HSBC 2009 Annual Report Download - page 337

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the future performance of the Group and to
retain key talent. All Restricted Share awards
made from 2010 are subject to claw back; and
• a total remuneration package (salary, bonus,
long-term incentive awards and other benefits)
which is competitive in relation to comparable
organisations in each of the markets in which
HSBC operates.
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
In order to ensure that executive Directors’
compensation packages are competitive, having
regard to the market in which HSBC competes for
executive talent, the Remuneration Committee
considers market data from a defined remuneration
comparator group. This group initially 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. During 2009, the
Remuneration Committee determined that the Royal
Bank of Scotland should be replaced by JPMorgan
Chase & Co. in the remuneration comparator group.
The positioning of total compensation (salary,
bonus and the expected value of long term
incentives) for the executive Directors depends on
the performance of the Group and individual
performance assessed against a combination of
financial and non-financial objectives within an
annual balanced scorecard. Remuneration is
structured to provide an opportunity for top quartile
total compensation for higher levels of performance.
The performance-related aspects of the
remuneration package consist of an annual bonus of
up to four times salary and Performance Share
awards with a face value of up to seven times salary.
Taking into account the expected value of awards,
the performance-related elements of pay make up a
considerable proportion of the total remuneration
package whilst maintaining an appropriate balance
between fixed and variable elements. Annual bonus
payments and Performance Share awards are not
pensionable.
A significant proportion of total compensation
will be delivered in HSBC Holdings shares.
Executive Directors and other senior executives are
subject to share ownership guidelines.
The above approach applies to all executive
Directors with the exception of the Group Chairman,
S K Green who, at his request, is remunerated
through salary only, i.e. he no longer receives annual
bonus payments or awards of Performance Shares;
and S T Gulliver, whose variable compensation
arrangements take into account wholesale banking
market practice.
The approach will continue to be carefully and
regularly reviewed during 2010 to take account of
current market conditions and emerging regulatory
guidelines (see ‘HSBC performance and market
context’ below) 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
2009 is outlined in more detail within ‘Executive
Director remuneration’.
HSBC performance and market
context
2009 was a year of unprecedented initiatives by
governments and central banks designed to provide
timely support for global financial markets and
reduce the volatility and turbulence that had
characterised 2008. These actions were largely
successful and contributed to improved market
liquidity, a recovery in market confidence which was
reflected in a broad reduction in credit spreads, and a
re-opening of global capital markets which allowed
banks and corporates alike to raise the equity and
debt capital essential to their future. In determining
remuneration levels for 2009, the Committee took
these events and their context into account. The
Committee also recognised that the actions taken
by governments and central banks were primarily
designed to assist ‘overlent’ banks in developed
markets and that many of the measures applied were
not only of no assistance but were detrimental to
banks such as HSBC with highly liquid, emerging
market-facing banking operations. In particular
HSBC’s retail businesses earned less interest income
on the excess of deposits over lending because of
low interest rates and this reduced profitability when
set against the largely fixed cost base of the retail
infrastructure.