Annual Financial Report - 5 of 7
RNS Number : 9106Y
HSBC Holdings PLC
08 March 2017
Report of the Directors | Corporate Governance
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Corporate Governance Report
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Page
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Statement of compliance
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132
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The Board
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132
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Director and Group Managing Director biographies
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133
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Appointment and induction of Directors
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138
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Operation of the Board
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138
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Conflicts of interest and indemnification
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138
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Board performance evaluation
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138
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Shareholder engagement and the AGM
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139
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Board committees
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140
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Internal control
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145
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Going concern and viability
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146
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Share capital and other disclosures
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147
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Employees
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150
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Statement of compliance
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this Report.
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Relevant corporate governance codes
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UK Corporate Governance Code
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www.frc.org.uk
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Hong Kong Corporate Governance Code (set out in Appendix 14 to the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited)
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www.hkex.com.hk
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Descriptions of the roles and responsibilities of the:
- Group Chairman
- Group Chief Executive
- Senior Independent Director
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www.hsbc.com/about-hsbc/corporate-governance/board-committees
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Board and senior management
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www.hsbc.com/about-hsbc/leadership
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Roles and responsibilities of the Board and its committees
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www.hsbc.com/about-hsbc/corporate-governance/board-committees
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Board's policies on:
- Diversity
- Shareholder communication
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www.hsbc.com/investor-relations/governance/corporate-governance-codes
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Global Internal Audit Charter
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www.hsbc.com/investor-relations/governance/internal-control
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HSBC is subject to corporate governance requirements in both the UK and Hong Kong. During 2016, HSBC complied with the applicable provisions of the UK Corporate Governance Code, and also the requirements of the Hong Kong Corporate Governance Code.
Under the Hong Kong Code the Audit Committee should be responsible for the oversight of all risk management and internal control systems. HSBC's Group Risk Committee is responsible for oversight of internal control, other than internal control over financial reporting, and risk management systems. This is permitted under the UK Corporate Governance Code.
The Board has codified obligations for transactions in HSBC Group securities in accordance with the requirements of the Market Abuse Regulation and the rules governing the listing of securities on The Stock Exchange of Hong Kong Limited ('HKEx'), save that the HKEx has granted waivers from strict compliance with the rules that take into account accepted practices in the UK, particularly in respect of employee share plans. HSBC is in discussion with the HKEx to update these waivers to take account of the Market Abuse Regulation. Following specific enquiry, each Director has confirmed that he or she has complied with their obligations in respect of transacting in Group securities during the year.
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The Board
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Led by the Group Chairman, the Board sets the Group's strategy and risk appetite. It also approves capital and operating plans for achieving strategic objectives, on the recommendation of management.
Powers of the Board
The Board is responsible for overseeing the management of HSBC globally and, in so doing, may exercise its powers, subject to any relevant laws, regulations and HSBC Holdings' Articles of Association (the 'Articles of Association').
Although the Board delegates day-to-day management of the business and implementation of strategy to the Group Chief Executive, certain matters, including annual operating plans, risk appetite and performance targets, procedures for monitoring and control of operations, approval of credit or market risk limits, acquisitions, disposals, investments, capital expenditure or realisation or creation of a new venture, specified senior appointments and any substantial change in balance sheet management policy are reserved by the Board for approval.
Executive Directors
The Group Chairman, the Group Chief Executive, the Group Finance Director and the Group Chief Risk Officer are HSBC employees.
Non-executive Directors
The Board comprises a majority of independent non-executive Directors. Their role is to constructively challenge, scrutinise the performance of management and help develop proposals on strategy. They also review the performance of management in meeting agreed goals and objectives and monitor the Group's risk profile.
The Board considers all non-executive Directors to be independent of HSBC. The Board has concluded that there are no relationships or circumstances likely to affect any individual non-executive Director's judgement. To satisfy the Rules Governing the Listing of Securities on the HKEx, all non-executive Directors have provided confirmation of their independence during the year. Sam Laidlaw has served on the Board for more than nine years and, in that respect only, does not meet the usual criteria for independence set out in the UK Corporate Governance Code and the Hong Kong Corporate Governance Code. The Board has determined Sam Laidlaw to be independent in character and judgement, notwithstanding his length of service, taking into account his continuing level of constructive challenge of management and strong contribution to Board discussions. He will, however, be retiring from the Board at the conclusion of the forthcoming AGM.
Role and support of Directors
The roles of Group Chairman and Group Chief Executive are separate, with a clear division of responsibilities between the running of the Board and executive responsibility for running HSBC's business. Their respective roles are set out in writing and are available on the website at www.hsbc.com/about-hsbc/corporate-governance/board-committees, along with the role description of the Senior Independent Director ('SID').
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HSBC Holdings plc Annual Report and Accounts 2016
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Executive Directors
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Douglas Flint, CBE, 61
Group Chairman
Appointed to the Board: December 1995
Group Chairman since December 2010
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Skills and experience: Douglas has extensive board-level experience and knowledge of governance primarily having served on the boards of HSBC and BP plc, and as a partner of KPMG. He has expertise in finance and risk management in banking, multinational financial reporting, treasury and securities trading operations. He joined HSBC as Group Finance Director in 1995 and, prior to becoming Chairman in 2010, his responsibilities broadened to Chief Financial Officer, and Executive Director for Risk and Regulation.
He is a member of the Institute of Chartered Accountants of Scotland and a Fellow of the Chartered Institute of Management Accountants.
Current appointments include: Board member of the Institute of International Finance, member of the International Business Leaders Advisory Councils of the mayors of both Beijing and Shanghai, a UK Business Ambassador at the invitation of the UK Prime Minister, non-executive Chairman of the Just Finance Foundation, trustee of the Royal Marsden Cancer Charity Board and a member of its Investment Committee.
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Stuart Gulliver, 57
Group Chief Executive
Appointed to the Board: May 2008
Group Chief Executive since January 2011
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Skills and experience: Stuart has more than 36 years' international banking experience, having joined HSBC in 1980. He played a leading role in developing and expanding Global Banking and Markets, and has held key roles in the Group's operations worldwide, working in London, Hong Kong, Tokyo, Kuala Lumpur and the United Arab Emirates. Former appointments include Chairman of HSBC Bank plc, HSBC Bank Middle East Limited, HSBC Private Banking Holdings (Suisse) SA and HSBC France. He was also Deputy Chairman of HSBC Trinkaus & Burkhardt AG and a member of its supervisory board.
Current appointments include: Chairman of the Group Management Board, and The Hongkong and Shanghai Banking Corporation Limited.
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Iain Mackay, 55
Group Finance Director
Appointed to the Board: December 2010
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Skills and experience: Iain has extensive financial and international experience, having worked in London, Paris, the US, Africa and Asia. He joined HSBC in 2007 as Chief Financial Officer of HSBC North America Holdings Inc. Other former
appointments include director of Hang Seng Bank Limited; Chief Financial Officer, HSBC Asia-Pacific. Before joining HSBC, Iain worked at General Electric ('GE'), serving as Controller of its Global Consumer Finance Unit, Chief Financial Officer of GE Consumer Finance Americas, and Chief Financial Officer of GE Healthcare - Global Diagnostic Imaging. Iain is a member of the Institute of Chartered Accountants of Scotland.
Current appointments include: Member of the Board of Trustees of the British Heart Foundation and chairman of its audit and risk committee.
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Marc Moses, 59
Group Chief Risk Officer
Appointed to the Board: January 2014
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Skills and experience: Marc joined HSBC in 2005 as Chief Financial and Risk Officer for Global Banking and Markets, and in December 2010 became Group Chief Risk Officer. He has extensive risk management and financial experience. Marc is a Fellow of the Institute of Chartered Accountants in England and Wales. He was European chief financial officer at J.P. Morgan and an audit partner at PricewaterhouseCoopers.
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Independent non-executive Directors
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Phillip Ameen, 68
Independent non-executive Director
Appointed to the Board: January 2015
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Member of the Group Audit Committee.
Skills and experience: As a Certified Public Accountant with extensive financial and accounting experience, Phillip served as Vice President, Comptroller, and Principal Accounting Officer of GE. Prior to joining General Electric, he was a partner of KPMG. He also served on the International Financial Reporting Interpretations Committee of the International Accounting Standards Board, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants and the Financial Accounting Standards Board Emerging Issues Task Force. He was also Chairman of the Committee on Corporate Reporting of Financial Executives International, Chairman of Skyonic Corporation and a trustee of the Financial Accounting Foundation.
Current appointments include: A non-executive director of HSBC North America Holdings Inc., HSBC Bank USA N.A., HSBC Finance Corporation and HSBC USA Inc.
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Kathleen Casey, 50
Independent non-executive Director
Appointed to the Board: March 2014
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Member of the Group Audit Committee and the Financial System Vulnerabilities Committee.
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HSBC Holdings plc Annual Report and Accounts 2016
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Report of the Directors | Corporate Governance
Skills and experience: Ka thleen has extensive financial regulatory policy experience. She is a former Commissioner of the US Securities and Exchange Commission, and acted as its principal representative in multilateral and bilateral regulatory dialogues with the G-20 Financial Stability Board and the International Organisation of Securities Commissions. Other former appointments include Staff Director and Counsel to the United States Senate Committee on Banking, Housing, and Urban Affairs; Chair of the Alternative Investment Management Association; and Legislative Director and Chief of Staff for a US Senator.
Current appointments include: Senior adviser to Patomak Global Partners and to a number of public bodies in the US.
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Laura Cha, GBS, 67
Independent non-executive Director
Appointed to the Board: March 2011
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Chair of the Philanthropic & Community Investment Oversight Committee, and a member of the Conduct & Values Committee and the Nomination Committee.
Skills and experience: Laura has extensive regulatory and policy making experience in the finance and securities sector in Hong Kong and mainland China. She is the former Vice Chairman of the China Securities Regulatory Commission. Other former appointments include serving as a non-executive director of Bank of Communications Co., Limited; Hong Kong Exchanges and Clearing Limited; and Tata Consultancy Services Limited. She also served as chair of the University Grants Committee in Hong Kong, and was Deputy Chairman of the Securities and Futures Commission in Hong Kong.
Current appointments include: A non-executive Deputy Chairman of The Hongkong and Shanghai Banking Corporation Limited, Chairman of Hong Kong's Financial Services Development Council and a non-executive director of China Telecom Corporation Limited, Unilever PLC and Unilever N.V.
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Henri de Castries, 62
Independent non-executive Director
Appointed to the Board: March 2016
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Skills and experience: Henri has more than 25 years' international experience in the financial services industry. He joined AXA in 1989 and his roles included responsibility for the group's asset management, financial and real-estate businesses, the oversight of North American and UK operations, and the preparation and execution of all the group's major mergers and acquisitions undertaken in the 1990s. Henri retired as Chairman and Chief Executive Officer of AXA SA on 1 September 2016. Other former appointments include serving as a director of AllianceBernstein Corporation.
Current appointments include: Chairman of Institut Montaigne, a French think-tank; non-executive director of Nestlé S.A. and a non-executive director of the French National Foundation for Political Science.
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Lord Evans of Weardale, 59
Independent non-executive Director
Appointed to the Board: August 2013
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Chairman of the Financial System Vulnerabilities Committee, and a member of the Conduct & Values Committee and the Philanthropic & Community Investment Oversight Committee.
Skills and experience: Jonathan has extensive experience in national security policy and operations. He was formerly Director General of the UK's Security Service (MI5) with responsibility for its leadership, policy and strategy, and areas including international and domestic counter-terrorism, counter-espionage and counter-proliferation activities, and cybersecurity. Jonathan held various positions during a 30-year career in the Security Service, which included responsibility for the oversight of the Joint Terrorist Analysis Centre and the Centre for the Protection of National Infrastructure, and attending the National Security Council.
Current appointments include: A non-executive director of Ark Data Centres and an adviser to various cybersecurity and technology companies.
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Joachim Faber, 66
Independent non-executive Director
Appointed to the Board: March 2012
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Chairman of the Group Risk Committee.
Skills and experience: Joachim has extensive international experience in banking and asset management. He is a former Chief Executive Officer of Allianz Global Investors AG and is a member of the management board of Allianz SE. He spent 14 years with Citicorp, holding positions in Trading and Project Finance, and as Head of Capital Markets for Europe, North America and Japan. He was also chairman of various Allianz subsidiaries. He was previously a member of the supervisory board and chairman of the audit and risk committee of OSRAM Licht AG. He was also a member of the German Council for Sustainable Development and a member of the advisory board of the Siemens Group Pension Board.
Current appointments include: Chairman of the supervisory board of Deutsche Börse AG and the Shareholder Committee of Joh. A. Benckiser SARL, and a director of Coty Inc. and Allianz France S.A.
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Sam Laidlaw, 61
Independent non-executive Director
Appointed to the Board: January 2008
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Chairman of the Group Remuneration Committee and the Nomination Committee.
Skills and experience: Sam has had responsibility for businesses in four continents and has particular experience in the energy sector. He was Chief Executive Officer of Centrica plc and lead non-executive board member of the UK
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134
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HSBC Holdings plc Annual Report and Accounts 2016
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Department for Transport. He was also an Executive Vice President of Chevron Corporation and a member of the UK Prime Minister's Business Advisory Group. He is a qualified solicitor with a Master's in business administration.
Current appointments include: Chair of the National Centre for Universities and Business, Chair of the Global Leadership Council for the Saïd Business School and Executive Chairman of Neptune Oil & Gas Limited. Sam was also appointed as a non-executive director of Rio Tinto plc and Rio Tinto Limited on 10 February 2017.
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Irene Lee, 63
Independent non-executive Director
Appointed to the Board: July 2015
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Skills and experience: Irene has more than 30 years' finance industry experience, having held senior investment banking and fund management positions in the UK, the US and Australia, including positions at Citibank and the Commonwealth Bank of Australia. Other former appointments include serving as a member of the Advisory Council of J.P. Morgan Australia and the Australian Takeovers Panel.
Current appointments include: Executive Chairman of Hysan Development Company Limited and a non-executive director of The Hongkong and Shanghai Banking Corporation Limited, Hang Seng Bank Limited, Cathay Pacific Airways Limited, CLP Holdings Limited and Noble Group Limited.
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John Lipsky, 70
Independent non-executive Director
Appointed to the Board: March 2012
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Member of the Group Risk Committee, the Nomination Committee and the Group Remuneration Committee.
Skills and experience: John worked for J.P. Morgan in Chile, New York, Washington and London, and interacted with financial institutions, central banks and governments in many countries. He served at the International Monetary Fund as First Deputy Managing Director, Acting Managing Director and Special Adviser. Other former appointments include serving as a trustee of the Economic Club of New York, a Global Policy Adviser for Anderson Global Macro, LLC and Chairman of the World Economic Forum's Global Agenda Council on the International Monetary System.
Current appointments include: Senior appointments and advisory positions in international economic research organisations.
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Rachel Lomax, 71
Senior Independent Director
Appointed to the Board: December 2008
Senior Independent Director since April 2015
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Chair of the Conduct & Values Committee, and a member of the Group Risk Committee and the Nomination Committee.
Skills and experience: Rachel was Deputy Governor of the Bank of England, and Permanent Secretary at the UK Government Departments for Transport and Work and Pensions, and the Welsh Office. She was a non-executive director of Reinsurance Group of America Inc. and The Scottish American Investment Company P.L.C.
Current appointments include: A non‑executive director of Arcus European Infrastructure Fund GP LLP, Heathrow Airport Holdings Limited, SETL Development Limited and Serco Group plc, as well as Chairman of the latter's corporate responsibility committee.
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Heidi Miller, 63
Independent non-executive Director
Appointed to the Board: September 2014
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Member of the Group Risk Committee.
Skills and experience: Heidi is a former President of International at JP Morgan Chase, and was responsible for leading the global expansion and the international business strategy across its investment bank, asset management, and treasury and securities services divisions. She was also a non-executive director of Merck & Co., Inc. and Progressive Corp.; Executive Vice President and Chief Financial Officer of Bank One Corporation; Senior Executive Vice President of Priceline.com Inc.; and Executive Vice President and Chief Financial Officer of Citigroup Inc.
Current appointments include: Chair of HSBC North American Holdings Inc., a non-executive director of First Data Corporation and General Mills Inc., and an advisory director of SRS Acquiom LLC.
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David Nish, 56
Independent non-executive Director
Appointed to the Board: May 2016
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Member of the Group Audit Committee.
Skills and experience: David served as Chief Executive Officer of Standard Life plc between 2010 and 2015, having joined as Finance Director in 2006. David led its investment in technology, complementary acquisitions and the disposal of the group's Canadian operations. Other former appointments include Group Finance Director of Scottish Power plc, non-executive director of HDFC Life (India) and partner of Price Waterhouse. He is a qualified chartered accountant.
Current appointments include: A non-executive director of Vodafone plc, London Stock Exchange Group plc, UK Green Investment Bank plc and Zurich Insurance Group.
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Jonathan Symonds, CBE, 57
Independent non-executive Director
Appointed to the Board: April 2014
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Chairman of the Group Audit Committee and a member of the Conduct & Values Committee.
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Report of the Directors | Corporate Governance< /div>
Skills and experience: Jonathan is a former Chief Financial Officer of Novartis AG and AstraZeneca plc. He was also a partner and Managing Director of Goldman Sachs, a partner of KPMG, and a non-executive director and chair of the Audit Committee of Diageo plc. He is a fellow of the Institute of Chartered Accountants in England and Wales.
Current appointments include: Chairman of HSBC Bank plc, Innocoll AG and Proteus Digital Health Inc., and a non-executive director of Genomics England Limited.
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Jackson Tai, 66
Independent non-executive Director
Appointed to the Board: September 2016
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Member of the Group Risk Committee and the Financial System Vulnerabilities Committee.
Skills and experience: Jackson was formerly Vice Chairman and Chief Executive of DBS Group and DBS Bank Ltd, having served the group as Chief Financial Officer and then as President and Chief Operating Officer. He previously worked at JP Morgan & Co. Incorporated as an investment banker in New York, Tokyo and San Francisco. Other former appointments include non-executive director of Bank of China Limited, Singapore Airlines, NYSE Euronext, ING Groep N.V., CapitaLand Ltd, SingTel Ltd. and Jones Lang LaSalle Inc. Jackson also served as Vice-Chairman of Islamic Bank of Asia.
Current appointments include: Non-executive director of Eli Lilly and Company, Koninklijke Philips Electronics N.V., MasterCard Incorporated and the Canada Pension Plan Investment Board.
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Pauline van der Meer Mohr, 57
Independent non-executive Director
Appointed to the Board: September 2015
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Member of the Group Remuneration Committee, the Group Nomination Committee and the Conduct & Values Committee.
Skills and experience: Pauline has extensive legal and human resources experience across a number of different sectors, and contributed to the Dutch Banking Code Monitoring Commission. Former appointments include President of Erasmus University Rotterdam; Senior Executive Vice President and Head of Group Human Resources at ABN AMRO Bank NV; Group Human Resources Director at TNT NV; HR Director, Information Technology, Royal Dutch Shell Group; and Senior Legal Counsel, Shell International.
Current appointments include: President of the supervisory board of EY Netherlands and member of the supervisory boards of ASML Holding N.V. and Royal DSM N.V.
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Paul Walsh, 61
Independent non-executive Director
Appointed to the Board: January 2016
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Member of the Group Remuneration Committee and the Group Nomination Committee.
Skills and experience: Paul was Group Chief Executive of Diageo plc for 12 years, having originally joined the Board of its predecessor, Grand Metropolitan plc, in 1995. He was also a non-executive director of Unilever PLC, United Spirits Limited and Centrica plc. Paul is a Fellow of the Chartered Institute of Management Accountants.
Current appointments include: Non-executive Chairman of Compass Group PLC, Avanti Communications Group Plc and Chime Communications Limited, and a non-executive director of FedEx Corporation and RM2 International S.A.
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Group Company Secretary
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Ben Mathews, 49
Group Company Secretary
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Ben joined HSBC in June 2013 and became Group Company Secretary in July 2013. He is a Fellow of the Institute of Chartered Secretaries and Administrators. Former appointments include Group Company Secretary of Rio Tinto plc and of BG Group plc.
Role of the Group Company Secretary
All Directors have access to the advice and services of the Group Company Secretary, who is responsible to the Board for ensuring that Board procedures and all applicable rules and regulations are complied with, and for advising the Board on corporate governance matters.
Under the direction of the Group Chairman, the Group Company Secretary is responsible for ensuring good information flows within the Board and its committees and between senior management and non-executive Directors, as well as facilitating induction and assisting with professional development as required.
