HSBC 2012 Annual Report Download - page 354

HSBC HOLDINGS PLC
Directors’ Remuneration Report (continued)
Summary of remuneration policy
352
Long-term Incentive Plan – Group Performance
Share Plan 2013 long-term scorecard
Measure
Long-term
target range Weighting
Return on equity .................. 12% – 15% 15%
Cost efficiency ratio ............ 48% – 52% 15%
Capital strength .................... >10% 15%
Progressive dividend payout
within 40% - 60% range ...... 40% – 60% 15%
Strategy ................................ Judgement 20%
Brand equity ........................ Top 3 rating and
improve US$bn
value
5%
Compliance and reputation ... Judgement 10%
People ................................... Judgement 5%
100%
Material factors taken into account when
setting pay policy
The Committee takes into account a variety of
factors when determining the remuneration policy
for Directors. A summary of these factors is
provided below.
Internal factors
Funding
HSBC considers pay across the Group when
determining remuneration levels for its executive
Directors. Eligibility for the GPSP is restricted to
executive Directors, Group Managing Directors and
Group General Managers. Other employees across
the Group are also eligible to participate in annual
incentive arrangements. Both the annual incentive
and long-term incentive awards are funded from a
single annual variable pay pool from which
individual awards are considered.
The dilution limits set out in the HSBC share
plans comply with the Association of British
Insurers’ guidelines. Prior to 2012, all equity-settled
awards of Performance Shares and Restricted Shares
vesting under the HSBC Share Plans were satisfied
by the transfer of existing shares held under a trust.
To create additional core tier 1 capital and retain
funds within HSBC, Restricted Share vestings since
2012 have been satisfied by a mixture of existing
shares from the trust and new issue shares.
External factors
Regulation
There is still a wide divergence in how regulations
operate globally and this presents significant
challenges to HSBC, which operates in 81 countries
and territories worldwide. In order to deliver long-
term sustainable performance, it is important we
have market-competitive remuneration and
equivalence of reward across geographical
boundaries in order to attract, motivate and retain
talented and committed employees around the world.
We ensure our remuneration policies are aligned
with both new regulatory practices and the interests
of shareholders and confirm that HSBC is fully
compliant with the Financial Stability Board and
the FSA guidance and rules on remuneration.
Comparator group
The Committee considers market data for executive
Directors’ remuneration packages from a defined
remuneration comparator group. This group consists
of nine global financial services companies, namely
Banco Santander, Bank of America, Barclays, BNP
Paribas, Citigroup, Deutsche Bank, JPMorgan Chase
& Co, 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.
Shareholder context
See page 360.
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 its 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 its strategy. It shapes the integrated
approach to business, risk and capital management
and supports achievement of the Group’s 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.
We use a counter-cyclical funding methodology
which is categorised by both a floor and a ceiling
and the payout ratio reduces as performance
increases to avoid pro-cyclicality risk. The floor
recognises that franchise protection is typically
required irrespective of performance levels.
The ceiling recognises that at higher levels of
performance it is possible to limit reward as it is