HSBC 2008 Annual Report Download - page 322

HSBC HOLDINGS PLC
Directors’ Remuneration Report (continued)
Executive Directors’ remuneration > Long-term incentive plan / Funding
320
Earnings per share award
Growth in Earnings per Share (EPS) is measured on
a point to point basis, by comparing EPS in the third
financial year of the performance period with EPS in
the financial year preceding that in which the award
is made. This approach is aimed at simplifying the
use of EPS as a performance measure and takes into
account feedback received during consultation with
institutional shareholders.
EPS growth in Year 3 over
the base EPS
Proportion of EPS
award vesting1
28 per cent or above 100%
16 per cent 20%
< 16 per cent nil
1 Vesting will occur in a straight line between 20% and 100%
where HSBC’s performance falls between these incremental
steps.
If events occur which cause the Remuneration
Committee to consider that a performance condition
has become unfair or impractical in either direction,
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 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 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 performance conditions have been
satisfied. Awards will normally be forfeited if the
participant is dismissed for cause or resigns from
HSBC. In all circumstances the Committee retains
discretion to ensure fair and reasonable treatment.
Arrangements from 2005 to 2007
Vesting of the awards of Performance Shares made
under the HSBC Share Plan from 2005 to 2007 is
based on two independent measures, relative TSR
and growth in EPS. The performance conditions are
measured over a three-year performance period and
awards forfeited to the extent that they have not been
met. The vesting of 50 per cent of the awards is
based on TSR and the remaining 50 per cent on
growth in EPS.
TSR award
The comparator group of 28 banks for the TSR
award comprises the largest banks in the world,
on the basis of their market capitalisation, their
geographic spread and the nature of their activities:
ABN AMRO1 Mitsubishi UFJ Financial Group2
Banco Santander Mizuho Financial Group
Bank of America Morgan Stanley
Bank of New York National Australia Bank
Barclays Royal Bank of Canada
BBVA Royal Bank of Scotland
BNP Paribas Société Générale
Citigroup Standard Chartered
Crédit Agricole UBS
Credit Suisse Group UniCredito Italiano
Deutsche Bank US Bancorp
HBOS1 Wachovia1
JP Morgan Chase Wells Fargo
Lloyds Banking Group Westpac Banking Corporation
1 ABN AMRO, HBOS and Wachovia have delisted since the
start of the performance period for the 2006 and 2007
awards. These comparators have been replaced from the
point of delisting by Fortis, Commonwealth Bank of
Australia and Toronto Dominion Bank respectively.
2 Mitsubishi UFJ Financial Group, Inc was previously known
as Mitsubishi Tokyo Financial Group prior to the
acquisition of UFJ Holdings on 1 October 2005.
The extent to which the TSR award will vest
will be determined on a sliding scale based on
HSBC’s relative TSR ranking, measured over the
three years, against the comparator group as shown
below:
If HSBC’s performance
matches
Proportion of TSR Award
vesting1
Banks ranking 1st to 7th 100%
Bank ranking 8th 90%
Bank ranking 9th 80%
Bank ranking 10th 70%
Bank ranking 11th 60%
Bank ranking 12th 50%
Bank ranking 13th 40%
Bank ranking 14th 30%
Banks ranking below 14th nil
1 Vesting will occur in a straight line where HSBC’s
performance falls between these incremental steps.
Earnings per share award
The method for calculating EPS growth is described
below. This is in line with the approach described in
the 2005, 2006 and 2007 Directors’ Remuneration
Reports, as well as in the circular containing the
Notice of Annual General Meeting for 2005.
The percentage of the conditional award vesting
will depend upon the absolute growth in EPS
achieved over the three years (‘the performance
period’). 30 per cent of the conditional shares will
vest if the incremental EPS over the performance
period is 24 per cent or more of EPS in the base year.
The percentage of shares vesting will rise on a
straight line proportionate basis to 100 per cent if
HSBC’s incremental EPS over the performance
period is 52 per cent or more of EPS in the base year.