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Group Managing Directors
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Samir Assaf, 56
Chief Executive, Global Banking and Markets
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Samir joined HSBC in 1994 and became a Group Managing Director in 2011. He is Chairman and a non-executive director of HSBC France; a director of HSBC Trinkaus & Burkhardt AG and The Saudi British Bank. Former appointments include: a director of HSBC Bank plc; HSBC Global Asset Management Limited and HSBC Bank Egypt S.A.E.; and Head of Global Markets for Europe, Middle East and Africa.
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Peter Boyles, 61
Chief Executive Officer of Global Private Banking
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Peter joined HSBC in 1975 and became a Group Managing Director in 2013. He is Chairman of HSBC Private Bank (Monaco) SA and a director of HSBC Global Asset Management Limited and HSBC Private Bank (UK) Limited. Former appointments include: Chief Executive of HSBC France; a director of HSBC Bank plc, HSBC Bank Malta p.l.c. and HSBC Trinkaus & Burkhardt AG.
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Patrick Burke, 55
President and Chief Executive Officer of HSBC USA
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Patrick joined HSBC in 1989 and became a Group Managing Director in 2015. He is Chairman of HSBC Bank USA, N.A., HSBC Finance Corporation, HSBC USA Inc. and HSBC Global Asset Management (USA) Inc.
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John Flint, 48
Chief Executive Officer, Retail Banking and
Wealth Management
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John joined HSBC in 1989 and became a Group Managing Director in 2013. Former appointments include: a director of HSBC Private Banking Holdings (Suisse) SA, a director of HSBC Bank Canada, Chief of Staff to the Group Chief Executive and Group Head of Strategy and Planning, Chief Executive Officer HSBC Global Asset Management, Group Treasurer and Deputy Head of Global Markets.
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Pierre Goad, 55
Group Head of Employee Insight and Communications
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Pierre first joined HSBC in 2001. In 2010 he left and joined Zurich Insurance Group as Head of Communications. He rejoined HSBC in 2011 and became a Group Managing Director in 2015. He is a director of HSBC Bank Canada. Former appointments include: Global Head of Communications; and Head of Corporate Development, Europe, Middle East and Global Businesses.
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Pam Kaur, 53
Group Head of Internal Audit
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Pam joined HSBC and became a Group Managing Director in 2013. She is a co-opted member of The Institute of Chartered Accountants in England and Wales. Former appointments include: Global Head of Group Audit for Deutsche Bank AG; Chief Financial Officer and Chief Operating Officer of the Restructuring and Risk Division, Royal Bank of Scotland Group plc; Group Head of Compliance and AML, Lloyds TSB; and Global Director of Compliance, Global Consumer Group, Citigroup.
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Stuart Levey, 53
Chief Legal Officer
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Stuart joined HSBC and became a Group Managing Director in 2012. Former appointments include: Under Secretary for Terrorism and Financial Intelligence in the US Department of the Treasury; Senior Fellow for National Security and Financial Integrity at the Council on Foreign Relations; Principal Associate Deputy Attorney General at the US Department of Justice; and a Partner at Miller, Cassidy, Larroca & Lewin LLP and at Baker Botts LLP.
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Andy Maguire, 50
Group Chief Operating Officer
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Andy joined HSBC in 2014 as Group Chief Operating Officer and became a Group Managing Director in 2015. He is Chairman of HSBC Global Services (UK) Limited; a director of HSBC Global Services Limited and HSBC Group Management Services Limited. He was formerly a Managing Partner (UK and Ireland) of the Boston Consulting Group.
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Paulo Maia, 58
Chief Executive, Latin America
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Paulo joined HSBC in 1993 and became a Group Managing Director on 1 February 2016. He is Chairman of Grupo Financiero HSBC Mexico S.A. de C.V., HSBC Argentina Holdings S.A. and a Director of HSBC North America Holdings Inc. Former appointments include: Chief Executive of HSBC Bank Canada and HSBC Bank Australia Limited.
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Noel Quinn, 55
Chief Executive, Global Commercial Banking
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Noel joined HSBC in 1992 when the Group acquired Midland Bank and became a Group Managing Director on 1 September 2016. Former appointments include: Head of Specialised and Equity Finance, Director of Strategy & Development for Commercial Banking, Head of Commercial Finance Europe, Head of Commercial Banking UK and Head of Commercial Banking Asia.
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Antonio Simoes, 41
Chief Executive, HSBC Bank plc
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Antonio joined HSBC in 2007 and became a Group Managing Director on 1 February 2016. He is a director of HSBC Bank plc and HSBC France. Former appointments include: Chief Executive of HSBC UK; Head of Retail Banking and Wealth Management, Europe; and Chief of Staff to the Group Chief Executive and Group Head of Strategy and Planning. He is the Chairman of the Practitioner Panel of the FCA. He was formerly a Partner of McKinsey & Company.
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Peter Wong, 65
Deputy Chairman and Chief Executive,
The Hongkong and Shanghai Banking Corporation Limited
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Peter joined HSBC in 2005 and became a Group Managing Director in 2010. He is Chairman of HSBC Bank (China) Company Limited and HSBC Bank Malaysia Berhad, and a non-executive director of Hang Seng Bank Limited. He is also non-executive Vice Chairman of Bank of Communications Co Ltd and an independent non-executive Director of Cathay Pacific Airways Limited. Former appointments include: Vice Chairman of HSBC Bank (Vietnam) Ltd; a director of HSBC Bank Australia Limited; and a director of Ping An Insurance (Group) Company of China, Ltd.
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Board of Directors
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Appointments to the Board are made on merit and candidates are considered against objective criteria, having due regard to the benefits of diversity on the Board. A rigorous selection process, overseen by the Nomination Committee and based upon agreed requirements using an external search consultancy, is followed in relation to the appointment of non-executive Directors.
During the year Henri de Castries, David Nish, Jackson Tai and Paul Walsh were appointed to the Board. Their biographies can be found on pages 133 to 136.
The number of Directors must not be less than five nor exceed 25. The Board may at any time appoint any person as a Director, either to fill a vacancy or as an addition to the existing Board. The Board may appoint any Director to hold any employment or executive office and may revoke or terminate any such appointment. Shareholders may, by ordinary resolution, appoint a person as a Director or remove any Director before the expiration of his or her period of office.
Newly appointed Directors retire at the Annual General Meeting ('AGM') following appointment and are eligible for election. All Directors are nominated for annual re-election by shareholders subject to continued satisfactory performance based upon an assessment by the Group Chairman and the Nomination Committee.
Non-executive Directors are appointed for an initial three-year term and, subject to re-election by shareholders at AGMs, are typically expected to serve two three-year terms. The Board may invite a Director to serve additional periods. Any term beyond six years is subject to particularly rigorous review.
The terms and conditions of appointment of non-executive Directors are set out in a letter of appointment, which includes the expectations of them and the time estimated for them to meet their commitment to the Group. The current anticipated minimum time commitment, which is subject to periodic review and adjustment by the Board, is 30 days per year. Non-executive Directors are also advised that the time they need to devote to the Group may be considerably more if they serve on Board Committees or as other matters require. All non-executive Directors have confirmed they can meet this requirement, taking into account any other commitments they have at the time of appointment, and most devote considerably more time.
During their term of appointment, non-executive Directors are expected to consult the Group Chairman or the Group Company Secretary if they are considering whether to accept or vary any commitments outside the Group. The agreement of the Group Chairman is required if any additional or changed commitment might affect the time that a Director is able to devote to his or her role with the Group.
Letters setting out the terms of appointment of each non-executive Director are available for inspection at the registered office of HSBC Holdings. The Board diversity policy is available at www.hsbc.com/investor-relations/governance/corporate-governance-codes.
Induction
Formal induction programmes are arranged for newly appointed Directors, based on the individual's needs, skills and experience. Typically, these consist of a series of meetings with other Directors and senior executives, as well as local site visits, to provide familiarity with the business. Directors also receive comprehensive guidance from the Group Company Secretary on the Group's governance framework and associated policies, as well as their duties as Directors on the Board. During the year Henri de Castries, David Nish, Paul Walsh and Jackson Tai completed a formal induction programme.
Operation of the Board
The Board regularly reviews reports on performance against financial and other strategic objectives, key business challenges, risk, business developments, and investor and external relations. During 2016, it also considered presentations on strategy and performance by each of the global businesses and across the principal geographical areas.
All of HSBC's activities involve the measurement, evaluation, acceptance and management of risk or combinations of risks. The Board, advised by the Group Risk Committee ('GRC'), Conduct & Values Committee ('CVC') and the Financial System Vulnerabilities Committee ('FSVC'), promotes a strong risk governance culture which shapes the Group's attitude to risk. The Board and these committees oversee the development and maintenance of a strong risk management framework.
The Group Company Secretary will ensure that agenda and supporting papers are distributed in advance of Board and Board committee meetings to allow reasonable time for review and to facilitate full discussion at the meetings.
The Chairman met with the non-executive Directors without the other executive Directors in attendance. The SID also facilitated meetings of the non-executive Directors without the attendance of executive Directors, including that of the Group Chairman.
The Directors are encouraged to have free and open contact with management at all levels and full access to all relevant information. When attending off-site Board meetings and when travelling for other reasons, non-executive Directors are encouraged to visit local business operations and meet local management.
Directors may take independent professional advice, if necessary, at HSBC Holdings' expense.
Conflicts of interest, indemnification of Directors and contracts of significance
The Board has established a policy and procedures relating to Directors' conflicts of interest. Where conflicts of interest arise, the Board has the power to authorise them. A review of those conflicts which have been authorised, and the terms of those authorisations, is undertaken by the Board annually.
The Articles of Association state that Directors are entitled to be indemnified out of the assets of HSBC Holdings against claims from third parties in respect of certain liabilities. All Directors have the benefit of directors' and officers' liability insurance.
None of the Directors had, during the year, a material interest, directly or indirectly, in any contract of significance with any HSBC company. Each Director is routinely reminded of their obligations in respect of transacting in HSBC Group securities and has confirmed that he or she has complied with regulatory requirements.
Board performance evaluation
The Board is committed to regular, independent evaluation of its own effectiveness and that of its committees. For 2015/16, an independent review was undertaken by Heidrick & Struggles/JCA Group, an independent third-party firm that has no other connection with HSBC Holdings. The process involved an extensive series of interviews and meetings with the non-executive Directors, together with input from members of the Group Management Board. Actions arising from the review were presented and discussed in detail with the Board in February 2016 and then tracked throughout the remainder of the year and reported to the Board.
Given the ongoing nature of these actions, a follow-up review is to be conducted during the first half of 2017, the outcome of which will be published in the 2017 Annual Report. In the interim period, the performance evaluation of the individual Directors was conducted internally, as provided for under the UK Corporate Governance Code, by the Group Chairman and the SID.
|
138
|
HSBC Holdings plc Annual Report and Accounts 2016
|
Set out below are areas of particular focus from the 2015/16 review that the Board has addressed during the year:
|
Theme
|
Action taken
|
|
Agenda management
|
Board agendas were revised to allow for a greater focus on business strategy and financial and operational performance.
A rolling cycle of annual deep dives across each of the four global businesses and the Group's principal geographical regions was established. A detailed presentation of the technology and digital opportunities facing the Group was also arranged with an explanation of how the Group is currently responding to them and the Group's longer-term strategic response.
Improvements were made to the process for the preparation, submission and distribution of management information and Board and Committee papers.
|
|
Committee efficiency
|
The operation of the Committees was reviewed to improve efficiency and address overlaps and any gaps in their responsibilities.
|
|
Continued development of the cohesive relationship between non-executive Directors and senior management
|
More opportunities were created for senior management to interact with non-executive Directors both inside and outside formal Board meetings, and to increase Board exposure to other high potential managers in the Group.
|
|
Succession planning
|
There has been a continued focus by the Board, through the Nomination Committee, on executive and non-executive succession planning. A committee has been established to oversee succession planning for the Group Chairman.
|
Director performance evaluation
Non-executive Directors' individual performance evaluation is undertaken annually by the Group Chairman. This involves a discussion about a Director's individual contribution, explores individual training and development needs, and the time commitment that is required to continue to deliver the role effectively. The Group Chairman has confirmed that all non-executive Directors continue to perform effectively, contribute positively to the governance of HSBC and are able to fully commit the time required for their roles.
Executive Directors' individual performance evaluation is undertaken as part of the performance management process for all employees. The results are considered by the Group Remuneration Committee when determining variable pay awards each year.
The Group Chairman's performance is evaluated by the non-executive Directors, led by the SID.
Training and development
Training and development is provided for each Director, and is regularly reviewed by the Group Chairman supported by the Group Company Secretary. All executive Directors develop and refresh their skills and knowledge through day-to-day interactions and briefings with senior management of the Group's businesses and functions.
A two-day forum for all of the Group's non-executive Directors was held during the year. Awareness and discussion sessions were conducted by senior executives and subject matter experts on emerging technologies, financial crime compliance, regulatory initiatives and other business developments. The following Directors attended these sessions: David Nish, Joachim Faber, John Lipsky, Jonathan Symonds, Kathleen Casey and Paul Walsh. Jonathan Symonds and Joachim Faber hosted a separate forum for the Chairs of the Group's audit and risk committees globally.
In addition, all members of the Group Audit Committee ('GAC') received refresher training in IFRS 9 and the Committee Chairs received training in the requirements of the Senior Managers Regime. As part of their induction programme, David Nish, Henri de Castries and Paul Walsh received training on the Volcker Rule.
Shareholder engagement
Communication with shareholders is given high priority by the Board and a copy of its policy is available at www.hsbc.com. Extensive information about HSBC and its activities is provided to shareholders in the Annual Report and Accounts, the Strategic Report and the Interim Report as well as at www.hsbc.com.
To compliment these, there is regular dialogue with institutional investors. Enquiries from individuals on matters relating to their shareholdings and HSBC's business are welcomed.
Directors are encouraged to develop an understanding of the views of major shareholders. Non-executive Directors are invited to attend analyst presentations and other meetings with institutional investors and their representative bodies. An annual governance breakfast is also held, which gives institutional investors an opportunity to engage with the non-executive Directors and senior management on governance matters. All executive Directors hold regular meetings with institutional investors and feedback from these meetings is routinely provided to the Board.
As SID, Rachel Lomax is available to shareholders if they have concerns that cannot be resolved or for which the normal channels would be inappropriate. She may be contacted via the Group Company Secretary at 8 Canada Square, London E14 5HQ.
The AGM and other general meetings
The 2017 AGM will be held at the Queen Elizabeth II Conference Centre, Broad Sanctuary, Westminster, London SW1P 3EE on Friday 28 April at 11.00am and a live webcast will be available on www.hsbc.com. A recording of the proceedings will be available on www.hsbc.com shortly after the conclusion of the AGM until 28 May 2017. An informal meeting of shareholders will be held at 1 Queen's Road Central, Hong Kong on Monday 24 April at 4.30pm. Shareholders are encouraged to attend these meetings. Shareholders may send enquiries to the Board in writing via the Group Company Secretary, HSBC Holdings plc, 8 Canada Square, London E14 5HQ or by sending an email to shareholderquestions@hsbc.com.
Shareholders may require the Directors to call a general meeting other than an AGM as provided by the UK Companies Act 2006. Requests to call a general meeting may be made by members representing at least 5% of the paid-up capital of HSBC Holdings that carries the right of voting at its general meetings (excluding any paid-up capital held as treasury shares). A request must state the general nature of the business to be dealt with at the meeting and may include the text of a resolution that may properly be moved and is intended to be moved at the meeting. A request may be in hard copy form or in electronic form and must be authenticated by the person or persons making it. A request may be made in writing to HSBC Holdings at its UK address, referred to in the paragraph above or by sending an email to shareholderquestions@hsbc.com. At any general meeting convened on such request, no business shall be transacted except that stated by the requisition or proposed by the Board.
|
HSBC Holdings plc Annual Report and Accounts 2016
|
139
|
Report of the Directors | Corporate Governance
|
Board Committees
|
The Chairs of each Committee report matters of significance to the Board after each meeting and the minutes of the meetings are made available to all Board members.
The detailed roles and responsibilities of each Committee are set out in its terms of reference, which can be found on the website at www.hsbc.com/about-hsbc/corporate-governance/board-committees.
Committee interaction
The Board places significant reliance on its Committees and delegates a broad range of responsibilities to them. It is therefore important that, while unnecessary duplications between each remit of the Committees should be avoided, effective links should exist between Committees and the
Board where required.
Board where required.
Principal subsidiaries
The GRC works closely with the GAC to strengthen alignment with the major regional and global business risk and audit committees.
The GAC and GRC make a number of recommendations to the Board in relation to the preparation of the financial statements which are supported by certificates from the principal subsidiaries.
Whistleblowing
The GAC and the CVC are responsible for reviewing the Group's whistleblowing procedures and received regular updates on relevant concerns raised under these procedures, together with management actions taken in response.
Committee effectiveness
The effectiveness of the Committees is evaluated as part of the overall performance evaluation of the Board as referred to above. In addition, the Committees review the papers and the effectiveness of each meeting as a standing agenda item to ensure that they continue to be effective, challenging and well-managed, and review a rolling planner of proposed committee business.
|
2016 Board and Committee attendance
|
|||||||||||||||||
|
|
AGM
|
|
Board
|
Group Audit
Committee
|
|
Group Risk
Committee
|
|
Group
Remuneration
Committee
|
|
Nomination
Committee
|
|
Financial
System
Vulnerabilities
Committee
|
|
Conduct &
Values
Committee
|
|
Philanthropic &
Community Investment
Oversight Committee
|
|
|
Number of meetings held*
|
1
|
|
8
|
8
|
|
9
|
|
9
|
|
7
|
|
7
|
|
6
|
|
3
|
|
|
Group Chairman
|
|
|
|
|
|
|
|
|
|
||||||||
|
Douglas Flint
|
1
|
|
8
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
Executive Directors
|
|
|
|
|
|
|
|
|
|
||||||||
|
Stuart Gulliver
|
1
|
|
8
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
Iain Mackay
|
1
|
|
8
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
Marc Moses
|
1
|
|
8
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
Non-executive Directors
|
|
|
|
|
|
|
|
|
|
||||||||
|
Phillip Ameen
|
1
|
|
8
|
7
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
Kathleen Casey
|
1
|
|
8
|
8
|
|
-
|
|
-
|
|
-
|
|
7
|
|
-
|
|
-
|
|
|
Laura Cha
|
1
|
|
8
|
-
|
|
-
|
|
-
|
|
7
|
|
-
|
|
6
|
|
3
|
|
|
Henri de Castries1
|
1
|
|
5/5
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
Lord Evans of Weardale
|
1
|
|
8
|
-
|
|
-
|
|
-
|
|
-
|
|
7
|
|
6
|
|
3
|
|
|
Joachim Faber
|
1
|
|
8
|
-
|
|
9
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
Rona Fairhead2
|
1
|
|
4/4
|
-
|
|
-
|
|
-
|
|
3/4
|
|
1/2
|
|
-
|
|
-
|
|
|
Sam Laidlaw
|
1
|
|
8
|
-
|
|
-
|
|
9
|
|
7
|
|
-
|
|
-
|
|
-
|
|
|
Irene Lee
|
1
|
|
8
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
John Lipsky
|
1
|
|
8
|
-
|
|
9
|
|
8
|
|
7
|
|
-
|
|
-
|
|
-
|
|
|
Rachel Lomax3
|
1
|
|
8
|
2/2
|
|
8
|
|
-
|
|
7
|
|
-
|
|
6
|
|
-
|
|
|
Heidi Miller
|
1
|
|
8
|
-
|
|
9
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
David Nish4
|
1
|
|
4/4
|
3/4
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
Sir Simon Robertson2
|
1
|
|
4/4
|
-
|
|
-
|
|
4/4
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
Jonathan Symonds
|
1
|
|
8
|
8
|
|
-
|
|
-
|
|
-
|
|
-
|
|
5
|
|
-
|
|
|
Jackson Tai5
|
-
|
|
2/2
|
-
|
|
2/2
|
|
-
|
|
-
|
|
1/2
|
|
-
|
|
-
|
|
|
Pauline van der Meer Mohr6
|
1
|
|
7
|
-
|
|
-
|
|
9
|
|
3/3
|
|
-
|
|
6
|
|
-
|
|
|
Paul Walsh7
|
1
|
|
7
|
-
|
|
-
|
|
8
|
|
3/3
|
|
-
|
|
-
|
|
-
|
|
|
*
|
Board meetings in 2016 were held in London and Hong Kong. In addition to the Board meetings listed there were also 11 Chairman's Committee meetings held in 2016.
|
|
1
|
Appointed to the Board 1 March 2016.
|
|
2
|
Resigned from the Board 22 April 2016.
|
|
3
|
Resigned from the Group Audit Committee 20 April 2016.
|
|
4
|
Appointed to the Board 1 May 2016. Attended AGM as part of his induction.
|
|
5
|
Appointed to the Board 12 September 2016.
|
|
6
|
Appointed to the Group Nomination Committee 22 April 2016.
|
|
7
|
Appointed to the Board 1 January 2016 and to the Group Nomination Committee 1 May 2016.
|
|
140
|
HSBC Holdings plc Annual Report and Accounts 2016
|
|
Group Audit Committee
|
Jonathan Symonds (Chairman)
Phillip Ameen
Kathleen Casey
David Nish (appointed on 1 May 2016)
Rachel Lomax (resigned on 20 April 2016)
Role and responsibilities
The GAC has non-executive responsibility for matters relating to financial reporting, including Pillar 3 disclosures and internal control over financial reporting.
