HSBC 2006 Annual Report Download - page 272

HSBC HOLDINGS PLC
Report of the Directors: Governance (continued)
Employees > Share plans / Subsidiary company share plans
270
Awards of Restricted Shares are made to other
employees below the level of the Group
Management Board based on performance, potential
and retention requirements or as part of deferral of
annual bonus. Restricted Share awards comprise a
number of shares to which the employee will
become entitled, normally after three years, subject
to the individual remaining in employment. All
awards of Performance Shares and Restricted Shares
will be satisfied by the transfer of existing shares.
Discretionary share option plans
Prior to 2005, awards of discretionary share options
were made under the HSBC Holdings Group Share
Option Plan and the HSBC Holdings Executive
Share Option Scheme to employees, based on
performance criteria and potential. The vesting of
these options was subject to the attainment of pre-
determined relative TSR performance criteria, except
within HSBC France (which was acquired in 2000)
where performance criteria were phased in. Under
the HSBC Holdings Group Share Option Plan the
maximum value of options which could have been
granted to an employee in any one year (together
with any Performance Share awards under the HSBC
Holdings Restricted Share Plan 2000) was 150 per
cent of the employee’s annual salary at the date of
grant plus any bonus paid for the previous year (or in
exceptional circumstances 225 per cent). Under the
HSBC Executive Share Option Scheme the
maximum value of options which could have been
granted to an employee in any one year was four
times the employee’s relevant earnings. Subject to
attainment of the relative TSR performance
condition where applicable, options are generally
exercisable between the third and tenth anniversary
of the date of grant. Employees of a subsidiary that
is sold or transferred out of HSBC may exercise
options awarded under the HSBC Holdings Group
Share Option Plan or the HSBC Holdings Executive
Share Option Scheme within six or twelve months
respectively of the sale or transfer regardless of
whether the performance condition is met. Subject to
the attainment of relative TSR performance
conditions the options are exercisable up to the tenth
anniversary of the date of grant.
In light of the sustained performance and
shareholder returns over the three year period to
March 2006, the Remuneration Committee exercised
its discretion to waive the relative TSR performance
condition in respect of the 2003 awards under the
HSBC Holdings Group Share Option Plan. This
waiver did not apply to awards with relative TSR
performance conditions which were granted to senior
executives under the French sub-plan of the HSBC
Holdings Group Share Option Plan. In 2006 there
were still some 35,000 high performing employees
(approximately the top 20 per cent of performers)
below senior management who had received share
option awards under the HSBC Holdings Group
Share Option Plan in 2003. Further details were
given on page 216 of the Annual Report and
Accounts 2005.
The Remuneration Committee favours the use
of Performance Shares and Restricted Shares and,
following the introduction of The HSBC Share Plan
in 2005, has not granted discretionary share options
on any widespread basis. There are locations, and
there may be particular circumstances in the future,
however, where option grants may be appropriate.
No options were awarded in 2006. The maximum
value of options which may be granted to an
employee in any one year under The HSBC Share
Plan (when taken together with any Performance
Share awards made under The HSBC Share Plan) is
700 per cent of the employee’s annual salary at the
date of grant.
The exercise price of options granted under The
HSBC Share Plan, and previously under the HSBC
Holdings Group Share Option Plan, is the higher of
the average market value of the ordinary shares on
the five business days prior to the grant of the option
or the market value of the ordinary shares on the date
of grant of the option. The exercise price of options
granted under the HSBC Holdings Executive Share
Option Scheme was the market value of the ordinary
shares on the business day prior to the grant of the
option. The HSBC Share Plan will terminate on
27 May 2015 unless the Directors resolve to
terminate the Plan at an earlier date.
The exercise period of the options awarded
under discretionary share incentive plans may be
advanced to an earlier date in certain circumstances,
for example on retirement and may be extended in
certain circumstances, for example on the death of a
participant the executors may exercise the option up
to twelve months beyond the normal exercise period.