HSBC 2005 Annual Report Download - page 226

HSBC HOLDINGS PLC
Directors’ Remuneration Report (continued)
224
the Group, seek to minimise termination payments.
No current executive Director has a service
contract with HSBC Holdings or any of its
subsidiaries with a notice period in excess of one
year or with provisions for predetermined
compensation on termination which exceeds one
year’s salary and benefits in kind. There are no
provisions for compensation upon early termination
of any current executive Directors’ service contracts.
In the case of W F Aldinger, who retired as a
Director on 29 April 2005, there was an exception to
the general policy on Directors’ service contracts.
Details of the arrangements relating to
W F Aldinger, which were also set out in the 2004
Directors’ Remuneration Report, are set out below.
W F Aldinger entered into a new employment
agreement with HSBC Finance on 14 November
2002 (‘the 2002 employment agreement’) for a term
of three years, such term to commence on the
effective date of the acquisition of HSBC Finance by
HSBC. The three-year term, and certain other terms,
of the 2002 employment agreement represented an
exception to HSBC’s normal policy for executive
Directors’ service contracts, but the details of the
terms, background and reasons for this were set out
in the Discloseable Transaction Circular relating to
the acquisition of HSBC Finance sent to
shareholders on 26 February 2003 in advance of the
Extraordinary General Meeting to approve the
acquisition. The terms of the 2002 employment
agreement were consistent with practice in the
United States. The effective date of the acquisition,
and commencement date of the 2002 employment
agreement, was 28 March 2003. In connection with
W F Aldinger’s retirement on 29 April 2005, the
terms of the 2002 employment agreement, were
amended by an agreement (‘amendment agreement’)
entered into between HSBC Finance and Mr
Aldinger, as referred to below. The Remuneration
Committee reviewed the financial and other terms
which were reflected in the amendment agreement.
Having reviewed the relevant factors and
circumstances, the Committee considered that these
financial and other terms were appropriate and in
order and in the best interests of the Group.
During the term of the 2002 employment
agreement Mr Aldinger was entitled to be paid an
annual base salary equal to his annual base salary as
at the date of the merger agreement between HSBC
Finance and HSBC (US$1 million) and an annual
bonus in an amount at least equal to the annual
average of Mr Aldinger’s bonuses earned with
respect to the three-year period ended 2001,
pro rated for any partial year (US$4 million). Within
30 days of the effective date of the acquisition,
Mr Aldinger received a one-time special retention
grant of HSBC Holdings ordinary shares under the
HSBC Holdings Restricted Share Plan 2000 with a
value equal to US$10 million on terms that these
Restricted Shares would vest in three equal
instalments on each of the first three anniversaries of
the effective date, as set out on page 231. After each
of the first and second anniversaries of the effective
date, subject to the approval of the Trustee of the
HSBC Holdings Restricted Share Plan 2000,
Mr Aldinger was entitled to receive an additional
grant of HSBC Holdings ordinary shares with a
value equal to at least US$5.5 million. The purpose
of these arrangements was to retain the services of
Mr Aldinger through the initial integration of HSBC
Finance. HSBC considered it essential that the
experience, knowledge and skills of Mr Aldinger be
retained for the benefit of HSBC shareholders.
Under the 2002 employment agreement, if
Mr Aldinger’s employment was terminated by him
during its term for ‘good reason’, or by HSBC
Finance for reasons other than ‘cause’ or disability,
he was entitled to: a pro rata target annual bonus for
the financial year of the date of termination; a
payment equal to his annual base salary, plus the
average of his annual bonuses with respect to the
three-year period ended 2001, times the number of
full and partial months from the date of termination
until the third anniversary of the effective date,
divided by 12; the immediate vesting and
exercisability of each stock option, restricted stock
award and other equity-based award or performance
award (or cash equivalent) that is outstanding as at
the date of termination and treatment as retirement
eligible for purposes of exercising any such award;
for the remainder of his life and that of his current
spouse, continued medical and dental benefits at
HSBC Finance’s cost; and his retirement benefits (as
set out on page 228) in a lump sum.
Following discussion with Mr Aldinger, it was
agreed that Mr Aldinger would retire as Chairman
and Chief Executive of HSBC Finance and HSBC
North America Holdings Inc on 29 April 2005 and
would retire as a director of HSBC Holdings on the
same date and resign from his directorships and
other appointments with Group companies. As
indicated above, the original purpose of the 2002
employment agreement was to retain the services of
Mr Aldinger through the initial integration of HSBC
Finance with the Group’s other North American
businesses. The discussions with Mr Aldinger about
his retirement before the expiry of the three-year
term took into account that the integration process
had been completed successfully and faster than
expected.