Governance
The Group Finance Director, Group Chief Accounting Officer, Group Head of Internal Audit and other members of senior management routinely attend meetings of the GAC. The external auditor, PwC, also attended all meetings. The Chairman of the GAC had regular meetings to discuss agenda planning and specific issues as they arose during the year.
How the Committee discharges its responsibilities
Financial reporting
The GAC reviews HSBC's financial and reporting judgements and their application to the Group's financial reporting, including Pillar 3 disclosures. It also reviews presentations to external analysts including the key financial metrics relating to HSBC's strategic actions.
The GAC assesses the adequacy of resources of the accounting and financial reporting function. It also monitors the legal and regulatory environment.
Internal controls
The GAC assesses the effectiveness of the internal control system for financial reporting and any developments affecting it in support of the Board's assessment of internal control over financial reporting in accordance with section 404 of the Sarbanes-Oxley Act.
The GAC has received confirmation that executive management has taken or is taking the necessary actions to remedy any failings or weaknesses identified through the operation of the Groups framework of controls.
Further detail of how the Board reviews the effectiveness of key aspects of internal control can be found on page 145.
External audit
The GAC meets privately with the external auditor at every Committee meeting and the GAC Chairman maintains regular contact with the audit partner throughout the year.
The GAC reviews the external auditor's approach and strategy for the annual audit.
All non-audit services provided by PwC are pre-approved by the GAC in accordance with the auditor independence policy to ensure that services do not create a conflict. The auditor independence policy has been revised with effect from 1 January 2017 to take account of the UK implementation of new EU audit rules. Details of the significant engagements for non-audit services are contained in Note 6.
A policy is in place and monitored by the GAC on hiring employees or former employees of the external auditor.
Internal Audit
The GAC approves Internal Audit's annual plan, resource and budget, and reviews the performance of the Group Head of Internal Audit and the performance and effectiveness of its head. The Group Head of Internal Audit reports to the Chairman of the GAC and the Committee regularly meets with the Group Head of Internal Audit without other management present.
Compliance with Regulatory Requirements
The Board is satisfied that each member of the GAC is independent according to SEC criteria, may be regarded as audit committee financial experts for the purposes of section 407 of the Sarbanes-Oxley Act and has recent and relevant financial experience for the purposes of the UK and Hong Kong Corporate Governance Codes.
The Committee has complied with the relevant parts of the Competition and Markets Authority Final Order on the statutory audit market for the year ended 31 December 2016.
Principal activities and significant issues considered during 2016
External auditor
The Committee assessed the effectiveness of PwC as the Group's external auditor, using a questionnaire which focused on the overall audit process, its effectiveness and the quality of output. It concluded that PwC had performed a high-quality and effective audit in 2016.
Fees payable to PwC for the year ended 31 December 2016 totalled $111.1m, of which $39.8m or 35.8% was payable in respect of non-audit services. A further breakdown of the fees paid to the auditors for each of the last three financial years can be found in Note 6 on the Financial Statements.
The GAC considered PwC to be independent and PwC, in accordance with professional ethical standards, provided the GAC with written confirmation of its independence for the duration of 2016.
The GAC has therefore recommended to the Board that PwC be reappointed as auditor. Resolutions concerning the reappointment of PwC and their audit fee for 2017 will be proposed to shareholders at the 2017 AGM.
Internal Audit
The GAC concluded that the Internal Audit function remained effective.
Finance transformation project
The Finance function has embarked on a large scale three-year transformation project to respond to the future needs of a changing industry facing increased regulatory demands.
The project also included embedding internal controls and improving the consistency of critical financial processes across the Group.
Internal control framework
The GAC continued to monitor the progress being made to upgrade entity level controls and remediate issues identified in 2015.
In particular, the GAC continued to monitor the remediation of controls over access management in IT and the next phase in terms of the enhancement of strategic controls. The GAC was encouraged by the progress being made.
Changing regulatory landscape
Given the changing legal and regulatory landscape, the GAC continued to receive detailed presentations and updates from management on the Group's readiness to implement IFRS 9 Financial Instruments and the revised Basel framework's Pillar 3 disclosure requirements.
|
HSBC Holdings plc Annual Report and Accounts 2016
|
141
|
Report of the Directors | Corporate Governance
|
Significant accounting judgements considered during 2016 included:
|
|
|
Key area
|
Action taken
|
|
Appropriateness of provisioning for legal proceedings and regulatory matters
|
The GAC received reports from management on the recognition and amounts of provisions, the existence of contingent liabilities, and the disclosures relating to provisions and contingent liabilities for legal proceedings and regulatory matters. Specific areas addressed included provisioning arising from investigations by US regulators and law enforcement agencies relating to trading activities in the foreign exchange market and competition law investigations relating to foreign exchange activities in a number of jurisdictions; and management's judgement regarding provisions and contingent liabilities in connection with investigations of HSBC's Swiss Private Bank by a number of tax administration, regulatory and law enforcement authorities. The GAC also considered management's assumptions and judgements relating to the disclosure of a contingent liability in respect of investigations into historical sales of US mortgage securitisations by The United States Attorney for the District of Colorado for potential violations of The Financial Industry Reform, Recovery and Enforcement Act of 1989, 12 U.S.C. § 1833a.
|
|
Quarterly and annual reporting
|
The GAC considered key judgements in relation to quarterly and annual reporting. In addition, it considered external analysts' presentations and key financial metrics included in HSBC's strategic actions.
|
|
Loan impairment,
allowances and charges
|
The GAC considered loan impairment allowances for personal and wholesale lending. Significant judgements and estimates for personal lending included a review of loss emergence periods across the retail loan portfolios and the potential impact of the UK electorate's vote to leave the EU. For wholesale lending, the GAC considered management's judgements and assumptions in respect of the recognition of judgemental collective impairment allowances for oil and gas exposures, and judgements relating to impairment allowances recognised for individual identified cases, as at 31 December 2016, and noted the ongoing monitoring for signs of credit deterioration that could result from the UK electorate's vote to leave the EU.
|
|
Valuation of financial instruments
|
The GAC considered the key valuation metrics and judgements involved in the determination of the fair value of financial instruments. The GAC considered the valuation control framework, valuation metrics, significant year-end judgements and emerging valuation topics.
|
|
Viability statement
|
Under the obligations of the UK Corporate Governance Code the Directors have carried out a robust assessment of the principal risks for the Group and parent company. The GAC has considered the Directors' judgement in concluding that the Group and parent company will be able to continue in operation and meet liabilities as they fall due, and that it is appropriate that the viability statement covers a period of three years.
|
|
UK customer remediation
|
The GAC considered the provisions for redress for mis-selling of payment protection insurance ('PPI') policies, in the UK, including management's judgements regarding the effect of the proposed time-bar for claims ending June 2019. The GAC also considered provisions in relation to the implications of a 2014 UK court case ('Plevin') for the non-disclosure of levels of commission regarding the historical sales of PPI products, pending finalised guidance from the Financial Conduct Authority ('FCA').
|
|
Bank of Communications Co., Limited ('BoCom') impairment testing
|
During the year, the GAC considered the regular impairment reviews of HSBC's investment in BoCom. When testing investments in associates for impairment, IFRS requires the carrying amount to be compared with the higher of fair value and value in use. The GAC reviewed a number of aspects of management's work in this area, including the sensitivity of the result of the impairment review to estimates and assumptions of projected future cash flows and the discount rate. It was concluded that the investment was not impaired.
|
|
Goodwill impairment testing
|
The GAC noted the process and results of the 1 July 2016 annual goodwill impairment test and the review of impairment indicators at 30 June 2016 and 31 December 2016. During the year, impairment indicators were noted for GPB Europe and GBM Europe. No impairment was recognised for GBM Europe.
The GAC considered management's judgements in respect of the impairment charge of $0.8bn relating to GPB Europe goodwill in H1 2016, and the further impairment charge of $2.4bn in Q4 2016, resulting in the impairment of the entire balance of goodwill for GPB Europe in 2016. There were two main factors which led to indicators of impairment being identified:
•
during the year, revised forecast cash flows became available; and•
management adjusted the discount rates used in the goodwill tests due to the results of the UK EU Referendum decision. |
|
Hedge accounting
|
The GAC considered management's judgements relating to the partial discontinuation of a hedging relationship in France in December 2016. The GAC discussed the control weaknesses, which were limited to France, and noted management's actions to address them.
|
|
Recognition of deferred tax assets
|
In considering the recoverability of the Group's deferred tax assets, the GAC reviewed the recognition of deferred tax assets in the US and, in the first half of 2016, in the Brazil operations which were sold in July 2016, and the associated projections of future taxable income.
|
|
Operating segments
|
The GAC considered the change in reportable segments during the year under IFRS 8, from regions to global businesses, and the introduction of a Corporate Centre segment.
|
|
Group Risk Committee
|
Joachim Faber (Chairman)
John Lipsky
Rachel Lomax
Heidi Miller
Jackson Tai (appointed on 12 September 2016)
Role and responsibilities
The GRC has non-executive responsibility for the oversight of risk-related matters and the principal risks impacting the Group, risk governance and internal control systems (other than internal financial control systems). The GRC is updated on, but is not directly responsible for, overseeing risks relating to
financial crime, cyber-crime and information security, anti-bribery and corruption, and culture and conduct. These risks are overseen by the FSVC and the CVC.
Governance
The Group Chief Risk Officer, Group Finance Director, Chief Legal Officer, Group Head of Internal Audit, Global Head of Regulatory Compliance, Global Head of Financial Crime Compliance, Group Head of Financial Crime Risk and other members of senior management attended meetings of the GRC by invitation to contribute to discussions relating to their areas of expertise.
The GRC works closely with the GAC to ensure that any areas of significant overlap are appropriately addressed and to improve inter-committee communication.
|
142
|
HSBC Holdings plc Annual Report and Accounts 2016
|
The GRC holds meetings with the Group Chief Risk Officer and, separately, with the Group Head of Internal Audit without management present.
How the Committee discharges its responsibilities
As a standing item on the rolling planner the GRC reviews the Group Risk Appetite Statement ('RAS'), the risk map (which describes the Group's risk profile by risk type across the global businesses) and a report on the top and emerging risks (together with mitigating actions for the identified risks). This also identifies any areas where management needed to assess vulnerabilities via stress testing.
Page 64 provides further information on the top and emerging risks, the risk map and the risk appetite for the Group.
The GRC receives presentations on a range of topics, including stress testing and briefings on developments in the regulatory environment. In addition, the GRC requests reports and updates from management on risk-related issues for in-depth consideration and receives regular reports on matters discussed at the Risk Management Meeting of the Group Management Board ('GMB'). It has continued to invite senior management from the global businesses and functions to present their risk control frameworks, which has led to enhanced discussions of the risk environment.
Any revisions to the RAS are reviewed bi-annually by GRC and any changes are recommended to the Board. The GRC regularly reviews the Group's risk profile against the key performance metrics set out in the RAS. It reviews management's assessment of risk and provides scrutiny of management's proposed mitigating actions.
Regular reports are received on legal and regulatory risks. Management actions to mitigate these risks are reviewed and the potential impact of future developments in this area on the Group are considered.
Principal activities and significant issues considered during 2016
The Group Risk Appetite Statement ('RAS') and monitoring of the Group risk profile against the RAS
There were no significant changes to the RAS in 2016.
Stress testing
The PRA and EBA stress testing exercises and the results of stress testing were closely monitored and reviewed prior to submission. Reports were received over the course of the stress testing exercise and the Committee met an additional four times during the year solely to consider stress testing related matters, including additional stress tests specific to oil and gas exposures and the UK electorate's vote to leave the EU.
Execution risk
Regular reports were received from the Group Chief Operating Officer, who updated each meeting on the progress and status of the Group's highest-priority programmes and mitigating measures being introduced to manage the identified risks appropriately.
Monitoring of this risk and challenging management's assessment of execution risk and corresponding mitigating actions remains a priority for the GRC.
Internal control and risk management
The GRC reviewed the Group's risk management framework and system of internal control (other than internal financial control systems, which were covered by the GAC) and the developments affecting them over the course of 2016, as part of the Board's assessment of internal control.
In 2016 the Group Risk Committee appointed an external independent expert to assess the effectiveness of the committee.
Further detail of how the Board reviews the effectiveness of key aspects of internal control can be found on page 145.
|
Financial System Vulnerabilities Committee
|
Lord Evans of Weardale (Chairman)
Kathleen Casey
Jackson Tai (appointed on 12 September 2016)
Rona Fairhead (resigned on 22 April 2016)
Nick Fishwick, CMG (non-Director member)
Dave Hartnett, CB (non-Director member)
William Hughes, CBE QPM (non-Director member)
Nehchal Sandhu (non-Director member)
Leonard Schrank (non-Director member)
The Honourable Juan Zarate (non-Director member)
Sir William Patey (non-Director member appointed
1 November 2016)
1 November 2016)
David Irvine (non-Director member appointed
1 November 2016)
1 November 2016)
The eight non-Director members support the Committee's work and between them have extensive experience in geopolitical risk, financial crime risk, international security, cybersecurity and law enforcement matters.
Role and responsibilities
The Committee has non-executive responsibility for the oversight of matters related to financial crime and system abuse, in particular anti-money laundering; sanctions; terrorist financing and proliferation financing; anti-bribery and corruption; and cybersecurity. It is also responsible for monitoring, reviewing and advising the Board on the effectiveness of the policies and procedures established by Management to ensure that HSBC meets its obligations to regulatory and law enforcement agencies.
Principal activities and significant issues considered during 2016
Financial crime
During the year, the Committee monitored the Group's progress on the implementation of Global Standards and reviewed and discussed findings from country visits conducted by the Monitor.
Anti-bribery and corruption
The Committee reviewed the activities underway to address key bribery and corruption risks and management's progress with the implementation of a more robust anti-bribery and corruption compliance framework.
Engaging with the Monitor
The Committee was responsible for liaising with the Monitor to ensure his recommendations were acted on.
The information security environment and cybersecurity risk
During the year, the Committee reviewed HSBC's progress towards improving the Group's cybersecurity and the actions being taken to mitigate exposure to cyber risk. It also monitored significant developments in the information security environment and progress delivering strategic financial crime risk management IT solutions.
Further information on key activities of the Committee can be found in the 'Financial crime risk management' section on page 81.
|
HSBC Holdings plc Annual Report and Accounts 2016
|
143
|
Report of the Directors | Corporate Governance
|
Conduct & Values Committee
|
Rachel Lomax (Chair)
Laura Cha
Lord Evans of Weardale
Jonathan Symonds
Pauline van der Meer Mohr
Role and responsibilities
The CVC has non-executive responsibility for oversight of culture and conduct risk. It is responsible for HSBC's policies, procedures and standards and ensuring that the Group conducts business responsibly and consistently adheres to HSBC Values. The CVC is also responsible for Group policies and procedures for capturing and responding to whistleblowing reports. Reporting to the GAC where necessary in relation to allegations relating to accounting, internal controls over financial reporting or audit matters.
Principal activities and significant issues considered during 2016
Conduct
During the year the Committee reviewed the implementation of the Group's conduct approach and, in particular, how effectively global programmes were being cascaded through the organisation.
Sustainability
The Committee was responsible for reviewing how effectively the Group sought to satisfy itself that it was meeting its sustainability commitments.
Modern Slavery Act
The Committee and Board reviewed and approved the Group's Human Rights and Modern Slavery Act statement.
Further information on conduct can be found in the 'How we do business' section of the Strategic Report and in the Financial Review.
|
Group Remuneration Committee
|
Sam Laidlaw (Chairman)
John Lipsky
Pauline van der Meer Mohr
Paul Walsh
Sir Simon Robertson (resigned on 22 April 2016)
Role and responsibilities
The Committee is responsible for setting the over-arching principles, parameters and governance framework of the Group's remuneration policy, and the remuneration of executive Directors and other senior Group employees. The Committee regularly reviews the Group's remuneration policy in the context of consistent and effective risk management and the regulatory requirements of multiple jurisdictions. No Directors are involved in deciding their own remuneration.
A full report on the role and activities of the Committee is set out on pages 153 to 172.
|
Nomination Committee
|
Sam Laidlaw (Chairman)
Laura Cha
John Lipsky
Rachel Lomax
Pauline van der Meer Mohr (appointed on 22 April 2016)
Paul Walsh (appointed on 1 May 2016)
Rona Fairhead (resigned on 22 April 2016)
Role and responsibilities
The Nomination Committee has non-executive responsibility for leading the Board appointment process and for identifying and nominating potential candidates for appointment to the Board. The Committee is responsible for succession planning for both executive and non-executive Directors and membership of Board committees.
The Nomination Committee regularly reviews the Board's structure, size and composition (including skills, knowledge, experience, independence and diversity). It recommends any changes to the Board.
An external search consultancy is used in relation to the appointment of non-executive Directors. It has no additional connection with HSBC. A separate external search consultancy is primarily used for certain senior executive hires.
Principal activities and significant issues considered during 2016
Succession planning
A committee was established with specific responsibility for succession planning for the Group Chairman, comprising all the Nomination Committee members plus Jonathan Symonds, Jonathan Evans and Joachim Faber, being the chairs of the GAC, FSVC and GRC respectively.
Diversity
The Committee took responsibility for the implementation of the Board's diversity policy against two objectives: at least 30% of candidates being women and only using external search consultants signed up to the Voluntary Code of Conduct for Executive Search Firms.
|
Philanthropic & Community Investment Oversight
Committee
|
Laura Cha (Chair)
Lord Evans of Weardale
Sir Malcolm Grant (non-Director member)
Stephen Moss (non-Director member)
Lord Janvrin (non-Director member)
Role and responsibilities
The Philanthropic & Community Investment Oversight Committee has non-executive responsibility for HSBC's philanthropic and community investment activities in support of the Group's corporate sustainability objectives. The Committee was established as a committee of the Board in 2014 to oversee activity which includes both the Group's monetary contributions and also employee volunteering.
Principal activities and significant issues considered during 2016
Charitable giving
The Committee was responsible for reviewing the Group's risk appetite for charitable donations and the budget for future years and long-term committed funds.
|
144
|
HSBC Holdings plc Annual Report and Accounts 2016
|
Community investment
During the year, the Committee reviewed and endorsed the Group's annual community investment budget and the proposed allocation of this budget across agreed sustainability themes.
|
Chairman's Committee
|
|
Group Management Board
|
There are special meetings of the GMB that provide oversight of risk matters (the Risk Management Meeting, chaired by the Group Chief Risk Officer) and of Global Standards (the Global Standards Steering Meeting, chaired by the Group Head of Financial Crime Risk).
The Board is responsible for maintaining and reviewing the effectiveness of risk management and internal control systems, and for determining the aggregate level and types of risks the Group is willing to take in achieving its strategic objectives.
|
Internal control
|
To meet this requirement and to discharge its obligations under the FCA Handbook and the PRA Handbook, procedures have been designed for safeguarding assets against unauthorised use or disposal; for maintaining proper accounting records; and for ensuring the reliability and usefulness of financial information used within the business or for publication.
These procedures can only provide reasonable assurance against material mis-statement, errors, losses or fraud. They are designed to provide effective internal control within the Group and accord with the Financial Reporting Council's guidance for directors issued in 2014, internal control and related financial and business reporting. The procedures have been in place throughout the year and up to 21 February 2017, the date of approval of this Annual Report and Accounts 2016.
In 2014, the GAC endorsed the adoption of the COSO 2013 framework for the monitoring of risk management and internal control systems to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002.
