HSBC 2015 Annual Report Download - page 305

HSBC HOLDINGS PLC
303
Strategic Report Financial Review Corporate Governance Financial Statements Shareholder Information
During 2015, total fees of £116,200 were paid to Deloitte in
relation to the remuneration related advice provided to the
Committee. This was based on a fixed fee agreed on an
estimated time spent basis.
During the year, the Group CEO provided regular briefings
to the Committee. In addition, the Committee received
advice from the following employees as part of their
executive role as employees of HSBC:
• Ann Almeida, former Group Head of Human Resources
and Corporate Sustainability (last meeting attended
February 2015),
• Pierre Goad, Group Head of Human Resources,
• Alexander Lowen, Group Head of Performance and
Reward,
• Marc Moses, Group Chief Risk Officer,
• Robert Werner, Global Head of Financial Crime
Compliance and Group Money Laundering Reporting
Officer, and
• John Flint, Chief Executive Retail Banking and Wealth
Management.
The Committee also received feedback and input from the
Group Risk Committee, Financial System Vulnerabilities
Committee and Conduct & Values Committee on risk and
compliance-related matters relevant to remuneration. This
included the input from Financial System Vulnerabilities
Committee on the implementation and annual assessment
of progress on the implementation and progress on the AML
and sanctions compliance programme for the purposes of
the Committee’s determination on any adjustments to be
made under the downward override policy.
Group variable pay pool
Variable pay pool determination
The Committee considers many factors in determining
the Group’s variable pay pool funding. Both the annual
incentive and GPSP are funded from a single annual
variable pay pool from which individual awards are
considered.
Variable pay pool determination
Performance and risk
appetite statement
• The variable pay pool takes into account the performance of the Group considered within the context of our
risk appetite statement (‘RAS’) which includes a number of earnings/capital related metrics, such as return
on equity, return on notional risk weighted assets, common equity tier 1 capital ratio and the leverage ratio.
This ensures that the variable pay pool is both economic and shaped by risk considerations and any Group-
wide notable events.
• Additionally, individual RAS has been developed for Financial Crime Compliance and Regulatory Compliance
to reflect the current regulatory focus on these risks.
• The Group CRO regularly updates the Committee on the Group’s performance against the risk appetite
statement and summarises the notable issues for the various business lines.
• The Committee uses these updates along with feedback from the Group Risk Committee as delivered by the
Group CRO when determining the annual variable pay pool to ensure that return, risk and remuneration are
aligned.
Countercyclical funding
methodology
• We use a countercyclical funding methodology which is categorised by both a floor and a ceiling and the
payout ratio reduces as performance increases to avoid pro-cyclicality risk.
• The floor recognises that even in challenging times, remaining in a competitive position is important.
• The ceiling recognises that at higher levels of performance it is possible to limit reward as it is not necessary
to continue to increase the variable pay pool, thereby limiting the risk of inappropriate behaviour to drive
financial performance.
Distribution of profits • In addition, our funding methodology considers the relationship between capital, dividends and variable pay
to ensure that the distribution of post-tax profits between these three elements is considered appropriate
(see next page for the 2015 and 2014 split).
• It is deemed fundamental that the majority of post-tax profits should be allocated to capital and to
shareholders, particularly when strong performance is delivered.
Commerciality and
affordability
• Finally, we consider the commercial requirement to remain competitive in the market and overall
affordability. Funding of the Group’s annual variable pay pool is determined in the context of Group
profitability, capital strength, shareholder returns and the overall compensation and benefits expense. This
approach ensures that performance-related awards for individual global businesses, global functions,
geographical regions and levels of staff are considered in a holistic fashion.
• Market competiveness is also considered in determining the variable pay pool. This allows us to address
any gaps to market identified when comparing total reward with our global peers. This also recognises the
challenges which arise from being headquartered in the UK and having to apply more stringent reward
practices than those in all other markets. We need to retain a competitive market position in Asia, the
Middle East and the US in attracting and retaining talent, where our competitors are not subject to discounts
applied by employees on their pay due to regulatory requirements including a variable pay cap, higher and
longer deferrals, malus and clawback.