HSBC 2009 Annual Report Download - page 343

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awards will normally vest at the end of the vesting
period on a time-apportioned basis to the extent that
the performance conditions have been satisfied. In
the event of a change of control, awards will
normally vest immediately and on a time-
apportioned basis to the extent that the performance
conditions have been satisfied. Awards will normally
be forfeited if the participant is dismissed for cause
or resigns from HSBC. In all circumstances the
Committee retains discretion to ensure fair and
reasonable treatment.
Arrangements from 2005 to 2007
Vesting of the awards of Performance Shares made
under the HSBC Share Plan from 2005 to 2007 is
based on two independent measures, relative TSR
and growth in EPS. The performance conditions are
measured over a three-year performance period and
awards forfeited to the extent that they have not been
met. The vesting of 50 per cent of the awards is
based on TSR and the remaining 50 per cent on
growth in EPS.
TSR award
The comparator group of 28 banks for the TSR
award comprises the largest banks in the world,
on the basis of their market capitalisation, their
geographic spread and the nature of their activities:
ABN AMRO1 Mitsubishi UFJ Financial Group2
Banco Santander Mizuho Financial Group
Bank of America Morgan Stanley
Bank of New York National Australia Bank
Barclays Royal Bank of Canada
BBVA Royal Bank of Scotland
BNP Paribas Société Générale
Citigroup Standard Chartered
Crédit Agricole UBS
Credit Suisse Group UniCredito Italiano
Deutsche Bank US Bancorp
HBOS1 Wachovia1
JP Morgan Chase Wells Fargo
Lloyds Banking Group Westpac Banking Corporation
1 ABN AMRO, HBOS and Wachovia have delisted since the
start of the performance period for the 2006 and 2007
awards. These comparators have been replaced from the
point of delisting by Fortis, Commonwealth Bank of
Australia and Toronto Dominion Bank respectively. In 2009
the remainder of the banking activities of Fortis were
acquired by BNP Paribas. The treatment of Fortis in the
comparator group will be considered in line with the plan
rules.
2 Mitsubishi UFJ Financial Group Inc was previously known
as Mitsubishi Tokyo Financial Group prior to the
acquisition of UFJ Holdings on 1 October 2005.
The extent to which the TSR award vests is
determined on a sliding scale based on HSBC’s
relative TSR ranking, measured over the three years,
against the comparator group as shown below:
If HSBC’s performance
matches
Proportion of TSR Award
vesting1
Banks ranking 1st to 7th 100%
Bank ranking 8th 90%
Bank ranking 9th 80%
Bank ranking 10th 70%
Bank ranking 11th 60%
Bank ranking 12th 50%
Bank ranking 13th 40%
Bank ranking 14th 30%
Banks ranking below 14th nil
1 Vesting will occur in a straight line where HSBC’s
performance falls between these incremental steps.
Earnings per share award
The method for calculating EPS growth is described
below. This is in line with the approach described in
the 2005, 2006, 2007 and 2008 Directors’
Remuneration Reports, and in the circular containing
the Notice of Annual General Meeting for 2005.
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.
For clarity, this has been set out in graphical form in
the chart below.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0% 10% 20% 30% 40% 50% 60%
Proportion of EPS Award Vesting
Total Incremental EPS Delivered
24% 52%
For the EPS element of the award, the base
measure is 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. Incremental EPS will be calculated by
expressing as a percentage of the EPS of the base
year, the difference each year of the three-year
performance period between the EPS of that year
and the EPS of the base year. These percentages will
then be aggregated to arrive at the total incremental
EPS for the performance period. As illustrated in the
table below, an incremental EPS of 51 per cent over