The key risk management and internal control procedures include the following:
|
•
|
The Group's Global Standards Manual ('GSM') outlines the core principles within which the Group must operate wherever we conduct business. The GSM overlays all other policies and procedures throughout the Group. The requirements of the GSM are mandatory, apply to and must be observed by all businesses within the Group, regardless of the nature or location of their activities.
|
|
•
|
Delegation of authority within limits set by the Board: subject to certain matters reserved for the Board, the Group Chief Executive has been delegated authority limits and powers within which to manage the day-to-day affairs of the Group, including the right to sub-delegate those limits and powers. Each relevant group managing director or executive Director has delegated authority within which to manage the day-to-day affairs of the business or function for which he or she is accountable. Delegation of authority from the
|
Board requires those individuals to maintain a clear and appropriate apportionment of significant responsibilities and to oversee the establishment and maintenance of systems of control that are appropriate to their business or function. Authorities to enter into credit and market risk exposures are delegated with limits to line management of Group companies. The concurrence of the appropriate global function is required, however, to credit proposals with specified higher risk characteristics. Credit and market risks are measured and reported at subsidiary company level and aggregated for risk concentration analysis on a Group-wide basis.
|
•
|
Risk identification and monitoring: Systems and procedures are in place to identify, assess, control and monitor the material risk types facing HSBC. Our risk measurement and reporting systems are designed to help ensure that risks are comprehensively captured with all the attributes necessary to support well-founded decisions, that those attributes are accurately assessed and that information is delivered in a timely manner for those risks to be successfully managed and mitigated.
|
|
•
|
Changes in market conditions/practices: processes are in place to identify new risks arising from changes in market conditions/practices or customer behaviours, which could expose HSBC to heightened risk of loss or reputational damage. The Group employs a top and emerging risks framework at all levels of the organisation, which enables it to identify current and forward-looking risks and to take action which either prevents them materialising or limits their impact.
|
|
•
|
Responsibility for risk management: All employees are responsible for identifying and managing risk within the scope of their role as part of the three lines of defence model, which is an activity-based model to delineate management accountabilities and responsibilities for risk management and the control environment. The second line of defence sets the policy and guidelines for managing specific risk areas, provides advice and guidance in relation to the risk, and challenges the first line of defence (the risk owners) on effective risk management.
|
|
•
|
Strategic plans: strategic plans are prepared for global businesses, global functions and geographical regions within the framework of the Group's overall strategy. Annual Operating Plans, informed by detailed analysis of risk appetite describing the types and quantum of risk that the Group is prepared to take in executing its strategy, are prepared and adopted by all major HSBC operating companies and set out the key business initiatives and the likely financial effects of those initiatives.
|
|
•
|
IT operations: centralised control is exercised over all IT developments and operations. Common systems are employed for similar business processes wherever practicable.
|
|
•
|
Subsidiary certifications to GRC: half-yearly confirmations are provided to the GRC from the risk committees of principal subsidiary companies confirming that the committees have challenged management on the quality of the information provided, reviewed the actions proposed by management to address any emerging issues or trends indicating material divergence from the Group's risk appetite and that the risk management and internal control systems in place are operating effectively.
|
The key risk management and internal control procedures over financial reporting include the following:
|
•
|
Disclosure Committee: the Disclosure Committee, which is chaired by the Group Company Secretary, supports the discharge of the Group's obligations under relevant legislation and regulation including the UK and Hong Kong Listing Rules, the Market Abuse Regulation and SEC rules.
|
|
HSBC Holdings plc Annual Report and Accounts 2016
|
145
|
Report of the Directors | Corporate Governance
In so doing the Committee is empowered to (i) determine whether a new event or circumstances should be disclosed, including the form and timing of such disclosure and (ii) review all material disclosures made or to be made by the Group. The membership of the Disclosure Committee includes the Group Finance Director, Group Chief Risk Officer, Chief Legal Officer, Group Chief Accounting Officer, Global Head of Public Affairs, Global Head of Investor Relations, Group Head of Strategy and Planning and Group Financial Controller. The integrity of disclosures is underpinned by structures and processes within the Global Finance and Global Risk functions that support rigorous analytical review of financial reporting and the maintenance of proper accounting records.
|
•
|
Financial reporting: the Group's financial reporting process is controlled using documented accounting policies and reporting formats, supported by detailed instructions and guidance on reporting requirements, issued to all reporting entities within HSBC in advance of each reporting period end. The submission of financial information from each reporting entity is subject to certification by the responsible financial officer, and analytical review procedures at reporting entity and Group levels.
|
|
•
|
Subsidiary certifications to the GAC: half-yearly confirmations are provided to the GAC from the audit committees of principal subsidiary companies regarding whether their financial statements have been prepared in accordance with Group policies, present fairly the state of affairs of the relevant principal subsidiary and are prepared on a going concern basis.
|
The internal control responsibilities of the GRC and GAC were complemented by the activities of the CVC and the FSVC which, respectively, oversaw internal control over conduct-related matters and financial crime compliance. Collectively, these controls are designed to provide effective internal control within the Group.
The GRC and the GAC have received confirmation that executive management has taken or is taking the necessary actions to remedy any failings or weaknesses identified through the operation of the Group's framework of controls. In 2015, deficiencies in the design and operational effectiveness of a number of controls associated with IT privileged access were identified. Significant improvement in the control environment has been observed as a result of management's progress on the execution of the IT privileged access remediation programme. Management has assessed the effectiveness of relevant IT, business, monitoring and period-end mitigating controls for 2016.
The Directors, through the GRC and the GAC, have conducted an annual review of the effectiveness of the Group's system of risk management and internal control covering all material controls, including financial, operational and compliance controls, risk management systems, the adequacy of resources, qualifications and experience of staff of the accounting and financial reporting function and the Global Risk function, and their training programmes and budget. The annual review of the effectiveness of the Group's system of risk management and internal control over financial reporting was conducted with reference to the COSO framework. The annual review of other controls was undertaken using the Group's risk management framework, further details of which can be found on pages 68 to 71. Based on the assessment performed, the Directors concluded that for the year ended 31 December 2016, the Group's internal controls were effective.
The Global Internal Audit function, which is centrally controlled, provides independent and objective assurance of the design and operating effectiveness of the Group's framework of risk management, control and governance processes, focusing on
|
Internal audit
|
the areas of greatest risk. As mentioned previously, the Group Head of Internal Audit reports to the Chairman of the GAC and frequent meetings are held between them during the year. Administratively the Group Head of Internal Audit reports to the Group Chief Executive. Executive management is responsible for ensuring that issues raised by the Global Internal Audit function are addressed within an appropriate and agreed timetable. Confirmation to this effect must be provided to Global Internal Audit.
|
Going concern and viability
|
Under the UK Corporate Governance Code, the Directors must also provide a viability statement. They must state whether the Group will be able to continue in operation and meet its liabilities, taking into account its current position and the principal risks it faces. They must also specify the period covered by, and the appropriateness of, this statement.
The Directors have specified a period of three years to 31 December 2019. They are satisfied that a forward-looking assessment of the Group for this period is sufficient to enable a reasonable statement of viability. In addition, this period is covered by the Group's stress testing programmes, and its internal projections for profitability, key capital ratios and leverage ratios. Notwithstanding this, our stress testing programmes also cover scenarios out to five years and our assessment of risks are beyond three years where appropriate.
Based upon their assessment, the Directors have a reasonable expectation that the Group will be able to continue in operation and meet liabilities as they fall due over the next three years.
In making their going concern and viability assessments, the Directors have considered a wide range of detailed information relating to present and potential conditions, including projections for profitability, cash flows, capital requirements and capital resources.
The Directors have carried out a robust assessment of each risk facing the Group to determine the principal risks to the long-term viability of the Group, including those that would threaten its solvency and liquidity. They have determined that the principal risks are the Group's top and emerging risks as set out on pages 64 to 67, which includes the status of the Deferred Prosecution Agreement as described on page 66.
The Directors have assessed that all of the top and emerging risks identified are considered to be material and, therefore, appropriate to be classified as the principal risks to be considered in the assessment of viability. They also appraised the impact that these principal risks could have on the Group's risk profile, taking account of mitigating actions planned or taken for each, and compared this with the Group's risk appetite, as approved by the Board. At 31 December 2016, there were five heightened top and emerging risks: economic outlook and capital flows, geopolitical risk, cyber threat and unauthorised access to systems, IT systems infrastructure and resilience, and enhanced model risk management expectations.
In carrying out their assessment of the principal risks, the Directors considered a wide range of information including:
|
•
|
Details of the Group's business and operating models, and strategy.
|
|
•
|
Details of the Group's approach to managing risk and allocating capital.
|
|
•
|
A summary of the Group's financial performance, and its capital position and annual operating plan.
|
|
•
|
Enterprise-wide risk management reports, including the Group's risk appetite profile (see page 68), top and emerging risks (see page 64) and risk map (see page 70).
|
|
146
|
HSBC Holdings plc Annual Report and Accounts 2016
|
|
•
|
Reports and updates regarding regulatory and internal stress testing exercises (see page 70). In 2016, the published Bank of England ('BoE') stress test results for HSBC showed that our capital ratios after taking account of CRD IV restrictions and strategic management actions exceeded the BoE's requirements. The results for HSBC included an assumed dividend payment in the first year of the severe stress projection period.
|
|
•
|
Reports and updates from management on risk-related issues selected for in-depth consideration.
|
|
•
|
Reports and updates on the Group's compliance-related initiatives connected to the resolution of the investigations by US and UK regulatory and law enforcement authorities in December 2012, and also regulatory developments more generally.
|
|
•
|
Legal reports.
|
|
Share capital and other disclosures
|
Share buy-back
On 4 August 2016, HSBC Holdings commenced a share buy-back of its ordinary shares of $0.50 each for up to a maximum consideration of $2.5bn which concluded on, 19 December 2016. The purpose of the buy-back was to reduce HSBC's number of outstanding ordinary shares, and was funded from a portion of the proceeds received from the sale of the Group's operations in Brazil in July 2016. Further information on this disposal can be found on page 241.
The nominal value of shares purchased during 2016 was $162,636,704 and the aggregate consideration paid by HSBC was £1,970,091,769.
The table that follows outlines details of the shares purchased on a monthly basis during 2016. At 31 December 2016, the total number of shares purchased was 325,273,407, representing 1.61% of the shares in issue and 1.64% of the shares in issue (excluding treasury shares).
|
Month
|
Number
of shares
|
|
Highest price
paid per share
|
|
Lowest price
paid per share
|
|
Average price paid per share
|
|
Aggregate
price paid
|
|
Maximum value of shares that may yet be purchased
|
|
|
|
|
£
|
|
£
|
|
£
|
|
£
|
|
$
|
|
|
|
Aug-16
|
37,287,407
|
|
5.6950
|
|
5.1140
|
|
5.4551
|
|
203,408,308
|
|
2,233,620,166
|
|
|
Sep-16
|
79,160,560
|
|
5.9420
|
|
5.5650
|
|
5.7336
|
|
453,876,095
|
|
1,636,117,416
|
|
|
Oct-16
|
72,211,730
|
|
6.3210
|
|
5.7850
|
|
6.1503
|
|
444,125,860
|
|
1,085,362,266
|
|
|
Nov-16
|
82,231,879
|
|
6.4560
|
|
5.8840
|
|
6.2433
|
|
513,399,612
|
|
448,362,392
|
|
|
Dec-16
|
54,381,831
|
|
6.7530
|
|
6.2010
|
|
6.5331
|
|
355,281,894
|
|
58
|
|
Dividends
Dividends for 2016
First, second and third interim dividends for 2016, each of $0.10 per ordinary share, were paid on 6 July 2016, 28 September 2016 and 6 December 2016, respectively. Note 8 on the Financial Statements gives more information on the dividends declared in 2016. On 21 February 2017, the Directors declared a fourth interim dividend for 2016 of $0.21 per ordinary share in lieu of a final dividend, which will be payable on 6 April 2017 in cash in US dollars, or in sterling or Hong Kong dollars at exchange rates to be determined on 27 March 2017, with a scrip dividend alternative. As the fourth interim dividend for 2016 was declared after 31 December 2016 it has not been included in the balance sheet of HSBC as a liability. The reserves available for distribution at 31 December 2016 were $42bn.
A quarterly dividend of $15.50 per 6.20% non-cumulative US dollar preference share, Series A ('Series A dollar preference share'), (equivalent to a dividend of $0.3875 per Series A American Depositary Share ('ADS'), each of which represents one-fortieth of a Series A dollar preference share), and £0.01 per Series A sterling preference share was paid on 15 March, 15 June, 15 September and 15 December 2016.
Dividends for 2017
Quarterly dividends of $15.50 per Series A dollar preference share (equivalent to a dividend of $0.3875 per Series A American Depositary Share, each of which represents one-fortieth of a Series A dollar preference share) and £0.01 per Series A sterling preference share was declared on 8 February 2017 for payment on 15 March 2017.
Share capital
Issued share capital
The nominal value of HSBC Holdings' issued share capital paid up at 31 December 2016 was $10,095,807,607 divided into 20,191,586,214 ordinary shares of $0.50 each, 1,450,000 non-cumulative preference shares of $0.01 each and one non-cumulative preference share of £0.01, representing approximately 99.9999%, 0.0001%, and 0%, respectively,
of the nominal value of HSBC Holdings' total issued share capital paid up at 31 December 2016.
Rights, obligations and restrictions attaching to shares
The rights and obligations attaching to each class of ordinary and non-cumulative preference shares in our share capital are set out in full in our Articles of Association. The Articles of Association may be amended by special resolution of the shareholders and can be found on our website at www.hsbc.com/about-hsbc/corporate-governance/corporate-governance-codes.
Ordinary shares
HSBC Holdings has one class of ordinary share, which carries no right to fixed income. There are no voting restrictions on the issued ordinary shares, all of which are fully paid. On a show of hands, each member present has the right to one vote at general meetings. On a poll, each member present or voting by proxy is entitled to one vote for every $0.50 nominal value of share capital held. There are no specific restrictions on transfers of ordinary shares, which are governed by the general provisions of the Articles of Association and prevailing legislation.
At the 2016 AGM, shareholders gave authority to the Directors to offer a scrip dividend alternative on any dividend (including interim dividends) declared up to the conclusion of the AGM in 2019.
Information on the policy adopted by the Board for paying interim dividends on the ordinary shares may be found on page 274, under the heading 'Shareholder Information'.
Dividend waivers
HSBC Holdings employee benefit trusts, holding shares in HSBC Holdings in connection with the operation of its share plans, have lodged standing instructions to waive dividends on shares held by them that have not been allocated to employees. The total amount of dividends waived during 2016 was $2.9m.
|
HSBC Holdings plc Annual Report and Accounts 2016
|
147
|
Report of the Directors | Corporate Governance
Preference shares
The preference shares, which have preferential rights to income and capital, do not, in general, confer a right to attend and vote at general meetings.
There are three classes of preference shares in the share capital of HSBC Holdings: non-cumulative preference shares of $0.01 each ('dollar preference shares'); non-cumulative preference
shares of £0.01 each ('sterling preference shares'); and non-cumulative preference shares of €0.01 ('euro preference
shares'). The dollar preference shares in issue are Series A dollar preference shares and the sterling preference share in issue is a Series A sterling preference share. There are no euro preference shares in issue.
Information on dividends declared for 2016 and 2017 may be found on page 215, under the heading 'Dividends' and in Note 8 on the Financial Statements.
Further details of the rights and obligations attaching to the HSBC Holdings' issued share capital may be found in Note 32 on the Financial Statements.
Share capital changes in 2016
The following events occurred during the year in relation to the ordinary share capital of HSBC Holdings:
|
Scrip dividends
|
|||||||||
|
|
HSBC Holdings
ordinary shares issued
|
Aggregate
nominal value
|
|
Market value per share
|
|||||
|
|
on
|
number
|
|
$
|
|
$
|
|
£
|
|
|
Issued in lieu of
|
|
|
|
|
|
||||
|
Fourth interim dividend for 2015
|
20 Apr 2016
|
63,677,983
|
|
31,838,992
|
|
6.4120
|
|
4.5069
|
|
|
First interim dividend for 2016
|
6 Jul 2016
|
111,088,990
|
|
55,544,495
|
|
6.3288
|
|
4.3274
|
|
|
Second interim dividend for 2016
|
28 Sep 2016
|
139,914,936
|
|
69,957,468
|
|
7.1015
|
|
5.4468
|
|
|
Third interim dividend for 2016
|
6 Dec 2016
|
122,620,319
|
|
61,310,160
|
|
7.6227
|
|
6.2420
|
|
|
All-employee share plans
|
|||||||||
|
|
Number
|
|
Aggregate
nominal
value
|
|
|
Exercise price
|
|||
|
from
|
|
to
|
|
||||||
|
|
|
$
|
|
|
£
|
|
£
|
|
|
|
HSBC Holdings savings-related share option plans
|
|
|
|
|
|
||||
|
HSBC ordinary shares issued in £
|
4,230,999
|
|
2,115,500
|
|
£
|
4.0472
|
|
5.4738
|
|
|
HSBC ordinary shares issued in HK$
|
63,091
|
|
31,546
|
|
HK$
|
55.4701
|
|
63.9864
|
|
|
HSBC ordinary shares issued in $
|
17,053
|
|
8,527
|
|
$
|
7.1456
|
|
8.2094
|
|
|
HSBC ordinary shares issued in €
|
42,880
|
|
21,440
|
|
€
|
5.3532
|
|
6.0657
|
|
|
Options over HSBC ordinary shares lapsed
|
15,437,427
|
|
7,718,714
|
|
|
|
|
||
|
Options over HSBC ordinary shares granted in response to approximately 15,500 applications from HSBC employees in the UK on 21 Sep 2016
|
15,043,601
|
|
|
|
|
|
|||
|
HSBC International Employee Share Purchase Plan
|
102,252
|
|
51,126
|
|
£
|
4.1750
|
|
6.6010
|
|
|
HSBC share plans
|
||||||||
|
|
HSBC Holdings
ordinary shares issued
|
|
Aggregate
nominal
value
|
|
Market value per share
|
|||
|
|
from
|
|
to
|
|
||||
|
|
|
$
|
|
£
|
|
£
|
|
|
|
Vesting of awards under the HSBC Share Plan and HSBC Share Plan 2011
|
64,730,777
|
|
32,365,389
|
|
4.3000
|
|
6.7380
|
|
Compliance with Hong Kong Listing Rule 13.25A(2)
HSBC Holdings has been granted a waiver from strict compliance with Rule 13.25A(2) of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong.
Under this waiver, HSBC's obligation to file a Next Day Return following the issue of new shares pursuant to the vesting of share awards granted under its share plans to persons who are not Directors, would only be triggered where it falls within one of the circumstances set out under Rule 13.25A(3).
Authorities to allot and to purchase shares and pre‑emption rights
At the AGM in 2016, shareholders renewed the general authority for the Directors to allot new shares up to 13,138,649,236 ordinary shares, 15,000,000 non-cumulative preference shares of £0.01 each, 15,000,000 non-cumulative preference shares of $0.01 each and 15,000,000 non-cumulative preference shares of €0.01 each. Within this, the Directors have authority to allot up to a maximum of 1,970,797,386 ordinary shares wholly for cash to persons other than existing shareholders. Shareholders also renewed the authority for the Directors to make market purchases of up to 1,970,797,386 ordinary shares. The Directors exercised this authority during the year and purchased 325,273,407 ordinary shares.
In addition, shareholders gave authority for the Directors to grant rights to subscribe for, or to convert any security into, no more than 3,941,594,772 ordinary shares in relation to any issue by HSBC Holdings or any member of the Group of contingent convertible securities that automatically convert into or are exchanged for ordinary shares in HSBC Holdings in prescribed circumstances. Further details about the issue of contingent convertible securities may be found in Note 32 on the Financial Statements.
Other than as disclosed in the tables above headed 'Share capital changes in 2016', the Directors did not allot any shares during 2016.
Debt securities
In 2016, following its capital plan, HSBC Holdings issued the equivalent of $36.0bn of debt securities in the public capital markets in a range of currencies and maturities, including $2.0bn of contingent convertible, $2.6bn of subordinated and $31.4bn of senior securities to ensure it meets the current and proposed regulatory rules, including those relating to the availability of adequate total loss-absorbing capacity. For additional information on capital instruments and bail-inable debt, refer to Notes 28 and 32 on pages 244 and 253 and to the Fixed Income Securities section in the HSBC Investor Relations website.
|
148
|
HSBC Holdings plc Annual Report and Accounts 2016
|
Treasury shares
In accordance with the terms of a waiver granted by the Hong Kong Stock Exchange on 19 December 2005, HSBC Holdings will comply with the applicable law and regulation in the UK in relation to the holding of any shares in treasury and with the conditions of the waiver in connection with any shares it may hold in treasury. Pursuant to Chapter 6 of the UK Companies Act 2006, 325,273,407 ordinary shares are currently held in treasury. This was the maximum number of shares held at any time during 2016; representing 1.61% of the shares in issue. The nominal value of shares purchased during 2016 was $162,636,704.
