HSBC 2011 Annual Report Download - page 259

257
Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
As part of the HSBC Share Plan 2011, the GPSP was
approved by shareholders at the Annual General
Meeting in May 2011 and the first awards were
made in June 2011. It replaces the previous long-
term incentive plan. Further details are given on
page 261.
Executive Directors, Group Managing Directors
and Group General Managers participate in both
performance-related plans, namely the annual bonus
and the GPSP. Other employees across the Group
are eligible to participate in annual bonus
arrangements. Both the annual bonus and long-term
incentive awards are funded from a single annual
variable pay pool from which individual awards are
considered.
Further details are provided in the section below
and on page 258 in the Individual awards section.
Group variable pay pool determination
The Committee considers many factors in
determining the Group’s variable pay pool funding.
The variable pay pool takes into account the
performance of the Group which is considered
within the context of our risk appetite statement.
This helps to ensure that the variable pay pool is
shaped by risk considerations. The risk appetite
statement describes and measures the amount and
types of risk that HSBC is prepared to take in
executing our strategy. It shapes our integrated
approach to business, risk and capital management
and supports achievement of our objectives. The
Group Chief Risk Officer regularly updates the
Committee on the Group’s performance against the
risk appetite statement.
The Committee uses these updates when
considering remuneration to ensure that return, risk
and remuneration are aligned. The risk appetite
statement for 2011 was approved by the Board and
was cascaded across global businesses and regions.
In addition, our funding methodology considers
the relationship between capital, dividends and
variable pay to ensure that the distribution of
post-tax profits between these three elements is
considered appropriate. On a pro forma basis,
attributable profits (excluding movements in the
fair value of own debt and before variable pay
distributions) are allocated in the following
proportions:
2011 pro forma post-tax profits allocation
Retained earnings
/
capital
50%
Dividends¹
35%
Variable pay²
15%
1 Inclusive of dividends to holders of other equity instruments
and net of scrip issuance.
2 Total variable pay pool for 2011 net of tax and portion to be
delivered by the award of HSBC shares.
Finally the commercial requirements to remain
competitive in the market and overall affordability
are considered.
2011 performance summary
Key achievements
During 2011 we made significant progress on
executing our strategic objective to reshape the
Group and become the world’s leading international
bank. We commenced a wide portfolio review to
improve the capital deployment and announced 16
disposals or closures of non-strategic businesses
during the year, and a further three in 2012. In
addition, progress was made towards our target of
delivering US$2.5bn to US$3.5bn of sustainable cost
savings by the end of 2013, by achieving US$0.9bn
of sustainable savings.
The following summarises the Group’s 2011
financial performance.
• reported profit before tax grew compared with
2010, although it fell on an underlying basis;
• return on average ordinary shareholders’ equity
of 10.9% improved but remained below the
target range;
• we successfully grew revenue in our target
markets of Latin America, Hong Kong, Rest of
Asia-Pacific and Middle East and North Africa,
which supported record revenues in CMB.
However, revenue was adversely affected by
the eurozone sovereign debt crisis, adverse
movements on non-qualifying hedges, lower
Balance Sheet Management revenues (as
expected), and the continued reduction in the
HSBC Finance portfolio in North America;
• loan impairment charges and other credit risk
provisions reduced significantly, notably in
North America; credit conditions remained
stable elsewhere;