HSBC 2015 Annual Report Download - page 288

Directors’ Remuneration Report (continued)
Statement from Group Remuneration Committee Chairman
HSBC HOLDINGS PLC
286
Overall performance summary/business context
We grew adjusted revenue, strengthened our capital position and increased our dividend payable to shareholders.
• Reported PBT for 2015 was up 1% at $18,867m compared with $18,680m for 2014.
• Adjusted PBT was down 7% for 2015 at $20,418m compared with $21,976m for 2014. Adjusted PBT was up in two of five regions.
• Adjusted revenue increased by $538m or 1% in 2015 to $57,765m compared with $57,227m for 2014, driven by revenue growth in client-
facing GB&M, principally in Equities and Foreign Exchange. Revenue also increased in CMB and Principal RBWM.
• Adjusted LICs increased by $553m or 17% to $3,721m compared with $3,168m in 2014. LICs increased in CMB and in RBWM.
• Adjusted operating expenses increased by $1,606m or 5% to $36,182m compared with $34,576m for 2014, reflecting investment in
growth, and regulatory programmes and compliance costs. Excluding the bank levy which is booked in the fourth quarter each year,
operating expenses in the second half of 2015 were broadly in line with the first half of the year. This was despite investment and
inflationary pressures, and partly reflects the initial effect of our cost saving initiatives and a strong focus on cost management.
• Dividends in respect of 2015 increased from $0.50 per ordinary share in 2014 to $0.51 per ordinary share.
• Our CRD IV end point CET1 capital ratio of 11.9% at 31 December 2015 was up from 11.1% at 31 December 2014. We continue to
generate capital from profit and our progress to achieve targeted RWA initiatives strengthened our CET1 ratio, creating capacity for
growth.
• The leverage ratio remained strong at 5.0%.
For further information on financial performance, see the Financial Summary and pages 22 to 27 of the Strategic Report.
Group variable pay pool and risk adjustments
Remuneration is an important tool for instilling the right
behaviours, driving and encouraging actions that are
aligned to organisational values and expectations. I believe
there should be a positive reward for achieving results in
the right way – and a penalty when they are not.
To drive positive change and influence the correct
behaviour, we launched a global At Our Best recognition
programme in July 2015, to be fully implemented by April
2016. This global programme enables everyone at HSBC
to recognise colleagues around the world who bring our
values to life in the way they think and act. It provides a
global shared understanding of what HSBC Values look like
in practice, and a consistent way of recognising people who
demonstrate them.
Where our aim to drive positive change is unsuccessful,
we have a process under which we apply downward
adjustments both at the variable pay pool level and at
the individual employee level. The 2015 variable pay was
determined after taking an automatic adjustment of
$431m to reflect fines, penalties and the cost of customer
redress. The Committee also reduced the payout ratio
from a target of 18.25% to 16%. This resulted in a further
adjustment of $398m to the variable pay pool. Additionally,
there were a number of actions taken, to reduce variable
pay proposed for 2015 for Group employees by $11m,
including members of senior management on account
of certain notable events that took place in the period.
The Group’s policy is for the vast majority of post-tax
profits to be allocated to capital retention and to dividends,
as described on page 304.
The Committee also reviewed the recommendation on
performance management and incentives in a report
issued by the G30: Banking Conduct and Culture: A Call
for Sustained and Comprehensive Reform. The review
confirmed that our practice on remuneration and
performance management is aligned with the
recommendations in the G30 report.
How our remuneration policy was applied
in 2015
Based on performance of the executive Directors against
their 2015 scorecards, the Committee approved 2015
annual incentive awards at 45% of the maximum for
Stuart Gulliver, 80.1% of the maximum for Iain Mackay
and 62% of the maximum for Marc Moses (details of the
performance outcomes are on page 307).
In respect of the Group Performance Share Plan (‘GPSP’),
we determined that 41.3% of the maximum award should
be granted (details of the performance outcomes are on
page 310).
In aggregate, total compensation for the Group Chief
Executive (‘CEO’) is down from 2014 reflecting the weaker
financial performance of the Group and the progress
towards implementation of Global Standards during
the year.
Before confirming the total variable pay to be awarded to the
executive Directors, we took into account reports from the
independent Monitor and received inputs from the Financial
System Vulnerabilities Committee on the progress on the
implementation of the Monitor’s recommendations on AML
and sanctions compliance and other Global Standards-related
initiatives. Based on the inputs received and each executive
Directors’ HSBC Values rating, we assessed that no further
downward override adjustment is required in respect of the
executive Directors or senior executives.
A significant portion of the variable pay awards for
executive Directors is deferred and subject to malus during
the vesting period. In addition, all variable pay awards are
subject to clawback for a minimum period of seven years
from the date of grant. The breakdown of the variable pay
award and the period over which the awards are paid are
set out on page 294.