HSBC 2009 Annual Report Download - page 344

HSBC HOLDINGS PLC
Directors’ Remuneration Report (continued)
Executive Directors > Funding / TSR / Pensions / Share ownership / Service contracts / Other directorships // Non-executive Directors
342
three years would equate to a compound annual
growth rate of 8 per cent.
Illustration of incremental EPS of 51 per cent over
three years.
Percentage difference between:
Year 1 EPS
and Base Year
EPS +
Year 2 EPS
and Base Year
EPS +
Year 3 EPS
and Base year
EPS =
Total
incremental
EPS for the
performance
period
8% 17% 26% 51%
If EPS in any of the Years 1, 2 or 3 is below the
base year, then the percentage difference between
that particular year and the base year is negative.
For this purpose, EPS means the profit
attributable to the shareholders (expressed in US
dollars), excluding goodwill amortisation, divided by
the weighted average number of ordinary shares in
issue and held outside the Group during the year in
question. In the event that the published EPS for the
base year is restated during the performance period
to adjust for changes in accounting standards, that
restated EPS will be used for the purposes of the
EPS performance condition.
In addition, awards will not vest unless the
Remuneration Committee is satisfied that HSBC
Holdings’ financial performance has shown a
sustained improvement in the period since the award
date. In determining whether HSBC Holdings has
achieved a sustained improvement in performance,
the Remuneration Committee will take account of all
relevant factors but in particular comparisons against
the comparator group in areas such as revenue
growth and mix, cost efficiency, credit performance,
cash return on cash invested, dividend performance
and TSR.
If events occur which cause the Remuneration
Committee to consider that a performance condition
has become unfair or impractical in either direction,
the right is reserved to the Remuneration Committee,
if it considers it appropriate, to amend, relax or
waive the condition.
Awards will vest in full immediately in cases
of death. In the event of redundancy, retirement on
grounds of injury or ill health, early retirement
by agreement, normal retirement and where a
participant ceases to be employed by HSBC due to
a company ceasing to be part of HSBC, 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.
Funding
The dilution limits set out in the HSBC share plans
comply with the Association of British Insurers’
guidelines. To date, all vesting awards of
Performance Shares and Restricted Shares under the
HSBC Share Plan have been satisfied by the transfer
of existing shares. To create additional core tier 1
capital and retain funds within HSBC, the Board has
agreed that new shares may be issued to satisfy the
vesting of awards of Restricted and Performance
Shares that cannot be satisfied from shares already
held by employee benefit trusts commencing in
2011.
Total shareholder return
Pursuant to the Directors’ Remuneration Report
Regulations 2002, the graph below shows HSBC’s
TSR performance against the FTSE 100 Index, for
the five-year period ended 31 December 2009.
The FTSE 100 Index has been chosen as this is a
recognised broad equity market index of which
HSBC Holdings is a member.
HSBC TSR and FTSE 100 Index
90%
100%
110%
120%
130%
140%
150%
160%
Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009
HSBC TSR FTSE 100
Source: IDC
Pensions
The normal retirement age for executive Directors
is 65 with the exception of V H C Cheng, for whom
no retirement age is specified in keeping with
local legislation. The pension entitlements of the
executive Directors for 2009 are set out on page 346.
Share ownership guidelines
To ensure appropriate alignment with shareholders,
HSBC operates a formal share ownership policy,
expressed as a number of shares, for executive