Notifiable interests in share capital
At 31 December 2016, HSBC Holdings had received the following notification of major holdings of voting rights pursuant to the requirements of Rule 5 of the Disclosure and Transparency Rules:
|
•
|
BlackRock, Inc. gave notice on 25 October 2016 that on 24 October 2016 it had the following: an indirect interest in HSBC Holdings ordinary shares of 1,172,083,824; qualifying financial instruments with 1,794,677 voting rights that may be acquired if the instruments are exercised or converted; and financial instruments with similar economic effect to qualifying financial instruments which refer to 4,861,174 voting rights, each representing 5.89%, 0.00% and 0.02%, respectively, of the total voting rights at that date.
|
At 31 December 2016, according to the register maintained by HSBC Holdings pursuant to section 336 of the Securities and Futures Ordinance of Hong Kong:
|
•
|
JPMorgan Chase & Co. gave notice on 27 October 2016 that on 24 October 2016 it had the following interests in HSBC Holdings ordinary shares: a long position of 924,250,502 shares; a short position of 162,867,748 shares; and a lending pool of 437,566,359 shares, each representing 4.60%, 0.81% and 2.18%, respectively, of the ordinary shares in issue at that date; and
|
|
•
|
BlackRock, Inc. gave notice on 25 October 2016 that on 21 October 2016 it had the following interests in HSBC Holdings ordinary shares: a long position of 1,305,933,089 shares and a short position of 14,892,793 shares, each representing 6.51% and 0.07%, respectively, of the ordinary shares in issue at that date.
|
Since 31 December 2016 to date, no further such notifications had been received.
Sufficiency of float
In compliance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited at least 25% of the total issued share capital has been held by the public at all times during 2016 and up to the date of this report.
Dealings in HSBC Holdings listed securities
HSBC Group has policies and procedures that, except where permitted by statute and regulation, prohibit specified transactions in respect of its securities listed on The Stock Exchange of Hong Kong Limited. Except for dealings as intermediaries or as trustees by subsidiaries of HSBC Holdings, neither HSBC Holdings nor any of its subsidiaries has purchased, sold or redeemed any of its securities listed on The Stock Exchange of Hong Kong Limited during the year ended 31 December 2016.
Directors' interests
Pursuant to the requirements of the UK Listing Rules and according to the register of Directors' interests maintained by HSBC Holdings pursuant to section 352 of the Securities and Futures Ordinance of Hong Kong, the Directors of HSBC Holdings at 31 December 2016 had interests, all beneficial unless otherwise stated, in the shares or debentures of HSBC Holdings and its associated corporations as shown below. Save as stated no further interests were held by Directors and no Directors or their connected persons were awarded or exercised any right to subscribe for any shares or debentures in any HSBC corporation during the year.
No Directors held any short position as defined in the Securities and Futures Ordinance of Hong Kong in the shares or debentures of HSBC Holdings and its associated corporations.
|
HSBC Holdings plc Annual Report and Accounts 2016
|
149
|
Report of the Directors HTMLPIPESYMBOL Corporate Governance
|
Directors' interests - shares and debentures
|
|||||||||||||
|
|
|
|
At 31 Dec 2016
|
||||||||||
|
|
Footnotes
|
At 1 Jan
2016
|
|
Beneficial
owner
|
|
Child
under 18
or spouse
|
|
Jointly with another person
|
|
Trustee
|
|
Total
interests1
|
|
|
HSBC Holdings ordinary shares
|
|
|
|
|
|
|
|
||||||
|
Phillip Ameen
|
2
|
5,000
|
|
5,000
|
|
-
|
|
-
|
|
-
|
|
5,000
|
|
|
Kathleen Casey
|
2
|
3,540
|
|
8,620
|
|
-
|
|
-
|
|
-
|
|
8,620
|
|
|
Laura Cha
|
|
5,200
|
|
5,200
|
|
-
|
|
-
|
|
-
|
|
5,200
|
|
|
Henri de Castries
|
|
-
|
|
16,165
|
|
-
|
|
-
|
|
-
|
|
16,165
|
|
|
Lord Evans of Weardale
|
|
7,416
|
|
9,170
|
|
-
|
|
-
|
|
-
|
|
9,170
|
|
|
Joachim Faber
|
|
45,778
|
|
66,605
|
|
-
|
|
-
|
|
-
|
|
66,605
|
|
|
Douglas Flint
|
3
|
401,450
|
|
402,158
|
|
-
|
|
-
|
|
-
|
|
402,158
|
|
|
Stuart Gulliver
|
|
2,861,265
|
|
3,167,323
|
|
176,885
|
|
-
|
|
-
|
|
3,344,208
|
|
|
Sam Laidlaw
|
4
|
38,012
|
|
39,444
|
|
-
|
|
-
|
|
1,416
|
|
40,860
|
|
|
Irene Lee
|
|
-
|
|
10,000
|
|
-
|
|
-
|
|
-
|
|
10,000
|
|
|
John Lipsky
|
2
|
16,165
|
|
16,165
|
|
-
|
|
-
|
|
-
|
|
16,165
|
|
|
Rachel Lomax
|
|
18,900
|
|
18,900
|
|
-
|
|
-
|
|
-
|
|
18,900
|
|
|
Iain Mackay
|
|
223,872
|
|
345,469
|
|
-
|
|
-
|
|
-
|
|
345,469
|
|
|
Heidi Miller
|
2
|
3,695
|
|
3,975
|
|
-
|
|
-
|
|
-
|
|
3,975
|
|
|
Marc Moses
|
|
624,643
|
|
824,241
|
|
-
|
|
-
|
|
-
|
|
824,241
|
|
|
David Nish
|
|
-
|
|
-
|
|
50,000
|
|
-
|
|
-
|
|
50,000
|
|
|
Jonathan Symonds
|
|
21,771
|
|
16,886
|
|
4,885
|
|
-
|
|
-
|
|
21,771
|
|
|
Jackson Tai
|
2
|
-
|
|
10,160
|
|
-
|
|
21,445
|
|
-
|
|
31,605
|
|
|
Pauline van der Meer Mohr
|
|
-
|
|
15,000
|
|
-
|
|
-
|
|
-
|
|
15,000
|
|
|
Paul Walsh
|
|
-
|
|
5,079
|
|
-
|
|
-
|
|
-
|
|
5,079
|
|
|
1
|
Executive Directors' other interests in HSBC Holdings ordinary shares arising from the HSBC Holdings savings-related share option plans and the HSBC Share Plan 2011 are set out in the Scheme interests in the Directors' Remuneration Report on page 153. At 31 December 2016, the aggregate interests under the Securities and Futures Ordinance of Hong Kong in HSBC Holdings ordinary shares, including interests arising through employee share plans were: Douglas Flint - 405,077; Stuart Gulliver - 6,576,482; Iain Mackay - 1,842,063; and Marc Moses - 2,626,463. Each Director's total interests represents less than 0.04% of the shares in issue and 0.04% of the shares in issue (excluding treasury shares).
|
|
2
|
Phillip Ameen has an interest in 1,000, Kathleen Casey has an interest in 1,724, John Lipsky has an interest in 3,233, Heidi Miller has an interest in 795 and Jackson Tai has an interest in 6,321 listed ADS, which are categorised as equity derivatives under Part XV of the Securities and Futures Ordinance of Hong Kong. Each ADS represents five HSBC Holdings ordinary shares.
|
|
3
|
Since the end of the year, the number of HSBC Holdings ordinary shares held by Douglas Flint has increased by 22, following an acquisition, through regular monthly contributions in the HSBC Holdings UK Share Incentive Plan.
|
|
4
|
Sam Laidlaw has a non-beneficial interest in 1,416 shares that he holds as a trustee.
|
There have been no changes in the shares or debentures of the Directors from 31 December 2016 to the date of this report excluding those disclosed in footnote 3 of the above table.
Listing Rule 9.8.4
The information to be disclosed in the Annual Report and Accounts pursuant to UK Listing Rule 9.8.4 is contained within the Corporate Governance Report.
|
Employees
|
We encourage employees to perform at their best, and create an environment to make that possible. We also encourage employees to speak up, and reflect our purpose and values in the decisions we make and how we make them, as these decisions shape the future of our customers and colleagues.
Employee relations
We consult with and, where appropriate, negotiate with employee representative bodies. It is our policy to maintain well‑developed communications and consultation programmes with all employee representative bodies and there have been no material disruptions to our operations from labour disputes during the past five years.
Diversity and inclusion
HSBC is committed to building a culture where individuals are valued, respected and supported; where different ideas, backgrounds, styles and perspectives are actively sought out to create business value; and where advancement is based on objective criteria. Focus continues on the diversity profile of our workforce to help ensure it is reflective of the communities in which we operate and the customers we serve.
Building a more inclusive workplace is part of everyone's role at HSBC. Our Global Diversity Policy makes clear the responsibility of all employees and workers to treat colleagues with dignity and respect and to create an inclusive environment free from discrimination, bullying, harassment or victimisation, irrespective of their age, colour, disability, ethnic or national origin, gender, gender identity/expression, marital status, pregnancy, race, religion or belief, or sexual orientation. Our employees are expected to demonstrate openness to different ideas and cultures, and their performance in this respect is reviewed in our year-end review process.
Diversity and inclusion carries the highest level of executive support at HSBC, and oversight of our diversity agenda and related activities resides with the Global Diversity and Inclusion sub-function. We also operate governance forums covering diversity and inclusion at global line, regional and country levels.
Employee development
The development of our employees is essential to the future strength of our business. We continue to develop and implement practices that build employee capability, and identify, develop and deploy talented employees to ensure an appropriate supply of high calibre individuals with the values, skills and experience for current and future senior management positions.
|
150
|
HSBC Holdings plc Annual Report and Accounts 2016
|
In 2016, we focused on developing technical skills, experiences and behaviours necessary to deliver against our Global Standards commitments, along with several Group-wide cultural programmes for employees and managers as part of our 'At Our Best' initiative.
Employment of people with a disability
We believe in providing equal opportunities for all employees. The employment of people with a disability is included in this commitment and the recruitment, training, career development and promotion of people with a disability is based on the aptitudes and abilities of the individual. Should employees become disabled during their employment with us, efforts are made to continue their employment and, if necessary, appropriate training and reasonable equipment and facilities are provided.
Health and safety
HSBC is committed to providing a safe physical environment for our customers and employees, as well as those who work with us. We aim always to meet the minimum health and safety standards required by law wherever we operate and, where reasonably practical, to exceed them.
Everyone at HSBC has a responsibility for helping to create a safe working environment. Employees are expected to take ownership of their safety and are encouraged and empowered to report any concerns.
Chief operating officers have overall responsibility for ensuring that the correct policies, procedures and safeguards are put into practice. This includes making sure that everyone in HSBC has access to appropriate information, instruction, training and supervision.
In 2016, we completed three major global projects to help us understand the risks we face, educate and inform our staff, and improve the buildings in which we operate. We have:
|
•
|
Concluded a survey of earthquake resilience in more than 1,500 HSBC buildings located in countries at medium to high risk of earthquakes;
|
|
•
|
Conducted more than 250 asbestos surveys in countries without bans or controls on the use of the potentially harmful material; and
|
|
•
|
Completed more than 1,800 fire risk assessments of our buildings around the world.
|
|
Employee health and safety
|
|||||||
|
|
Footnote
|
2016
|
|
2015
|
|
2014
|
|
|
Number of employee workplace fatalities
|
1
|
1
|
|
-
|
|
2
|
|
|
Accidents involving more than three days' absence
|
|
75
|
|
110
|
|
96
|
|
|
All accident rate per 100,000 employees
|
|
241
|
|
274
|
|
388
|
|
|
1
|
Non-HSBC staff working on HSBC-related activity.
|
Remuneration policy
The quality and commitment of our employees is fundamental to our success and accordingly the Board aims to attract, retain and motivate the very best people. As trust and relationships are vital in our business our goal is to recruit those who are committed to making a long-term career with the Group.
HSBC's reward strategy supports this objective through balancing both short-term and sustainable performance. Our remuneration strategy is designed to reward competitively the achievement of long-term sustainable performance and attract and motivate the very best people who are committed to maintaining a long-term career with the Group while performing their role in the long-term interests of our stakeholders.
In order to ensure alignment between remuneration and our business strategy, individual remuneration is determined through assessment of performance delivered against both annual and long-term objectives summarised in performance scorecards, and adherence to the HSBC Values of being 'open, connected and dependable' and acting with 'courageous integrity'. Altogether, performance is judged, not only on what is achieved over the short and long term, but also on how it is achieved, as the latter contributes to the sustainability of the Group.
The financial and non-financial measures incorporated in the annual and long-term scorecards are carefully considered to ensure alignment with the long-term strategy of the Group.
Further information on the Group's approach to remuneration is given on page 153.
Employee share plans
Share options and discretionary awards of shares granted under HSBC share plans align the interests of employees with the creation of shareholder value. The table below sets out the particulars of outstanding options, including those held by employees working under employment contracts that are regarded as 'continuous contracts' for the purposes of the Hong Kong Employment Ordinance. The options were granted at nil consideration. No options have been granted to substantial shareholders and suppliers of goods or services, nor in excess of the individual limit for each share plan. No options were cancelled by HSBC during the year.
A summary for each plan of the total number of the options which were granted, exercised or lapsed during 2016 is shown in the table below. Further details required to be disclosed pursuant to Chapter 17 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited are available on our website at http://www.hsbc.com/about-hsbc/corporate-governance/employee-share-plans and on the website of The Stock Exchange of Hong Kong Limited at www.hkex.com.hk, or can be obtained upon request from the Group Company Secretary, 8 Canada Square, London E14 5HQ.
Particulars of options held by Directors of HSBC Holdings are set out on page 165.
Note 5 on the Financial Statements gives details of share-based payments, including discretionary awards of shares granted under HSBC share plans.
All-employee share plans
HSBC operates all-employee share option plans under which options are granted over HSBC ordinary shares. Subject to leaver provisions, options are normally exercisable after three to five years. During 2016, options were granted at the mid- market price for HSBC Holdings ordinary shares quoted on the London Stock Exchange which, as derived from the Daily Official List on 20 September 2016, the day prior to grant, was £5.83.
The UK Sharesave will terminate on 23 May 2025 unless the Directors resolve to terminate the plans at an earlier date. There will be no further grants under the HSBC Holdings Savings-Related Share Option Plan: International.
The HSBC International Employee Share Purchase Plan was introduced in 2013 and now includes employees based in 26 jurisdictions.
|
HSBC Holdings plc Annual Report and Accounts 2016
|
151
|
Report of the Directors | Corporate Governance / Director's Remuneration Report
|
HSBC Holdings All-employee Share Option Plans
|
||||||||||||||||||
|
|
|
|
|
HSBC Holdings ordinary shares
|
||||||||||||||
|
Dates of awards
|
Exercise price
|
|
Exercisable
|
|
At
|
|
Granted
|
|
Exercised
|
|
Lapsed
|
|
At
|
|
||||
|
from
|
to
|
from
|
|
to
|
|
from
|
to
|
Footnotes
|
1 Jan 2016
|
|
during year
|
|
during year
|
|
during year
|
|
31 Dec 2016
|
|
|
Savings-Related Share Option Plan
|
1
|
|
|
|
|
|
||||||||||||
|
21 Apr
2010
|
21 Sep
2016
|
(£)
|
|
(£)
|
|
1 Aug 2015
|
30 Apr 2022
|
|
|
|
|
|
|
|||||
|
4.0472
|
|
5.4738
|
|
|
71,709,819
|
|
15,043,601
|
|
3,834,045
|
|
14,141,959
|
|
68,777,416
|
|
||||
|
Savings-Related Share Option Plan: International
|
2
|
|
|
|
|
|
||||||||||||
|
21 Apr
2010
|
24 Apr
2012
|
(£)
|
|
(£)
|
|
1 Aug 2014
|
31 Jan
2018
|
|
|
|
|
|
|
|||||
|
4.4621
|
|
5.4573
|
|
|
1,130,991
|
|
-
|
|
396,954
|
|
293,728
|
|
440,309
|
|
||||
|
21 Apr
2010
|
24 Apr
2012
|
($)
|
|
($)
|
|
1 Aug 2014
|
31 Jan
2018
|
|
|
|
|
|
|
|||||
|
7.1456
|
|
8.2094
|
|
|
665,445
|
|
-
|
|
17,053
|
|
430,654
|
|
217,738
|
|
||||
|
21 Apr
2010
|
24 Apr
2012
|
(€)
|
|
(€)
|
|
1 Aug 2015
|
31 Jan
2018
|
|
|
|
|
|
|
|||||
|
5.3532
|
|
6.0657
|
|
|
153,610
|
|
-
|
|
42,880
|
|
23,814
|
|
86,916
|
|
||||
|
21 Apr
2010
|
24 Apr
2012
|
(HK$)
|
|
(HK$)
|
|
1 Aug 2015
|
31 Jan
2018
|
|
|
|
|
|
|
|||||
|
55.4701
|
|
63.9864
|
|
|
1,114,830
|
|
-
|
|
63,091
|
|
547,272
|
|
504,467
|
|
||||
|
1
|
The weighted average closing price of the shares immediately before the dates on which options were exercised was £5.75.
|
|
2
|
The weighted average closing price of the shares immediately before the dates on which options were exercised was £5.10.
|
On behalf of the Board
Douglas Flint
Group Chairman
HSBC Holdings plc
Registered number 617987
21 February 2017
|
152
|
HSBC Holdings plc Annual Report and Accounts 2016
|
|
Directors' Remuneration Report
|
|
|
|
Page
|
|
Annual Statement from the Group Remuneration Committee Chairman
|
153
|
|
Directors' remuneration policy
|
155
|
|
Remuneration policy for all employees
|
156
|
|
Annual report on remuneration
|
159
|
|
Additional remuneration disclosures
|
170
|
All disclosures in the Directors' Remuneration Report are unaudited unless otherwise stated.
Disclosures marked as audited should be considered audited in the context of financial statements taken as a whole.
|
Annual Statement from the Group
Remuneration Committee Chairman
|
The Group Remuneration Committee ('the Committee') is guided by a series of principles. These are set out in the Strategic Report on page 28, but it is worth mentioning a few here to help explain our work.
To attract and retain talent, remuneration at HSBC must be competitive. However, we place a strong emphasis on linking pay to performance. We particularly emphasise the need for performance that benefits the Group over the long-term, and reflects HSBC Values and the highest standards of conduct.
In 2016, we introduced a new remuneration policy for our executive Directors. It reflected feedback from shareholders, especially in its introduction of a long-term incentive ('LTI') award with a three-year forward-looking performance period, a seven-year deferral period, and a reduction in the cash in lieu of pension allowance for the executive Directors. I believe the new policy achieves strong alignment between the interests of our executive Directors and shareholders, and the performance measures for the new LTI award will reward long-term sustainable performance.
We were pleased that the new policy received strong support at our Annual General Meeting ('AGM') in April 2016, with over 96% of shareholders voting in favour.
This year's Remuneration Report shows how the Committee has applied the new policy, aligning executive pay with the Group's performance, both for the year and against its long-term strategic objectives.
Performance achieved during 2016
Reported profit before tax for the year fell 62% to $7.1bn. However, on an adjusted basis, excluding significant items and currency translation differences, profit before tax was $19.3bn, broadly in line with prior-year. The Group's cost performance improved as prior-year initiatives gained traction and substantially offset higher loan impairment charges and marginally lower revenues.
The Group is now more than a year into implementing the strategic actions set out in its Investor Update in June 2015. These aim to improve returns, deliver cost savings, reduce RWAs, rebuild profitability in Mexico and the US, optimise and capture value from our international network, and complete the implementation of Global Standards programme to help combat financial crime.
Measures were incorporated into the 2016 annual incentive scorecards of the executive Directors to align their pay with progress against achievement of these objectives.
The Group made strong progress in a number of areas. It reduced RWAs by $143bn in 2016, taking it more than 97% of the way towards its target for the end of 2017. It achieved cost savings of $2.25bn, despite continued investment in
compliance, regulatory programmes and growth. Furthermore, it is on its way to restoring profitability in Mexico. In the second half of 2016, it executed a share buy-back worth approximately $2.5bn as a way of distributing capital to shareholders. In 2016, in sterling terms, our share price increased by 23% and the total shareholder return was 32%.
Group variable pay pool and risk adjustments
The Group variable pay pool is used to fund performance-related pay across the Group. In determining the size of the pool for 2016, the Committee took into consideration the Group's financial performance, fines, penalties and customer redress costs, as well as progress implementing and embedding Global Standards.
The total value of the pool for 2016 was $3,035m, which was 12.3% lower than the $3,462m figure for 2015.
