HSBC 2008 Annual Report Download - page 318

HSBC HOLDINGS PLC
Directors’ Remuneration Report (continued)
Application / HSBC performance and market context / Executive Directors’ remuneration > Salary / Annual bonus
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The Committee also takes into account
environmental, social and governance aspects when
determining executive Directors’ remuneration and
oversees senior management incentive structures to
ensure that such structures take account of possible
inadvertent consequences from these aspects.
Application to executive Directors
A number of specific changes to remuneration policy
for executive Directors and other senior executives
were made in 2007 and communicated to
shareholders in the 2008 Directors’ Remuneration
Report. These changes, which are described in this
report, were made to ensure closer alignment with
HSBC’s business strategy. They take into account
competitive market practice and follow through the
Group’s global reward strategy for this senior
executive population.
In order to ensure that executive Directors’
remuneration packages are competitive, having
regard to the market in which the Company
competes for executive talent, the Remuneration
Committee determined to consider market data from
a defined remuneration comparator group. This
initial group comprised nine global financial services
companies, namely Banco Santander, Bank of
America, Barclays, BNP Paribas, Citigroup,
Deutsche Bank, Royal Bank of Scotland, Standard
Chartered and UBS. These companies were selected
on the basis of their broadly similar business
coverage, size and international scope, and are
subject to annual review for continuing relevance.
Executive Director salaries are targeted at the
median of the remuneration comparator group, with
an opportunity for top quartile total compensation
through variable pay for higher levels of
performance. The actual positioning of total
compensation will depend on the performance of the
Group and individual performance assessed against a
combination of financial and non-financial
objectives within an annual balanced scorecard.
The performance-related aspects of the
remuneration package consist of a bonus of up to
400 per cent of salary and Performance Share awards
with a face value of up to 700 per cent of salary.
Taking into account the expected value of awards,
the performance-related elements of pay make up
around 80 per cent of the total remuneration
package. Annual bonus payments and Performance
Share awards are not pensionable.
A significant proportion of total compensation
will be delivered in HSBC Holdings shares. Share
ownership guidelines were increased for executive
Directors and other senior executives to achieve
further alignment with shareholder interests.
The above approach applies to all executive
Directors with the exception of the Group Chairman,
S K Green, whose variable compensation since 2007
has, at his request, been delivered exclusively
through awards of Performance Shares and is thus
no longer eligible to receive annual bonus payments;
and S T Gulliver, whose variable compensation
arrangements take into account wholesale banking
market practice.
The approach will be carefully and regularly
reviewed during 2009 to take account of the volatile
and challenging market conditions (see following
section on HSBC Performance and Market Context)
and, where appropriate, shareholders will be
consulted on any proposed changes in policy. Any
changes will also be described in future Directors’
Remuneration Reports.
The application of this policy to each
component of executive Directors’ remuneration for
2008 is outlined in more detail below.
HSBC performance and market
context
The last year was one of unprecedented volatility
and turbulence in the global financial services sector
which has continued into 2009. In determining
remuneration levels for 2008 and considering
approaches to remuneration for 2009, the Committee
was mindful of this global market context. In this
volatile market environment it is difficult to
appropriately apply measures such as total
shareholder return and earnings per share, and it is
particularly important to take account of risk from a
short and medium term perspective.
Within this market context, HSBC’s overall
financial and non-financial performance was
relatively strong in comparison to its peers.
The key achievements of the Group during
2008, with reference to its objectives set under the
relevant balanced scorecard categories, are
summarised below.
The financial objectives included a cost
efficiency target ratio which, excluding the writing
off of goodwill in the US, was met and improved on
compared to 2007. Profit growth, as measured by
earnings per share (‘EPS’), and return on capital, as
measured by return on average total shareholder
equity (‘ROE’), did not meet the targets set and were
lower than the prior year, although the Group’s
performance in these aspects relative to its peers
remained strong.