HSBC 2006 Annual Report Download - page 285

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In addition, awards will not vest unless the
Remuneration Committee is satisfied that HSBC
Holdings’ financial performance has shown a
sustained improvement in the period since the award
date.
In determining whether HSBC has achieved a
sustained improvement in performance the
Remuneration Committee will take account of all
relevant factors but in particular comparisons against
the comparator group in areas such as revenue
growth and mix, cost efficiency, credit performance,
cash return on cash invested, dividend performance
and total shareholder return.
Following the three-year performance period,
the conditions applying to awards of Performance
Shares under The HSBC Share Plan will be tested
and vesting will take place shortly afterwards. Shares
released will include additional shares equivalent to
the value of the dividends payable on the vested
shares over the performance period, where permitted
by the laws of the relevant jurisdiction.
If events occur which cause the Remuneration
Committee to consider that a performance condition
has become unfair or impractical, the right is
reserved to the Remuneration Committee, if it
considers it appropriate to do so, to amend, relax or
waive the condition.
Awards will vest in full immediately in cases of
death. In the event of redundancy, retirement on
grounds of injury or ill health, early retirement by
agreement, normal retirement and where a
participant ceases to be employed by HSBC, awards
will normally vest at the end of the vesting period on
a time-apportioned basis to the extent that the
performance conditions have been satisfied. In the
event of a change of control, awards will normally
vest immediately and on a time-apportioned basis to
the extent that the TSR performance condition has
been satisfied. Awards will normally be forfeited if
the participant is dismissed for cause or resigns from
HSBC. In all these circumstances the Committee
retains discretion to ensure fair and reasonable
treatment.
Arrangements from 2001-2004
Between 2001 and 2004, awards of Performance
shares were made under the HSBC Holdings
Restricted Share Plan 2000. Vesting was linked to
the attainment of predetermined TSR targets over a
three-year period from the date of the award.
For awards made in 2003 the initial performance
period was three years but the performance target
was not achieved at the third anniversary of the date
of award. The test is due to be applied again in
March 2007 in respect of the 2003 awards. If it is
passed, full vesting and transfer of the shares will
take place on the fifth anniversary of the date of
grant, i.e. in March 2008. If it fails it will be subject
to a final test in March 2008. For awards made in
2004 the performance conditions are the same but, if
the performance test is not passed at the third
anniversary, i.e. in March 2007, 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 sustained
growth. The Remuneration Committee retains
discretion to recommend early release of shares
awarded in certain circumstances, for example,
retirement, redundancy or ill health.
When events occur which cause the
Remuneration Committee to consider that the
performance conditions have become unfair or
impractical, the right is reserved for the Committee
to amend or substitute the performance conditions.
Whilst the Committee decided that options granted
in 2003 under the HSBC Holdings Group Share
Option Plan to employees below senior executive
level could vest in March 2006 notwithstanding the
failure to achieve the TSR performance condition,
the awards of Performance Shares made in 2003
under the HSBC Holdings Restricted Share Plan
2000 to the 400 or so most senior executives of the
Group continue to be subject to the pre-established
TSR benchmark performance conditions, as set out
above.
Total Shareholder Return
Graphs 1 to 4 below show HSBC Holdings’ TSR
performance against the following:
• Graph 1: the benchmark TSR for Performance
Shares awarded in March 2003;
• Graph 2: The Financial Times-Stock Exchange
FTSE 100;
• Graph 3: The Morgan Stanley Capital
International (‘MSCI’) World Index; and
• Graph 4: The MSCI Financials Index.