HSBC 2012 Annual Report Download - page 359

357
Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
GPSP. A summary of the assessment and rationale
for the conclusions is set out below. Figures in
parentheses reflect the available opportunity under
the GPSP.
Measure
Long-term
target range Weighting
Actual 2012
performance Outcome
Return on equity ........................................................... 12% – 15% 15% 8.4%¹ 0%
Cost efficiency ratio ..................................................... 48% – 52% 15% 62.8%¹ 0%
Capital strength ............................................................. > 10% 15%
12.3%¹ 15.0%
Dividends (payout ratio) ............................................... 40% – 60% 15% 55.4%¹ 15.0%
Strategy ......................................................................... Judgement 20% Judgement 15.0%
Brand equity ................................................................. Top 3 rating and
improve US$bn value
5%
Top 3 rating but
drop in value²
0%
Compliance and reputation ........................................... Judgement 10% Not met 0%
People and values ......................................................... Judgement 5% Judgement 3.75%
Performance outcome ................................................... 100% 48.75%
Committee discretion..................................................... 40.00%
1 As reported in the Annual Report and Accounts 2012.
2 Based on results from The Brand Finance® Banking 500 2013 survey.
The performance outcome of 40% was then
applied to maximum face values (expressed as a
percentage of salary) for each participant. The
awards to be made in respect of 2012 are detailed
below.
Maximum face
value of award
Performance
outcome
Awards
made
Director
S T Gulliver .............................................................................................. 600% 40% 240%
I J Mackay ................................................................................................ 500% 40% 200%
Financial (60% weighting – achieved 30%)
The opportunity of 60% was equally split in 2012
between Capital Strength, Dividend Progression,
Return on Equity and Cost Efficiency ratio.
While the annual assessment looked at point in
time achievement of the same performance elements,
under the long-term plan consideration was given to
progress made towards stated targets where these
had not been met in the short term and to the
sustainability of positive short-term performance.
With regard to Capital Strength, the Committee
considered favourably the steps taken to meet the
Basel III targets in the accelerated timetable being
required by the Group’s lead regulator. In addition to
achieved and planned operating profit generation,
the Committee noted favourably the extensive
capital generated from business disposals, both
from gains realised on sale and from release of risk-
weighted assets. Further support for a positive view
of performance accrued from actions noted as having
been taken to reduce the capital drag from legacy
assets and exit portfolios and from steps being taken
to mitigate the impact of the more onerous capital
requirements arising from regulatory changes yet
to take effect. Having reviewed these factors the
Committee awarded the full opportunity (15%).
On Dividend Progression, the Committee noted
favourably the capacity to maintain a progressive
policy, subject to performance, reflected in the
Group’s capital position, its distributable reserves,
its cash position and its planning assumptions. The
Committee also noted external commentary on
dividend paying capacity and regulatory interactions
around the Group’s capital position. Having
considered these factors the Committee awarded
the full opportunity (15%).
As noted in the assessment of the annual
performance awards, the Group has not yet
reached its target Return on Equity of 12-15%. The
Committee deliberated on the benefits arising from
the considerable restructuring and reshaping of the
business which has been undertaken under the
Group’s Six Filters framework, the delivery of
sustainable cost savings ahead of target, the growth
being achieved from investment in faster-growing
markets and the progress made in run-off of the exit
portfolios and in reducing legacy underperforming
assets. The Committee also reflected on the
additional costs that would be incurred and revenues
foregone from the programme of strengthening
controls and compliance which is underway and
from applying global standards in all markets. There
was also note made of the continuing uncertainties
from an incomplete regulatory reform agenda,
from contingent legal risks and from the continuing
significant customer redress costs from legacy
activities being borne. As a consequence, the