committee will take account of,
among other factors, the comparison against history
and the peer group in the following areas:
1. revenue growth;
2. revenue mix;
3. cost efficiency;
4. credit performance as measured by risk-adjusted
revenues; and
5. cash return on cash invested, dividend
performance and total shareholder return.
Following the three-year performance period,
awards of Performance Shares under The HSBC
Share Plan will be tested and vesting will take place
shortly afterwards.
Where events occur which cause the
Remuneration Committee to consider that the
performance condition has become unfair or
impractical, the right is reserved to the Remuneration
Committee to make such adjustments as in its
absolute discretion it deems appropriate to make.