HSBC 2005 Annual Report Download - page 222

HSBC HOLDINGS PLC
Directors’ Remuneration Report (continued)
220
Face
value
Expected
value
£000 £000
D J Flint ...................................... 1,600 704
M F Geoghegan .......................... 2,000 880
S K Green ................................... 2,500 1,100
Total ........................................... 6,100 2,684
The higher face value of these awards reflects
the significantly more challenging vesting schedule
of The HSBC Share Plan where maximum value will
only be released to the individual if Group
performance is at a very high level.
The Trustee to the Plan will be provided with
funds to acquire HSBC Holdings ordinary shares at
an appropriate time after the announcement of the
annual results.
Sir John Bond and A W Jebson, who are to retire
at the conclusion of the forthcoming Annual General
Meeting, will not receive long-term incentive awards
in 2006.
Performance conditions
Awards of Performance Shares under The HSBC
Share Plan are divided into two equal parts subject to
separate performance conditions measured over a
three-year performance period (‘the performance
period’):
• the Total Shareholder Return award (‘TSR
award’): one half of the award of Performance
Shares will be subject to a relative TSR
measure. TSR is defined as the growth in share
value and declared dividend income, measured
in sterling, during the relevant period. In
calculating TSR, dividend income is assumed to
be reinvested in the underlying shares. As the
comparator group includes companies listed on
overseas markets, a common currency is used to
ensure that TSR is measured on a consistent
basis; and
• the earnings per ordinary share award (‘EPS
award’): the other half of the Performance Share
award will be based upon the absolute growth in
EPS achieved by HSBC Holdings. For this
purpose, EPS means the profit attributable to the
shareholders (expressed in US dollars), divided
by the weighted average number of ordinary
shares in issue and held outside the Group
during the year in question.
The TSR award is based on HSBC’s ranking
against a comparator group of 28 major banks. The
comparator group will generally comprise the largest
banks in the world measured in terms of market
capitalisation, having regard to the geographic
spread and the nature of the activities of each bank.
The Remuneration Committee will use these criteria
in selecting any replacements to the comparator
group that may be necessary during the performance
period, for example because a bank ceases to exist or
to be quoted or if its relevance to HSBC as a
comparator significantly diminishes.
The TSR comparator group at 6 March 2006
comprises ABN AMRO Holding N.V., Banco Bilbao
Vizcaya Argentaria S.A, Banco Santander Central
Hispano S.A., Bank of America Corporation, The
Bank of New York Company, Inc., Barclays PLC,
BNP PARIBAS S.A., Citigroup Inc., Crédit Agricole
S.A., Credit Suisse Group, Deutsche Bank AG,
HBOS plc, JPMorgan Chase & Co., Lloyds TSB
Group plc, Mitsubishi Tokyo Financial Group, Inc.,
Mizuho Financial Group, Inc., Morgan Stanley,
National Australia Bank Limited, Royal Bank of
Canada, The Royal Bank of Scotland Group plc,
Société Générale, Standard Chartered PLC, UBS AG,
UniCredito Italiano S.p.A., US Bancorp, Wachovia
Corporation, Wells Fargo & Company and Westpac
Banking Corporation.
The extent to which the TSR award will vest
will be determined on a sliding scale based on HSBC
Holdings’ relative TSR ranking against the
comparator group. The opening 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 2006 is 6 March. The
starting point will be, therefore, the average over the
period 6 March to 31 March 2006 inclusive. The end
point will be the average market price over the 20
trading days commencing on the day on which the
annual results are announced three years later. TSR
for comparator group constituents will be calculated
over the same two periods.
For TSR performance in line with the bank
ranked 14th, only 30 per cent of the conditional TSR
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 start
at 30 per cent and 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 HSBC’s TSR performance