In particular, the 2016 pool included the following reductions of:
|
•
|
$194m for the fines, penalties and cost of customer redress faced by the Group; and
|
|
•
|
$309m for:
|
|
-
|
financial performance in certain key areas, in particular, profit before tax, return on risk-weighted assets and adjusted jaws;
|
|
-
|
performance against certain metrics in our Group risk appetite profile; and
|
|
-
|
continued work required to address financial crime compliance issues and the embedding of Global Standards within our businesses.
|
In addition to the pool adjustments, we reduced variable pay awards to certain individuals by $12.1m in aggregate to reflect their involvement in certain notable events and individual transgressions.
Executive Directors' remuneration for 2016
In line with the policy approved by shareholders, we have reduced the cash in lieu of pension from 50% of base salary to 30% for executive Directors. This has resulted in fixed pay, including allowances, reducing by 7% in 2016. No increases in fixed pay are proposed for 2017.
The 2016 annual incentive scorecard outcome for financial measures was 35.3% for Stuart Gulliver, 30.0% for Iain Mackay and 15.0% for Marc Moses, reflecting their individual scorecards and the performance achieved in cost savings, reductions in RWAs and achievements against our strategic objectives.
Since establishing the new Financial Crime Risk function in
July 2016, there has been a significant focus on transition from a programme of change to business-as-usual financial crime management across all countries, regions and global businesses. But there is more to be done. The Committee exercised its discretion to reduce the Global Standards assessments for executive Directors down to 65%. This was based on feedback received from the Monitor, matters arising from risk and compliance incidents, and a number of unsatisfactory internal audits covering anti-money laundering ('AML') and sanctions-related issues.
July 2016, there has been a significant focus on transition from a programme of change to business-as-usual financial crime management across all countries, regions and global businesses. But there is more to be done. The Committee exercised its discretion to reduce the Global Standards assessments for executive Directors down to 65%. This was based on feedback received from the Monitor, matters arising from risk and compliance incidents, and a number of unsatisfactory internal audits covering anti-money laundering ('AML') and sanctions-related issues.
Details of the annual incentive scorecard outcome are provided on page 161.
In line with the new policy, no Group Performance Share Plan ('GPSP') awards were made in respect of the year ended
31 December 2016. This has resulted in a significant decrease in the total single figure of remuneration for executive Directors when compared with the year ending 31 December 2015.
31 December 2016. This has resulted in a significant decrease in the total single figure of remuneration for executive Directors when compared with the year ending 31 December 2015.
The new LTI award for our executives, awarded while taking into account performance in the financial year ended 31 December 2016, is subject to a forward-looking three-year performance period (1 January 2017 to 31 December 2019) and a seven-year
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deferral period. This ensures a significant proportion of executive Directors' pay continues to be deferred. This, together with the fact that the majority of compensation is awarded in shares, helps ensure it is aligned with the achievement of our long-term strategic objectives, and the long-term interests of shareholders and other stakeholders. Details of the performance measures for the LTI award to be granted in 2017 in respect of 2016, and the relevant targets for each measure, are provided on page 164.
Implementation of policy for 2017
This year will be the final one for implementing the strategic actions set out in the Investor Update. The 2017 annual incentive scorecards for the executive Directors are designed to drive delivery against these objectives.
Details of the performance measures for the 2017 annual incentive scorecards are on page 169. However, for reasons of commercial sensitivity, the specific targets for each measure will not be disclosed until the end of the 2017 performance period, when performance against the targets will also be disclosed.
Fees for non-executive Directors were reviewed by the Committee in 2016. Recognising the growing regulatory responsibilities and time commitment required from our non‑executive Directors, their fees have been increased with effect from 1 January 2017. A travel allowance has also been introduced for non-UK based non-executive Directors to reflect the additional time commitment required for travel. The details of the increases are provided on page 156.
The Committee will continue to monitor the remuneration arrangements for executive Directors, and meet with our major
shareholders on implementation of the policy in 2017. The Committee will also continue to monitor any reform proposed for corporate governance and executive pay, and will consider any changes that may be required to our approach on remuneration in this regard.
Our annual report on remuneration
The following sections of this Remuneration Report provide an overview of the policy for executive Directors, which was approved by shareholders at the 2016 AGM, and details of remuneration decisions made for executive Directors in 2016. The report also covers the application of the 2016 policy to other Group employees.
As Chairman of the Committee, I hope you will support the report.
Finally, I will be retiring as a non-executive Director of the Group and as chairman of this Committee at the conclusion of the 2017 AGM. I am delighted that Pauline van der Meer Mohr, who is already a member of the Committee, has agreed to succeed me as chairman at that time.
Sam Laidlaw
Chairman
Group Remuneration Committee
21 February 2017
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|
|
Directors' Remuneration policy
|
policy can be found on pages 288 to 299 of our Annual Report and Accounts 2015 and in the Directors' Remuneration Policy Supplement 2016 of this Annual Report and Accounts 2016, which is available in the Investor Relations section of www.hsbc.com.
|
Remuneration policy summary - executive Directors
|
||
|
Elements
|
Operation
|
Implementation in 2017
|
|
Base salary
To attract and retain key talent by being market competitive and rewarding ongoing contribution to role.
|
•
Paid in cash on a monthly basis.•
Base salary increases will not exceed 15% in total during the three-year term of the policy. |
No change from 2016.
•
Douglas Flint: £1,500,000•
Stuart Gulliver: £1,250,000•
Iain Mackay: £700,000•
Marc Moses: £700,000 |
|
Fixed pay allowance
To deliver fixed pay required to reflect the role, skills and experience of the Directors and to maintain a competitive total remuneration package for retention of key talent.
|
•
Non-pensionable and paid in shares.•
Released annually on a pro rata basis over five years, starting from the March immediately following the end of the financial year in which the shares were granted.•
Dividends paid on the vested shares held during the retention period. |
No change from 2016.
•
Douglas Flint: Nil•
Stuart Gulliver: £1,700,000•
Iain Mackay: £950,000•
Marc Moses: £950,000 |
|
Pension
To attract and retain key talent by being market competitive.
|
•
Directors receive cash in lieu of a pension equal to 30% of base salary. |
No change from 2016.
|
|
Benefits
To provide benefits in accordance with local market practice.
|
•
Include, for example, the provision of medical insurance, income protection insurance, health assessment, life assurance, club membership, tax return assistance, car benefit and travel assistance, including any tax due on the benefit.•
Additional benefits may also be provided where an executive is relocated or spends a substantial proportion of their time in more than one jurisdiction for business purposes. |
No change from 2016.
|
|
Annual incentive
To drive and reward performance against annual financial, non-financial and personal objectives which are consistent with the strategy and align to shareholder interests.
|
•
Maximum opportunity for annual incentive award is 215% of base salary.•
Performance is measured against an annual scorecard and varies by individual.•
On vesting, shares are subject to a minimum retention period of at least six months. |
•
See page 169 for details of performance measures.•
Shares issued are subject to a retention period of up to one year after vesting. |
|
Long-term incentive ('LTI')
To incentivise sustainable long-term alignment with shareholder interests.
|
•
Maximum opportunity for LTI award is 320% of base salary.•
Award is subject to a three-year forward-looking performance period.•
Performance is measured against a long-term scorecard. 60% is based on financial outcomes and 40% is based on non-financial outcome, including risk and strategy-related measures.•
Awards vest in five equal instalments with the first vesting on or around the third anniversary of the grant date, and the last vesting on or around the seventh anniversary of the grant date.•
Awards are discretionary and subject to malus during the vesting period and claw-back for a period of seven to10 years from the date of award. |
•
Details of the performance measures and targets for awards to be made in 2017 (in respect of 2016) are set out on page 164.•
For awards to be made in respect of 2017, the measures and targets will be determined at the end of 2017 for the performance period commencing on 1 January 2018.•
On vesting, awards are subject to a retention period of up to one year.•
Number of shares to be awarded can be determined using a share price discounted for dividend yield. |
|
Shareholding guideline
To ensure appropriate alignment with the interest of our shareholders.
|
The shareholding guidelines as a percentage of base salary are:
•
Group Chairman: 100%•
Group Chief Executive: 400%•
Group Finance Director and Group Chief Risk Officer: 300% |
No change from 2016.
|
Executive Directors are also entitled to participate in all employee share plans, such as HSBC Sharesave, on the same basis as all other employees. The policy on payment for loss of
office is detailed online in the Directors' Remuneration Policy Supplement 2016.
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Remuneration policy summary - non-executive Directors
Non-executive Directors are not employees and receive a fee for their services. The policy for non-executive Directors is to pay:
|
•
|
base fees; and
|
|
•
|
further fees for the role of Senior Independent Director ('SID') and additional Board duties such as chairmanship or membership of a committee.
|
Expenses incurred in performing their roles and any related tax due are also reimbursed. All non-executive Directors have a shareholding guideline of 15,000 shares, which has to be
achieved within five years from 2014 or their appointment if later.
The Committee has reviewed the fee levels payable to non-executive Directors and decided an increase will be applied to reflect growing regulatory responsibilities and time commitment. A travel allowance of £4,000 will also be introduced for non-UK based non-executive Directors to reflect the additional time commitment required for travel. The increases in fees is within the 20% maximum increase during the three-year term of the remuneration policy. Fees for 2017 are detailed below.
|
|
|
2016 fees
|
2017 fees
|
|
|
|
£
|
£
|
|
Category
|
|
|
|
|
Base fee
|
|
95,000
|
110,000
|
|
SID
|
|
45,000
|
54,000
|
|
Audit, Risk, Remuneration, Financial System Vulnerabilities and Conduct & Values Committees
|
Chairman
|
50,000
|
60,000
|
|
|
Member
|
30,000
|
30,000
|
|
Nomination Committee
|
Chairman
|
40,000
|
40,000
|
|
|
Member
|
25,000
|
25,000
|
|
Philanthropic & Community Investment Oversight Committee
|
Chairman
|
25,000
|
25,000
|
|
|
Member
|
15,000
|
15,000
|
Service contracts
Executive Directors
|
|
Douglas Flint
|
Stuart Gulliver
|
Iain
Mackay
|
Marc Moses
|
|
Contract date (rolling)
|
14 Feb 2011
|
10 Feb 2011
|
4 Feb
2011
|
27 Nov 2014
|
|
Notice period
(Director & HSBC)
|
12 months
|
12 months
|
12 months
|
12 months
|
Letters setting out the terms of appointment of each executive Director are available for inspection at HSBC Holdings' registered office. Consistent with the best interests of the Group, the Committee will seek to minimise termination payments. Directors may be eligible for a payment in relation to statutory rights.
The Directors' biographies are set out on pages 133 to 136, and include those directorships provided for under Capital Requirement Directive IV ('CRD IV').
Non-executive Directors
Non-executive Directors are appointed for fixed terms not exceeding three years, which may be renewed subject to their re-election by shareholders at AGMs. Non-executive Directors do not have service contracts, but are bound by letters of appointment issued for and on behalf of HSBC Holdings. There are no obligations in the non-executive Director's letters of appointment which could give rise to remuneration payments or payments for loss of office.
Non-executive Directors' current terms of appointment will expire as follows:
|
2017 AGM
|
2018 AGM
|
2019 AGM
|
2020 AGM
|
|
Kathleen Casey
|
Phillip Ameen
|
Henri de Castries
|
David Nish
|
|
Laura Cha
|
Joachim Faber
|
Irene Lee
|
Jackson Tai
|
|
Lord Evans of Weardale
|
John Lipsky
|
Pauline van der Meer Mohr
|
|
|
Sam Laidlaw
|
Rachel Lomax
|
Paul Walsh
|
|
|
Jonathan Symonds
|
Heidi Miller
|
|
|
|
Remuneration policy for all employees
|
|
•
|
meets the commercial requirement to remain competitive;
|
|
•
|
is affordable;
|
|
•
|
allows flexibility in response to prevailing circumstances;
|
|
•
|
is compliant with regulatory requirements;
|
|
•
|
aligns with the long-term interests of our stakeholders; and
|
|
•
|
is consistent with effective risk management.
|
The mix of fixed and variable pay granted to an employee corresponds to the individual's role, local market factors and regulatory requirements. The variable pay for all material risk takers ('MRTs') is restricted to a maximum of 200% of their fixed pay. Individuals are identified as MRTs based on the qualitative and quantitative criteria set out in the Regulatory Technical Standard EU 604/2014 and additional criteria determined by the Committee. The table provides an overview of the different remuneration elements for our employees.
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|
|
Component of remuneration
|
Application
|
|
Fixed pay
|
•
Attract and retain employees by paying market-competitive pay for the role, skills and experience required by the business.•
This may include salary, fixed pay allowance, cash in lieu of pension and other cash allowances in accordance with local market practices.•
These payments are fixed and do not vary with performance. |
|
Pension and benefits
|
•
Provided in accordance with local market practice. They include, but are not limited to, the provision of pensions, medical coverage, life insurance, health assessment, tax return preparation, legal fees and relocation allowances. |
|
Annual incentive
|
•
Awards to drive and reward performance based on annual financial and non-financial measures consistent with the medium-to-long-term strategy, shareholder interests and adherence to HSBC Values.•
For MRTs, awards are normally subject to a 40% or 60% deferral, delivered in cash and/or shares, subject to a minimum six-month retention period. From 2016 onwards, the deferral period could be three, five or seven years, depending on the regulatory status of the employee. Deferred awards are subject to malus. All awards are subject to claw-back and compliance with local laws.•
For all other employees, awards can be in the form of cash and/or shares. Awards above a specified threshold are subject to deferral based on a deferral table. All deferred awards are subject to malus.•
HSBC operates an anti-hedging policy for all employees who are required to certify each year that they have not entered into any personal hedging strategies. |
Link between performance and reward
Under our remuneration framework, pay decisions are based on a number of factors: business results, individual performance against scorecard objectives and adherence to HSBC Values, business principles, policies, procedures and Global Standards.
At the end of each performance year, assessment of performance against scorecard objectives, including non-financial and risk objectives, forms the basis of remuneration decisions. This helps ensure risk management is embedded and forms an integral part of all our activities.
The performance and remuneration of individuals in control functions is assessed according to a balanced scorecard of objectives specific to the functional role they undertake, to ensure their remuneration is determined independent of the performance of the business areas they control.
HSBC Values play a key role in ensuring the Group remains sound and sustainable. All employees are given a separate values-aligned behavioural rating, which informs their eligibility for variable pay and influences their variable pay determinations.
Regular reviews are undertaken to assess instances of non-compliance with risk procedures and expected behaviours. Instances of non-compliance are escalated for consideration in variable pay decisions, using our adjustment, malus and claw-back policies (see the next section).
The key features of our remuneration framework that enable us to achieve alignment between risk, reward and performance are set out below.
|
Key feature
|
Application
|
|
Scorecards
|
•
Assessment of performance with reference to clear and relevant objectives set within a performance scorecard framework.•
Global Standards including risk and compliance measures and conduct, set at a minimum of 25% of the scorecard for Group Management Board members. |
|
Group variable pay pool calculation
|
•
Fines and penalties are automatically included in the Committee's definition of profit.•
Performance against metrics in the Group Risk Appetite Statement and Conduct Framework is taken into consideration. |
|
Deferral of variable pay
|
•
Deferral of a significant proportion of variable pay into HSBC shares and/or other instruments to tie recipients to the future performance of the Group and business units. |
|
Malus/adjustment policy
|
•
Allows cancellation/reduction of unvested deferred variable pay awards. Longer deferral period under PRA Remuneration Rules increases the time period over which malus can be applied.•
This is in addition to our in-year variable pay adjustments and other disciplinary actions that can be taken under our global consequence management policy. |
|
Claw-back policy
|
•
Subject to compliance with local labour laws, allows us to recoup/reclaim paid awards in certain circumstances as defined by the PRA for a period of up to seven-years from grant (can be extended to 10 years for individuals in PRA designated Senior Management Function roles). |
|
Retail/wealth compensation
|
•
We removed commission based sales plans globally for Wealth in 2013 and Retail in 2014. |
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|
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The following policies help embed values in our remuneration structure while ensuring greater global consistency in our
approach to achieving alignment between risk and reward.
|
Programmes
|
Application
|
|
Values rating for all employees
|
•
To ensure performance is judged not only on what is achieved in the short and long term but also on how it is achieved, which contributes to the sustainability of the Group. |
|
Performance management
|
•
Strong correlation is expected between performance and values.•
No discretionary variable pay for an unacceptable behaviour rating.•
2016 focus on moving away from traditional cycle-based performance management towards a culture of everyday performance and development. |
|
Global consequence management policy
|
•
Introduced to increase consistency in approach and actions taken.•
Clear messaging to employees on impact of breaches as part of reward communications (through pay statements, manager guidelines, etc.). |
|
Positive adjustments
|
•
To focus on positive behaviours in the context of Global Standards through in-year positive variable pay adjustments. |
|
Global recognition programme
|
•
Circa 80% of the global employee population can now access a single HSBC recognition platform to perform values-based peer-to-peer recognition.•
Includes communication of positive stories on our intranet (HSBC Now). |
Variable pay adjustment, malus and claw-back
Where there are instances of conduct breaches, the actions below can be taken. The Committee has discretion to apply malus and claw-back under the policies it has adopted, taking into consideration an individual's proximity to, and responsibility
for, the issue in question. Where possible, an adjustment will be made to current-year variable pay, before the application of malus, then claw-back. This is in line with regulatory requirements.
|
Type of action
|
Type of variable pay award affected
|
Circumstances where it may apply (including, but not limited to)
|
|
Adjustment
|
•
Current-year variable pay. |
•
Detrimental conduct, including conduct which brings the business into disrepute.•
Involvement in events resulting in significant operational losses, or events which have caused or have the potential to cause significant harm to HSBC.•
Non-compliance with HSBC Values and other mandatory requirements or policies. |
|
Adjustment under the downward override policy
|
•
Current-year variable pay for executive Directors and certain other senior executives. |
•
Downward override policy was introduced in 2014, based on the recommendations received from the independent Monitor as appointed by the US Deferred Prosecution Agreement ('DPA').•
A downward adjustment can be applied where there is:- insufficient yearly progress in developing an effective AML and sanctions compliance programme; or
- non-compliance with the DPA and other relevant orders.
•
In deciding the application and degree of any such downward override to reduce variable pay awards, the Committee considers feedback from the Financial System Vulnerabilities Committee, the Monitor in relation to cooperation with their review and Legal. |
|
Malus
|
•
Unvested deferred awards granted in prior years. |
•
Detrimental conduct, including conduct which brings the business into disrepute.•
Past performance being materially worse than originally reported.•
Restatement, correction or amendment of any financial statements.•
Improper or inadequate risk management. |
|
Claw-back
|
•
Vested or paid awards granted to MRTs on or after 1 January 2015 for seven years.•
From 2016 onwards, this period may be extended to 10 years for employees under the PRA's Senior Manager Regime in the event of ongoing internal/regulatory investigation at the end of the seven-year period. |
•
Participation in, or responsibility for, conduct which results in significant losses.•
Failing to meet appropriate standards and propriety.•
Reasonable evidence of misconduct or material error that would justify, or would have justified, summary termination of a contract of employment.•
HSBC or a business unit suffers a material failure of risk management in the context of Group risk-management standards, policies and procedures. |
|
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|
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|
|
Annual report on remuneration
|
Remuneration Committee
Details of the roles, responsibility and membership of the Committee are set out on page 144. No executive Directors are involved in deciding their own remuneration.
Activities
The Committee met nine times during 2016. The following is a summary of the Committee's key activities during 2016. A copy of the Committee's terms of reference can be found on our website at www.hsbc.com/about-hsbc/corporate-governance/board-committees.
|
Details of the Committee's key activities
|
|||
|
Month
|
Activities
|
Month
|
Activities
|
|
Jan
|
•
Reviewed and approved pay review matters and regulatory filings.•
Received updates on notable events.•
Received updates on regulatory changes. |
Jul
|
•
Reviewed and approved regulatory filling for 2016.•
Received updates on notable events. |
|
Feb
|
•
Approved 2015 performance year pay review matters.•
Considered progress update on 2015 Monitor recommendations.•
Approved 2015 Directors' Remuneration Report and Strategic Report including new policy for Directors.•
Received updates on notable events.•
Received updates on regulatory changes. |
Sept
|
•
Updated on high-priority programmes progress.•
Reviewed 2016 performance year pay review matters.•
Received updates on notable events.•
Noted progress updates from 2016 Monitor recommendations.•
Reviewed fixed pay framework.•
Reviewed executive Directors' scorecards.•
Approved Group-wide variable pay deferral policy. |
|
Apr
|
•
Met with Monitor to discuss incentivisation workstream.•
Considered matters discussed with regulators and reviewed regulatory filings. |
Oct and Nov
|
•
Committee Chairman met with shareholders.•
Reviewed 2016 performance year pay review matters.•
Reviewed 2016 regulatory submissions.•
Received updates on notable events.•
Reviewed long-term incentive scorecard.•
Received updates on investor guidelines. |
|
May
|
•
Approved 2016 MRT list.•
Received updates on notable events.•
Considered shareholder feedback received on executive remuneration policy matters. |
Dec
|
•
Approved 2016 performance year pay matters.•
Approved 2016 regulatory submissions.•
Reviewed executive Directors' scorecards and pay proposals.•
Approved long-term incentive scorecard measures. |
Advisers
The Committee received input and advice from different advisers on specific topics during 2016. Deloitte LLP ('Deloitte') was appointed by the Committee in 2015 as an objective, independent adviser to support the Committee on specific remuneration matters for executive Directors. The Committee made the appointment after considering invited proposals from a number of consultancy firms. In 2016, the Committee agreed to extend Deloitte's appointment for a further period of one year. Deloitte provided benchmarking data on remuneration policy matters and independent advice to the Committee. The Committee may request ad-hoc assistance from Deloitte.
