HSBC 2010 Annual Report Download - page 222

HSBC HOLDINGS PLC
Directors’ Remuneration Report
Report of the Remuneration Committee > 2010 performance / Regulation / Senior management changes / 2011
220
Report of the Remuneration
Committee
Page
Report of the Remuneration Committee ...................... 220
Remuneration Committee – members and advisers ..... 222
Overall principles ......................................................... 222
Executive Directors’ remuneration .............................. 223
Executive Directors’ 2010 emoluments and
remuneration ........................................................ 224
Salary ........................................................................ 225
Annual bonus ............................................................ 225
Performance Shares ................................................. 226
Funding .................................................................... 228
Total shareholder return .......................................... 228
Pensions .................................................................... 228
Share ownership guidelines ..................................... 228
Service contracts ...................................................... 228
Other directorships .................................................. 229
Non-executive Directors ............................................... 229
Fees ........................................................................... 230
Pensions ........................................................................ 231
Share Plans ................................................................... 232
The principal purpose of HSBC’s remuneration
strategy is to support and drive sustainable
performance over the long-term. Remuneration
should reward success towards this end, but it must
also not reward failure and it must be properly
aligned with risk which remains on the balance
sheet.
HSBC strives to achieve this through a variety
of ways which are detailed under ‘Overall principles’
on page 222. These include taking a rounded view
of financial and non-financial performance in
determining reward levels, considering affordability
(including cost and quantity of capital and liquidity
considerations), market competitiveness, delivering
awards with high levels of deferral and making all
such deferred awards subject to clawback. Such
clawback is applied at the sole discretion of the
Remuneration Committee (‘the Committee’).
In our view these elements help to reinforce and
reward the delivery of sustainable performance.
2010 performance
Key achievements
The annual financial objectives that we set for
ourselves for 2010 were achieved, although in some
areas they were lower than the established long-term
targets. In the Group’s 2010 performance, particular
note was made of the following:
• good growth in profit before tax on both an
underlying and a reported basis compared with
2009 and ahead of expectations at the start of
2010. This was primarily driven by lower loan
impairment charges and other credit risk
provisions with all regions and customer groups
contributing;
• strong growth was achieved in emerging
markets with loans and advances to customers
and revenue increasing in key markets;
• our capital ratios were above the target range, in
part from the contribution of profit to capital but
also from our ability to raise capital, as shown
in the successful hybrid capital securities issue
in the first half of the year;
• we maintained a highly liquid balance sheet,
with a ratio of customer advances to customer
accounts of 78.1%;
• we increased dividends for our shareholders,
reflecting the profit-generating capability of the
Group;
• return on average shareholders’ equity of 9.5%
was below our target range; and
• revenue declined and costs grew, resulting in
an increase in the cost efficiency ratio from
52.0% to 55.2%. The Group is working on
bringing the ratio back to target levels while
meeting the need to invest for future growth.
Key non-financial achievements of the Group
in 2010, which reflect the objectives set for senior
management, are summarised below:
• process objectives focused on efficiency and
qualitative measures which affect financial
performance and mitigate risk. The target we set
for operational losses as a percentage of revenue
was met;
• progress in meeting customer recommendation
and brand recognition targets was made in a
challenging environment for retail and
commercial banking. Brand health targets for
PFS and Business Banking were met. Customer
recommendation targets were met for the latter
but not for PFS; and
• regarding the Group’s employees, our 2010
employee engagement score was below target
and was less than our 2009 score. However, the
2010 score exceeded the global average and
the global financial sector norm for employee
engagement in the year. The target for the ratio
of revenue to staff costs was also met.
In determining remuneration levels for 2010, the
Committee, applying HSBC’s remuneration strategy
and policy, remained mindful of the interests of the
many stakeholders and the broader external context.
This included taking into account the pay and