HSBC 2004 Annual Report Download - page 224

HSBC HOLDINGS PLC
Directors’ Remuneration Report (continued)
222
Awards will vest immediately in cases of death.
In the event of redundancy, retirement on grounds of
injury or ill health, early retirement, 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 performance conditions have been
satisfied. Awards will normally be forfeited if the
participant is dismissed or resigns from HSBC. In all
of these circumstances the Committee retains
discretion to ensure fair and reasonable treatment.
Arrangements from 1999-2004
From 1999 to 2004, the vesting of awards was linked
to the attainment of predetermined TSR targets over
a three-year period from date of grant as set out
below.
The TSR performance condition for awards of
Performance Shares remained the same from 1999 to
2003. For awards made in 2004, changes were made
to the peer group and re-testing provisions were
eliminated such that awards will lapse if the
performance condition is not satisfied after the initial
three-year performance period.
A benchmark for HSBC Holdings’ TSR,
weighted by market capitalisation, was established
which takes account of the TSR performance of:
1. a peer group of nine banks weighted by market
capitalisation which were considered most
relevant to HSBC in terms of size and
international scope. For performance periods up
to and including the one beginning in 2003, this
group comprised ABN AMRO Holding N.V.,
The Bank of East Asia, Limited, Citigroup Inc.,
Deutsche Bank AG, JPMorgan Chase & Co.,
Lloyds TSB Group plc, Mitsubishi Tokyo
Financial Group Inc., Oversea-Chinese Banking
Corporation Limited and Standard Chartered
PLC. To be more relevant to HSBC in terms of
size and international scope, this peer group was
amended for conditional awards made in 2004
and onwards by the replacement of Lloyds TSB
Group plc, Oversea-Chinese Banking
Corporation Ltd., Mitsubishi Tokyo Financial
Group Inc. and The Bank of East Asia, Limited
with Bank of America Corporation, The Royal
Bank of Scotland Group plc, Banco Santander
Central Hispano S.A. and UBS AG;
2. the five largest banks from each of the US, the
UK, continental Europe and the Far East, other
than any within paragraph 1 above, weighted by
market capitalisation; and
3. the banking sector of the Morgan Stanley
Capital International World Index, excluding
any within paragraph 1 and paragraph 2 above,
weighted by market capitalisation.
By combining the weighted average TSR for
each of the above three groups and weighting that
average so that 50 per cent is applied to paragraph 1,
25 per cent is applied to paragraph 2 and 25 per cent
is applied to paragraph 3, a single TSR benchmark
for market comparison was determined.
The extent to which each award will vest will be
determined by reference to HSBC Holdings’ TSR
measured against the TSR benchmark. For each
award the calculation of the share price component
within HSBC Holdings’ TSR was the average market
price over the 20 trading days commencing on the
day when the annual results were announced. TSR
for the benchmark constituents was based on their
published share prices on the 20th trading day after
the annual results were announced.
If HSBC Holdings’ TSR over the performance
period exceeds the benchmark TSR, awards with a
value, at the date of grant, of up to 100 per cent of
the individual’s earnings, will vest. For higher value
awards, the greater of 50 per cent of the award or the
number of shares equating at the date of grant to
100 per cent of the individual’ s earnings (base salary
and bonus in respect of the previous performance
year), will vest at this level of performance. If HSBC
Holdings’ TSR over the performance period places it
within the upper quartile in the ranked list against
the benchmark, these higher value awards will vest
in full. For performance between the median and the
upper quartile, vesting will be on a straight-line
basis.
For awards made in 2004, if the upper quartile
performance target is achieved then, as before, an
additional award equal to 20 per cent of the initial
Performance Share award will be made and will vest
at the same time as the original award to which it
relates. However, regardless of whether the upper
quartile is achieved, full vesting and transfer of the
shares will not generally occur until the fifth
anniversary of the date of grant. If the performance
test is not passed at the third anniversary, the shares
will be forfeited.
In addition to these performance conditions,
none of the outstanding awards will vest unless the
Remuneration Committee is satisfied that, during the
performance period, HSBC has achieved a sustained
improvement in performance. The Remuneration
Committee retains discretion to recommend early
release of shares awarded in certain circumstances,
for example, redundancy and ill health.