Deloitte also provided services to the Group, comprising tax compliance and other advisory services. To ensure the advice from Deloitte was objective, the Committee required the advice to be independent and distinct from any internal review and analysis on remuneration policy matters. The Committee was satisfied the advice provided by Deloitte was objective and independent in 2016. Deloitte is a founding member of the Remuneration Consultants Group and voluntarily operates under the Code of Conduct in relation to executive remuneration consulting in the UK.
For 2016, total fees of £168,150 were incurred in relation to its remuneration advice provided by Deloitte. This was based on pre-agreed fees and a time and materials basis.
During the year, the Group Chief Executive provided regular briefings to the Committee. In addition, the Committee received updates from the following employees as part of their roles with HSBC:
|
•
|
Pierre Goad, Group Head of Human Resources
(until August 2016); |
|
•
|
Donna Wong, Acting Group Head of Human Resources (from September 2016);
|
|
•
|
Alexander Lowen, Group Head of Performance and Reward;
|
|
•
|
Marc Moses, Group Chief Risk Officer;
|
|
•
|
Iain Mackay, Group Finance Director;
|
|
•
|
Colin Bell, Group Head of Financial Crime Risk;
|
|
•
|
Robert Werner, Former Global Head of Financial Crime Compliance and Group Money Laundering Reporting Officer;
|
|
•
|
Ralph Nash, Global Head of Financial Crime Compliance;
|
|
•
|
John Flint, Chief Executive Retail Banking and Wealth Management;
|
|
•
|
Stuart Levey, Chief Legal Officer; and
|
|
•
|
Andy Maguire, Group Chief Operating Officer.
|
The Committee also received feedback and input from the Group Risk Committee, the Financial System Vulnerabilities Committee and the Conduct & Values Committee on risk and compliance-related matters relevant to remuneration. This included input from the Financial System Vulnerabilities Committee on the implementation and annual assessment of 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.
|
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|
Directors' Remuneration Report
Single figure of remuneration
The following table shows the single figure total remuneration of each executive Director for 2016, together with comparative figures for 2015.
|
(Audited)
(£000)
|
|
Base
salary |
|
Fixed pay allowance
|
|
Pension
|
|
Annual incentive
|
|
GPSP/LTI
|
|
Sub-total
|
|
Taxable benefits
|
|
Non-taxable benefits
|
|
Notional returns
|
|
Total
|
|
|
Douglas Flint
|
2016
|
1,500
|
|
-
|
|
450
|
|
-
|
|
-
|
|
1,950
|
|
100
|
|
86
|
|
-
|
|
2,136
|
|
|
2015
|
1,500
|
|
-
|
|
750
|
|
-
|
|
-
|
|
2,250
|
|
151
|
|
95
|
|
-
|
|
2,496
|
|
|
|
Stuart Gulliver
|
2016
|
1,250
|
|
1,700
|
|
375
|
|
1,695
|
|
-
|
|
5,020
|
|
557
|
|
71
|
|
27
|
|
5,675
|
|
|
2015
|
1,250
|
|
1,700
|
|
625
|
|
1,072
|
|
1,969
|
|
6,616
|
|
662
|
|
53
|
|
9
|
|
7,340
|
|
|
|
Iain Mackay
|
2016
|
700
|
|
950
|
|
210
|
|
987
|
|
-
|
|
2,847
|
|
52
|
|
37
|
|
17
|
|
2,953
|
|
|
2015
|
700
|
|
950
|
|
350
|
|
1,068
|
|
1,101
|
|
4,169
|
|
54
|
|
28
|
|
5
|
|
4,256
|
|
|
|
Marc Moses
|
2016
|
700
|
|
950
|
|
210
|
|
1,005
|
|
-
|
|
2,865
|
|
15
|
|
38
|
|
18
|
|
2,936
|
|
|
2015
|
700
|
|
950
|
|
350
|
|
827
|
|
1,101
|
|
3,928
|
|
6
|
|
29
|
|
5
|
|
3,968
|
|
|
Year-on-year single figure comparison
(Unaudited)
The GPSP was replaced by the LTI in 2016. As such, no GPSP award was made for 2016 and the value for 2016 is nil.
The first LTI award will be made in March 2017, with a performance period ending in 2019. Vesting of the first LTI award will be included in the single figure table for the financial year ending on 31 December 2019. For year-on-year
comparison purposes, if target performance is achieved over the three-year performance period, LTI payout for the 2016 award would be 50% of grant value. In this case, the 2016 single figure total remuneration of the executive Directors for year-on-year comparison would be (in £000) £7,670 for Stuart Gulliver, £4,069 for Iain Mackay and £4,052 for Marc Moses.
Illustration of release profile
The following chart provides an illustrative release profile for executive Directors.
|
Illustration of release profile
|
|||||||||||
|
|
|
||||||||||
|
Fixed pay allowance
|
•
Released in five equal annual instalments starting from March 2017. |
||||||||||
|
Annual incentive
|
•
Paid in immediately vested shares subject to minimum six-month retention period.•
Subject to claw-back provisions for seven-years, which may be extended in the event of an ongoing internal/regulatory investigation. |
||||||||||
|
Long-term incentive
|
•
Award subject to three-year forward-looking performance period.•
Subject to satisfaction of performance conditions, awards will vest in five equal annual instalments starting from the third anniversary of the grant date.•
On vesting, shares are subject to a minimum six-month retention period. |
||||||||||
Notes to the single figure of remuneration
(Audited)
Benefits
In the single figure of remuneration table above, 'Benefits'
refers to:
refers to:
|
•
|
all taxable benefits (gross value before payment of tax) including provision of medical insurance, accommodation
|
and car, club membership, tax gross-up for accommodation and car benefit; and
|
•
|
non-taxable benefits including the provision of life assurance and other insurance cover.
|
The values of the significant benefits in the above table are set out below.
|
(Audited)
|
|
|
|
|
|
||||
|
(£000)
|
|
Car benefit
(UK and Hong Kong)1
|
|
Hong Kong bank-owned
accommodation2
|
|
Tax expense on car benefit and Hong Kong bank-owned accommodation
|
|
Insurance benefit
(non-taxable)1
|
|
|
Douglas Flint
|
2016
|
-
|
|
-
|
|
-
|
|
75
|
|
|
2015
|
69
|
|
-
|
|
57
|
|
80
|
|
|
|
Stuart Gulliver
|
2016
|
64
|
|
263
|
|
211
|
|
63
|
|
|
2015
|
87
|
|
281
|
|
275
|
|
-
|
|
|
|
Iain Mackay
|
2016
|
-
|
|
-
|
|
-
|
|
-
|
|
|
2015
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
Marc Moses
|
2016
|
-
|
|
-
|
|
-
|
|
-
|
|
|
2015
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
1
|
The car benefits, tax on car benefits and insurance benefits for Iain Mackay and Marc Moses are not included in the above table as they were not significant.
|
|
2
|
Based on the current market rental value of the bank-owned property in Hong Kong, as estimated by an external lease service provider, plus utility costs, rates, the taxable value of furniture and taking into account the business use of the property. The taxable value of the accommodation is considered to be 70% of the total of these amounts.
|
|
160
|
HSBC Holdings plc Annual Report and Accounts 2016
|
Notional returns
In the single figure of remuneration table above, 'Notional returns' refers to the notional return on deferred cash.
The deferred cash portion of the annual incentive also includes a right to receive notional returns for the period between grant date and vesting date, which is determined by reference to the dividend yield on HSBC shares, calculated annually.
A payment of notional return is made annually in the same proportion as the vesting of the deferred awards on each vesting date. The amount is disclosed on a paid basis in the year in which the payment is made.
Determining executive Directors' annual performance
(Audited)
Awards made to executive Directors reflected the Committee's assessment of the extent to which they had achieved personal and corporate objectives set within their performance scorecard as agreed at the beginning of the year, which had been set to reflect the risk appetite and strategic priorities. In accordance with the downward override policy, the Committee also
consulted the Financial System Vulnerabilities Committee and took into consideration their feedback in relation to progress on enhancing AML and sanctions compliance along with progress in meeting the Group's obligations under the US DPA and other relevant orders. The Committee also took into consideration the report of the independent Monitor in determining the scorecard outcomes.
In order for any annual incentive award to be made, each executive Director must meet a required behavioural rating which is assessed with reference to the HSBC Values. For 2016, all executive Directors met the required behavioural rating.
For 2016, the Committee exercised its discretion and reduced the Global Standards assessments from 75% to 65% for Stuart Gulliver, from 86% to 65% for Iain Mackay and from 74% to 65% for Marc Moses. This was based on feedback received from the Monitor, matters arising from risk and compliance incidents, and a number of unsatisfactory internal audits covering AML and sanctions-related issues.
The performance achieved by executive Directors in the year is shown in the table below.
|
Annual assessment
|
|||||||||
|
|
Stuart Gulliver
|
Iain Mackay
|
Marc Moses
|
||||||
|
Weighting (%)
|
Assessment (%)
|
Outcome (%)
|
Weighting (%)
|
Assessment (%)
|
Outcome (%)
|
Weighting (%)
|
Assessment (%)
|
Outcome (%)
|
|
|
Profit before tax1
|
20.00
|
0.00
|
0.00
|
20.00
|
0.00
|
0.00
|
10.00
|
0.00
|
0.00
|
|
Deliver cost savings
|
20.00
|
100.00
|
20.00
|
20.00
|
100.00
|
20.00
|
-
|
-
|
-
|
|
Reduce Group RWAs
|
10.00
|
100.00
|
10.00
|
10.00
|
100.00
|
10.00
|
15.00
|
100.00
|
15.00
|
|
Strategic growth
|
10.00
|
52.70
|
5.27
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Global Standards including
risk and compliance
|
25.00
|
65.00
|
16.25
|
25.00
|
65.00
|
16.25
|
50.00
|
65.00
|
32.50
|
|
Personal objectives
|
15.00
|
81.27
|
12.19
|
25.00
|
80.00
|
20.00
|
25.00
|
80.00
|
20.00
|
|
Total
|
100.00
|
|
63.71
|
100.00
|
|
66.25
|
100.00
|
|
67.50
|
|
Maximum annual incentive opportunity (£000)
|
|
|
£2,660
|
|
|
£1,490
|
|
|
£1,490
|
|
Annual incentive (£000)
|
|
|
£1,695
|
|
|
£987
|
|
|
£1,005
|
|
1
|
Adjusted profit before tax, as defined for Group annual bonus pool calculation. This excludes the year-on-year effects of foreign currency translation differences, fair value movements on our own debt, business disposal gains and losses, acquisitions and goodwill, debt valuation adjustments, restructuring costs included in costs to achieve and variable pay expense. The adjusted profit before tax includes the cost of fines, penalties and costs of customer redress.
|
Financial performance
|
Annual assessment
|
|
||||
|
|
Minimum
(25% payout)
|
Maximum
(100% payout)
|
Performance
|
Assessment
|
|
|
Measure
|
|
|
|
|
|
|
Profit before tax
|
$19.7bn
|
$20.6bn
|
$18.2bn
|
0
|
%
|
|
Deliver cost savings1
|
$34.0bn
|
$32.9bn
|
$30.7bn
|
100
|
%
|
|
Reduce Group RWAs
|
$100.0bn
|
$110.0bn
|
$143.0bn
|
100
|
%
|
|
Strategic growth2
|
Various
|
Various
|
Partly met targets for seven measures and did not meet minimum targets for two measures.
|
5.27
|
%
|
|
1
|
Measured by reference to Group adjusted cost base.
|
|
2
|
Strategic growth measures on optimising global network, rebuilding NAFTA region profitability, delivering growth above GDP from international network, pivot to Asia and renminbi internationalisation.
|
|
HSBC Holdings plc Annual Report and Accounts 2016
|
161
|
Directors' Remuneration Report
Non-financial performance
The table below provides an overview of the non-financial performance achieved by each executive Director.
|
Stuart Gulliver
|
|||
|
|
Performance
|
Assessment
|
|
|
Global Standards including risk and compliance
•
Effective risk management in compliance with AML, sanctions and anti-bribery and corruption policies.•
Enhancement of customer due diligence.•
Implementation and embedding of global conduct programme.•
Progress on embedding Global Standards. |
•
Progressive implementation of the most effective Global Standards to combat financial crime across the Group continues, including related attestations by country chief executive officers.•
AML and sanctions policy outcomes strengthened with strategic deployments covering client due diligence, sanctions screening and transaction monitoring.•
Empirical measurements used to assess sustainable operational effectiveness in financial crime compliance.•
Conduct programme implementation progressed largely to plan.•
For 2016, the Committee exercised its discretion and reduced the Global Standards assessments from 75% to 65%. This was based on feedback received from the Monitor, matters arising from risk and compliance incidents, and a number of unsatisfactory internal audits covering AML and sanctions-related issues. |
65.0
|
%
|
|
Personal objectives
•
Progress transactions in Brazil and Turkey.•
Progress key milestones on set-up of UK ring-fenced bank.•
Delivery of other high-priority projects.•
People development including diversity. |
•
Completed sale of operations in Brazil and maintained a presence to serve large corporate clients. Restructuring of business in Turkey to make it a profitable franchise largely complete.•
Overall implementation of high-priority programmes is fully met including the establishment of the ring-fenced bank in the UK which is on track for completion by 1 July 2018.•
Comprehensive review of diversity and inclusion completed. Refreshed diversity and inclusion strategy and targets.•
Exceeded target for female share of promotions into senior management. |
81.3
|
%
|
|
Iain Mackay
|
|||
|
|
Performance
|
Assessment
|
|
|
Global Standards including risk and compliance
•
Strengthen governance and control around financial processes.•
Delivery of controls optimisation project.•
Implementation and embedding of global conduct programme.•
Enhancement of operational risk management framework.•
Successful delivery of stress testing in key markets. |
•
Continued enhancement of the Sarbanes Oxley framework and alignment with the operational risk management framework ('ORMF'). Delivery of 2016 milestones for the controls optimisation project which is on track to be completed by April 2017.•
Effective execution of operational risk management through embedding of the three lines of defence, with remediation plans in place to address any gaps identified against ORMF.•
Continued progress to comply with regulatory requirements including 2016 stress tests for the PRA, European Banking Authority and US Federal Reserve Bank, and successful submission of the inaugural Group-wide individual liquidity adequacy assessment process.•
Embedding of the tax risk management framework in businesses and functions continues. Significant progress achieved in embedding US Foreign Account Tax Compliance Act ('FATCA') related measures, common reporting standards and tax transparency.•
Implementation of global conduct programme milestones and outcomes were largely met.•
For 2016, the Committee exercised its discretion and reduced the Global Standards assessments from 86% to 65%. This was based on feedback received from the Monitor, matters arising from risk and compliance incidents, and a number of unsatisfactory internal audits covering AML and sanctions-related issues. |
65.0
|
%
|
|
Personal objectives
•
Deliver cost savings.•
Implementation of consistent capital management framework.•
Progress key milestones on set-up of UK ring-fenced bank.•
People development including diversity. |
•
2016 Global Finance function direct costs and FTE targets met via significant restructuring (transforming the function from geographically aligned to a global operating model), accompanied by enhancements of technology, demand management, process re-engineering and off-shoring. Material progress achieved in the strengthening of the Global Finance Centre.•
Activities to implement business segmentation on track and further enhancements to the capital management framework delivered.•
New internal liquidity framework fully implemented.•
Delivery against 2016 milestones for UK ring-fencing requirements and other high-priority programmes were fully met.•
Delivery of the Global Finance function people agenda, including implementation of accelerated development programmes for targeted employees, the sponsorship and development of careers and capabilities of employees, and improvement of gender diversity in the function. |
80.0
|
%
|
|
162
|
HSBC Holdings plc Annual Report and Accounts 2016
|
|
Marc Moses
|
|||
|
|
Performance
|
Assessment
|
|
|
Global Standards including risk and compliance
•
Effective risk management in compliance with AML, sanctions and anti-bribery and corruption policies.•
Enhancement of customer due diligence.•
Implementation and embedding of global conduct programme.•
Enhancement of operational risk management framework.•
Implementation of US risk management measures. |
•
Global Financial Crime Compliance function focus progressed, although not as quickly as planned. Progress in enhancing know your customer, customer due diligence, and effective risk management in compliance with AML, sanctions, anti-bribery and corruption policies and Global Standards, were somewhat met as certain key components were not fully developed at the mid-year.•
Management oversight of Global Financial Crime Risk function activities were effectively handed over to the newly appointed Group Head of Financial Crime Risk following the establishment of the new Financial Crime Risk function.•
The conduct programme implementation progressed largely to plan.•
Our operational risk transformation programme on track with all key milestones delivered. Embedding of the three lines of defence framework continues with the management of 'High' rated residual risks, mitigating actions and remediation activities largely meeting expectations. However, further work to self-identify issues is required.•
Successfully completed all 2016 outcomes to enable compliance with conduct regulation.•
For 2016, the Committee exercised its discretion and reduced the Global Standards assessments from 74% to 65%. This was based on feedback received from the Monitor, matters arising from risk and compliance incidents, and a number of unsatisfactory internal audits covering AML and sanctions-related issues. |
65.0
|
%
|
|
Personal objectives
•
Deliver cost savings.•
Successful delivery of stress testing.•
Support business growth and improve RWA effectiveness/efficiency.•
People development including diversity. |
•
Effective cost management driven through management of business performance and Global Risk function transformation activities including process re-engineering and location optimisation.•
Satisfactorily progressed the 2016 PRA and European Banking Authority stress tests and stress testing for other key regulators.•
RBWM expansion in the Pearl River Delta and creation of the risk infrastructure to launch credit cards in China fully met. Improved RWA effectiveness and efficiency within CMB and GBM to support overall reduction in Group RWAs.•
Delivered Global Risk function people initiatives including performance and reward plans, mandatory and key learning initiatives, and strengthened gender diversity. |
80.0
|
%
|
|
HSBC Holdings plc Annual Report and Accounts 2016
|
163
|
Directors' Remuneration Report
Awards under the long-term incentives
(Audited)
Under the new policy approved by shareholders, executive Directors are eligible to receive an LTI award. For the 2016 performance year, the award will be made in March 2017 with a three-year performance period starting 1 January 2017. For 2016, all executive Directors will be awarded an LTI grant
equivalent to 319% of base salary. The details of the measures that will be used to assess performance and payout are provided below. To the extent performance conditions are satisfied, the awards will vest in five equal annual instalments commencing from around the third anniversary of the grant date. On vesting, awards are subject to a minimum six-month retention period.
|
Performance conditions
|
||||
|
Measures
|
Minimum
(25% payout)
|
Target
(50% payout)
|
Maximum
(100% payout)
|
Weighting
%
|
|
Average return on equity1
|
7.0%
|
8.5%
|
10.0%
|
20
|
|
Cost efficiency (adjusted jaws)
|
Positive
|
1.5%
|
3.0%
|
20
|
|
Relative total shareholder return2
|
At median of the peer group.
|
Straight-line vesting between minimum and maximum.
|
At upper quartile of the peer group.
|
20
|
|
Global Standards including risk and compliance
•
Status of DPA. |
Not applicable
|
Not applicable
|
Met all commitments to achieve closure of the DPA and protect HSBC from further regulatory censure for financial crime compliance failings.
|
25
|
|
•
Achieve and sustain compliance with Global Financial Crime Compliance policies and procedures. |
Performance will be assessed by the Committee based on a number of qualitative and quantitative inputs such as feedback from the Financial System Vulnerabilities Committee, Group Financial Crime Risk assessment against Financial Crime Compliance objectives, outcome of assurance and audit reviews, and achievement of the long-term Group objectives and priorities during the performance period.
|
|
||
|
Strategy
•
International client revenues.(Share of revenues supported by international network)
|
50%
|
51%
|
52%
|
15
|
|
•
Revenue synergies.(Share of revenues supported by universal banking model)
|
22%
|
23%
|
24%
|
|
|
•
Employee engagement.(Results of employee survey)
|
65%
|
67%
|
70%
|
|
|
•
Customer.(Based on customer recommendation in home country markets)
|
Rank within top three in at least two of the four RBWM and CMB customer segments in home country markets.
|
Rank within top three in three of the four RBWM and CMB customer segments in home country markets.
|
Rank within top three in all four RBWM and CMB customer segments in home country markets.
|
|
|
Total
|
|
|
|
100
|
|
1
|
Significant items are excluded from the profit attributable to ordinary shareholders of the company for the purpose of computing adjusted return on equity.
|
|
2
|
The peer group for the 2016 award is: Australia and New Zealand Banking Group, Bank of America, Barclays, BNP Paribas, Citigroup, Credit Suisse Group, DBS Group Holdings, Deutsche Bank, JPMorgan Chase & Co., Lloyds Banking Group, Standard Chartered and UBS Group.
|
Payments to past Directors
(Audited)
No payments were made to or in respect of former Directors in the year in excess of the minimum threshold of £50,000 set for this purpose.
Total pension entitlements
(Audited)
No employees who served as executive Directors during the year have a right to amounts under any HSBC final salary pension scheme for their services as executive Directors or are entitled to additional benefits in the event of early retirement. There is no retirement age set for Directors, but the normal retirement age for employees is 65.
External appointments
During 2016, Stuart Gulliver received S$10,000 in fees as a member of the Monetary Authority of Singapore International Advisory Panel, which was donated to charity.
Exit payments made in year
(Audited)
No payments for loss of office were made in 2016 to any person serving as a Director in the year or any previous years.
Scheme interests awarded during 2016
(Audited)
The table below sets out the scheme interests awarded to Directors in 2016 (for performance in 2015) as disclosed in the 2015 Directors' Remuneration Report. No non-executive Directors received scheme interests during the financial year.
|
164
|
HSBC Holdings plc Annual Report and Accounts 2016
|
|
Scheme awards in 2016
|
||||||||||
|
(Audited)
|
||||||||||
|
|
Type of interest awarded
|
Basis on which
award made |
Date of award
|
Face value awarded1
£000
|
Percentage receivable for minimum performance1
|
Number of
shares
awarded
|
Share price
on date
of grant2
|
|
End of performance period
|
|
|
Stuart Gulliver
|
Deferred cash
|
Annual incentive 2015
|
29 Feb 2016
|
322
|
-
|
n/a
|
n/a
|
|
31 Dec 2015
|
|
|
Deferred shares
|
Annual incentive 2015
|
29 Feb 2016
|
322
|
-
|
68,845
|
|
£4.6735
|
|
31 Dec 2015
|
|
|
Deferred shares
|
GPSP 2015
|
29 Feb 2016
|
1,969
|
-
|
421,232
|
|
£4.6735
|
|
31 Dec 2015
|
|
|
Iain Mackay
|
Deferred cash
|
Annual incentive 2015
|
29 Feb 2016
|
320
|
-
|
n/a
|
n/a
|
|
31 Dec 2015
|
|
|
Deferred shares
|
Annual incentive 2015
|
29 Feb 2016
|
320
|
-
|
68,556
|
|
£4.6735
|
|
31 Dec 2015
|
|
|
Deferred shares
|
GPSP 2015
|
29 Feb 2016
|
1,101
|
-
|
235,654
|
|
£4.6735
|
|
31 Dec 2015
|
|
|
Marc Moses
|
Deferred cash
|
Annual incentive 2015
|
29 Feb 2016
|
248
|
-
|
n/a
|
n/a
|
|
31 Dec 2015
|
|
|
Deferred shares
|
Annual incentive 2015
|
29 Feb 2016
|
248
|
-
|
53,065
|
|
£4.6735
|
|
31 Dec 2015
|
|
|
Deferred shares
|
GPSP 2015
|
29 Feb 2016
|
1,101
|
-
|
235,654
|
|
£4.6735
|
|
31 Dec 2015
|
|
|
1
|
Unvested awards determined based on performance achieved during the period to 31 December 2015. The overall award level could have been 0% of the maximum opportunity if minimum performance was achieved for the period to 31 December 2015. After grant, awards are subject to service condition and malus provisions.
|
|
2
|
Share price used is the closing mid-market price on the last working day preceding the date of grant.
|
GPSP awards were made based on performance up to the financial year-end preceding the grant date with no further performance conditions after grant. Vesting occurs five years after grant date and is normally subject to the Director remaining an employee until the vesting date. The net of tax shares which the Director becomes entitled to on the vesting date are subject to a retention requirement.
The above table does not include details of shares issued as part of the fixed pay allowances, as those shares vest immediately and are not subject to any service or performance conditions.
Directors' interests in shares
(Audited)
The shareholdings of all persons who were Directors in 2016, including the shareholdings of their connected persons, at 31 December 2016 are set out below. The table below shows the comparison of shareholdings to the company shareholding guidelines. There have been no changes in the shareholdings of the Directors from 31 December 2016 to the date of this report excluding those disclosed in footnote 8 of the below table.
|
Shares
|
||||||||||
|
(Audited)
|
||||||||||
|
|
Shareholding guidelines2
(% of salary)
|
Current
shareholding
as at Dec 20163
(% of salary)
|
At 31 Dec 2016
|
|||||||
|
|
|
Scheme interests
|
||||||||
|
|
Share
interests4
(number
of shares)
|
|
Share options5
|
|
Shares awarded subject to deferral1
|
|||||
|
|
without performance conditions4, 6
|
|
with
performance
conditions7
|
|
||||||
|
Executive Directors
|
|
|
|
|
|
|||||
|
Douglas Flint8
|
100%
|
170%
|
402,158
|
|
2,919
|
|
-
|
|
-
|
|
|
Stuart Gulliver
|
400%
|
1,691%
|
3,344,208
|
|
-
|
|
3,132,917
|
|
99,357
|
|
|
Iain Mackay
|
300%
|
312%
|
345,469
|
|
3,469
|
|
1,424,437
|
|
68,688
|
|
|
Marc Moses
|
300%
|
744%
|
824,241
|
|
-
|
|
1,735,488
|
|
66,734
|
|
|
Group Managing Directors9
|
250,000 shares
|
250,000 shares
|
n/a
|
|
n/a
|
|
n/a
|
|
n/a
|
|
|
1
|
The gross number of shares is disclosed. A portion of these shares will be sold at vesting to cover any income tax and social security which falls due at the time of vesting.
|
|
2
|
The current shareholding guideline does not count unvested share-based incentives.
|
|
3
|
An average of three-month closing share price as on 31 December 2016 (£6.3224) has been used to calculate current shareholding as a percentage of salary.
|
|
4
|
Under the annual incentive, in line with regulatory requirements, any deferred shares (net of tax) which the Director becomes entitled to are subject to a retention requirement, such that they must be held for a predefined period of time. To provide the executive Directors with appropriate flexibility, the Committee determined that, the requirement to hold these shares could be met either by (i) retaining the shares that vested from the underlying award (net of tax) or (ii) by separately retaining a number of shares equivalent to those that vested under the award. The Committee consider that such an arrangement results in the employee holding the same number of shares as per the original intention of the retention period as set out in the remuneration policy approved by shareholders in 2014.
|
|
5
|
All share options are unvested and unexercised.
|
|
6
|
Includes GPSP awards, which were made following an assessment of performance over the relevant period ending on 31 December immediately before the grant date but are subject to a five-year vesting period.
|
|
7
|
Awards granted in March 2013 are subject to service conditions and satisfactory completion of the DPA, as determined by the Committee. The DPA condition ends on the fifth anniversary of the award date unless the DPA is extended or otherwise continues beyond that date, in which case the awards will vest on the date on which the DPA expires and otherwise ceases to operate. This award will lapse if the Committee determines that the performance conditions are not satisfied.
|
|
8
|
Since the end of the year, the number of HSBC Holdings ordinary shares held by Douglas Flint has increased by 22, following an acquisition, through regular monthly contributions in the HSBC Holdings UK Share Incentive Plan.
|
|
9
|
All Group Managing Directors are expected to meet their minimum shareholding guideline by 2019 or within five years of the date of their appointment, whichever is later.
|
|
Share options
|
||||||||||
|
(Audited)
|
||||||||||
|
|
Date of award
|
Exercise price
|
Exercisable
|
At 1 Jan
|
|
Exercised
|
|
At 31 Dec
|
|
|
|
|
|
£
|
from1
|
until
|
2016
|
|
in year
|
|
2016
|
|
|
Douglas Flint
|
23 Sep 2014
|
5.1887
|
1 Nov 2019
|
30 April 2020
|
2,919
|
|
-
|
|
2,919
|
|
|
Iain Mackay
|
23 Sep 2014
|
5.1887
|
1 Nov 2017
|
30 April 2018
|
3,469
|
|
-
|
|
3,469
|
|
|
1
|
May be advanced to an earlier date in certain circumstances, such as retirement.
|
The above awards were made under HSBC UK Sharesave, an all-employee share plan under which eligible employees may be granted options to acquire HSBC Holdings ordinary shares. The exercise price is set at a 20% discount to the share price
immediately prior to the start of the invitation period. Employees may make contributions of up to £500 each month over a period of three or five years. The market value per ordinary share at 31 December 2016 was £6.5690. Market value is the mid-
|
HSBC Holdings plc Annual Report and Accounts 2016
|
165
|
Directors' Remuneration Report
market price derived from the London Stock Exchange Daily Official List on the relevant date. Under the Securities and Futures Ordinance of Hong Kong, the options are categorised as unlisted physically settled equity derivatives.
Summary of shareholder return and Group Chief Executive remuneration
The following graph shows the total shareholder return ('TSR') performance against the FTSE 100 Total Return Index for the
eight-year period that ended on 31 December 2016. The FTSE 100 Total Return Index has been chosen as this is a recognised broad equity market index of which HSBC Holdings is a member. The single figure remuneration over the past eight years together with the outcomes of the respective annual incentive and long-term incentive awards are also presented below.
|
HSBC TSR and FTSE 100 Total Return Index
|
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
2015
|
|
2016
|
|
|
Group Chief
Executive
|
Michael
Geoghegan
|
|
Michael
Geoghegan |
|
Stuart Gulliver
|
|
Stuart Gulliver
|
|
Stuart Gulliver
|
|
Stuart Gulliver
|
|
Stuart Gulliver
|
|
Stuart Gulliver
|
|
|
Total single figure
£000
|
7,580
|
7,932
|
8,047
|
7,532
|
8,033
|
7,619
|
7,340
|
5,675
|
||||||||
|
Annual incentive1
(% of max.)
|
94
|
%
|
82
|
%
|
58
|
%
|
52
|
%
|
49
|
%
|
54
|
%
|
45
|
%
|
64
|
%
|
|
Long-term incentive2,3
(% of max.)
|
25
|
%
|
19
|
%
|
50
|
%
|
40
|
%
|
49
|
%
|
44
|
%
|
41
|
%
|
-
|
|
|
1
|
The 2012 annual incentive figure for Stuart Gulliver used for this table includes 60% of the annual incentive disclosed in the 2012 Directors' Remuneration Report which was deferred for five years and subject to service conditions and satisfactory completion of the DPA, as determined by the Committee. The DPA condition ends on the fifth anniversary of the award date unless the DPA is extended or otherwise continues beyond that date, in which case the awards will vest on the date on which the DPA expires and otherwise ceases to operate. This award will lapse if the Committee determines that the performance conditions are not satisfied.
|
|
2
|
Long-term incentive awards are included in the single figure for the year in which the performance period is deemed to be substantially completed. For GPSP awards this is the end of the financial year preceding the date of grant (GPSP awards shown in 2011 to 2015 therefore relate to awards granted in 2012 to 2016). For performance share awards that were awarded before introduction of GPSP, the value of awards that vested subject to satisfaction of performance conditions attached to those awards are included at the end of the third financial year following the date of grant (for example, performance share awards shown in 2010 relates to awards granted in 2008).
|
|
3
|
The GPSP was replaced by the LTI in 2016 and the value for GPSP is nil for 2016 as no GPSP award was made for 2016. The first LTI award will be made in March 2017, with a performance period ending in 2019. Vesting of the first LTI award will be included in the single figure table for the financial year ending on 31 December 2019. For year-on-year comparison purposes, if target performance is achieved over the three-year performance period, LTI payout for the 2016 award would be 50% of grant value. In this case, the single figure total remuneration of the executive Directors for year-on-year comparison would be (in £000) £7,670 for Stuart Gulliver.
|
|
166
|
HSBC Holdings plc Annual Report and Accounts 2016
|
Comparison of Group Chief Executive and all-employee pay
The following charts compare the changes in Group Chief Executive pay to changes in employee pay between 2015 and 2016, and provide a breakdown of total staff pay relative to the amount paid out in dividends.
|
Percentage change in remuneration between 2015 and 2016
|
||||
|
|
Group Chief Executive
|
|
Employee Group
|
|
|
Base salary 1
|
0
|
%
|
4
|
%
|
|
Benefits 2, 3
|
(12
|
)%
|
(11
|
)%
|
|
Annual incentive 4
|
58
|
%
|
(5
|
)%
|
|
1
|
Employee group consists of local full-time UK employees as representative of employees from different businesses and functions across the Group. Group Chief Executive's total fixed pay has not increased since 1 January 2014.
|
|
2
|
There has been no change in the benefits provided to the Group Chief Executive. The change in the value of the benefit is due to the change in the taxable value of the benefit as reported in the single figure table.
|
|
3
|
Employee group consists of UK employees eligible for taxable benefits which was deemed the most appropriate comparison for the Group Chief Executive given varying local requirements. There has been no change in the benefit coverage for employees from 2015 to 2016. The reduction in the average cost of benefits per employee is reflective of the decrease in the cost of providing such benefit on average.
|
|
4
|
Employee group consists of all employees globally, based on annual incentive pool as disclosed on page 29 and staff numbers (full-time equivalents at the financial year-end). The percentage change in annual incentive award of the Group Chief Executive is primarily driven by the difference in the 2015 and 2016 scorecard outcome, reflecting performance achieved in those years, and change in policy. Details of the 2016 total single figure of remuneration for the Group Chief Executive are on page 160.
|
|
Relative importance of spend on pay
|
|
ì
26%
|
î
9%
|
|
Return to shareholder
|
Employee compensation
and benefits
|
||||
|
|
|
Dividends
|
|
|
Share buy-back
|
The chart above shows the change in:
|
•
|
total staff pay between 2015 and 2016; and
|
|
•
|
dividends paid out in respect of 2015 and 2016.
|
We also executed a share buy-back worth approximately $2.5bn in the second half of 2016, and completed this early in the first quarter of 2017.
|
HSBC Holdings plc Annual Report and Accounts 2016
|
167
|
Directors' Remuneration Report
Non-executive Directors
The table below shows the total fees of non-executive Director for 2016, together with comparative figures for 2015.
|
Fees and benefits
|
||||||||||
|
(Audited)
|
|
Fees
|
Benefits9
|
Total
|
||||||
|
(£000)
|
Footnotes
|
2016
|
2015
|
|
2016
|
2015
|
|
2016
|
2015
|
|
|
Phillip Ameen
|
1
|
440
|
403
|
|
43
|
13
|
|
483
|
416
|
|
|
Kathleen Casey
|
|
155
|
155
|
|
24
|
29
|
|
179
|
184
|
|
|
Henri de Castries (Appointed 1 Mar 2016)
|
|
79
|
-
|
|
4
|
-
|
|
83
|
-
|
|
|
Laura Cha
|
2
|
247
|
238
|
|
23
|
14
|
|
270
|
252
|
|
|
Lord Evans of Weardale
|
|
190
|
190
|
|
5
|
9
|
|
195
|
199
|
|
|
Joachim Faber
|
3
|
152
|
151
|
|
12
|
14
|
|
164
|
165
|
|
|
Rona Fairhead (Retired on 22 Apr 2016)
|
4
|
78
|
510
|
|
9
|
14
|
|
87
|
524
|
|
|
Sam Laidlaw
|
|
185
|
174
|
|
13
|
13
|
|
198
|
187
|
|
|
Irene Lee
|
5
|
268
|
184
|
|
10
|
2
|
|
278
|
186
|
|
|
John Lipsky
|
|
180
|
180
|
|
21
|
49
|
|
201
|
229
|
|
|
Rachel Lomax
|
|
254
|
253
|
|
6
|
11
|
|
260
|
264
|
|
|
Heidi Miller
|
6
|
536
|
175
|
|
35
|
31
|
|
571
|
206
|
|
|
David Nish (Appointed 1 May 2016)
|
|
83
|
-
|
|
22
|
-
|
|
105
|
-
|
|
|
Sir Simon Robertson (Retired on 22 Apr 2016)
|
|
49
|
195
|
|
2
|
12
|
|
51
|
207
|
|
|
Jonathan Symonds
|
7
|
520
|
520
|
|
7
|
1
|
|
527
|
521
|
|
|
Jackson Tai (Appointed 12 Sep 2016)
|
|
48
|
-
|
|
4
|
-
|
|
52
|
-
|
|
|
Pauline van der Meer Mohr
|
8
|
172
|
32
|
|
10
|
5
|
|
182
|
37
|
|
|
Paul Walsh (Appointed 1 Jan 2016)
|
|
142
|
-
|
|
6
|
-
|
|
148
|
-
|
|
|
Total
|
|
3,778
|
3,360
|
|
256
|
217
|
|
4,034
|
3,577
|
|
|
Total ($000)
|
|
5,097
|
5,135
|
|
345
|
332
|
|
5,442
|
5,467
|
|
|
1
|
Includes fees of £315,000 in 2016 (£278,000 in 2015) as a Director, Chairman of the Audit Committee and member of the Risk Committee of HSBC North America Holdings Inc.
|
|
2
|
Includes fees of £72,000 for 2016 (£63,000 for 2015) as a Director, Deputy Chairman and member of the Nomination Committee of The Hongkong and Shanghai Banking Corporation Limited.
|
|
3
|
Includes £7,000 (inclusive of VAT) in respect of his membership of a verwaltungsrat (advisory body) to HSBC Trinkaus & Burkhardt AG. These fees were received in respect of 2015 also, although they were not included in the disclosure.
|
|
4
|
Includes fees of £31,000 for 2016 (£360,000 in 2015) as Chairman of HSBC North America Holdings Inc.
|
|
5
|
Includes fees of £173,000 in 2016 as Director and member of the Audit Committee and the Risk Committee of The Hongkong and Shanghai Banking Corporation Limited and as Director, member of the Audit Committee and Chairman of the Risk Committee of Hang Seng Bank Limited.
|
|
6
|
Includes a fee of £411,000 as Chairman of HSBC North America Holdings Inc. following appointment on 1 January 2016.
|
|
7
|
Includes a fee of £345,000 in 2016 (£345,000 in 2015) as non-executive Chairman of HSBC Bank plc.
|
|
8
|
Appointed as a Director on 1 September 2015 and as a member of the Conduct & Values Committee and Group Remuneration Committee on 1 January 2016 and the Nomination Committee on 22 April 2016.
|
|
9
|
Benefits include accommodation and travel-related expenses relating to attendance at Board and other meetings at HSBC Holdings' registered office. Amounts disclosed have been grossed up using a tax rate of 45%, where relevant.
|
Non-executive Directors' interests in shares
(Audited)
The shareholdings of persons who were non-executive Directors in 2016, including the shareholdings of their connected persons,
at 31 December 2016 are set out below. The table below shows the comparison of shareholdings to the company shareholding guidelines.
|
|
Shareholding guidelines
(number of shares)
|
Share interests
(number of shares)
|
|
Phillip Ameen
|
15,000
|
5,000
|
|
Kathleen Casey
|
15,000
|
8,620
|
|
Laura Cha
|
15,000
|
5,200
|
|
Henri de Castries
|
15,000
|
16,165
|
|
Lord Evans of Weardale
|
15,000
|
9,170
|
|
Joachim Faber
|
15,000
|
66,605
|
|
Sam Laidlaw
|
15,000
|
40,860
|
|
Irene Lee
|
15,000
|
10,000
|
|
John Lipsky
|
15,000
|
16,165
|
|
Rachel Lomax
|
15,000
|
18,900
|
|
Heidi Miller
|
15,000
|
3,975
|
|
David Nish
|
15,000
|
50,000
|
|
Jonathan Symonds
|
15,000
|
21,771
|
|
Jackson Tai
|
15,000
|
31,605
|
|
Pauline van der Meer Mohr
|
15,000
|
15,000
|
|
Paul Walsh
|
15,000
|
5,079
|
|
168
|
HSBC Holdings plc Annual Report and Accounts 2016
|
Voting results from 2016 Annual General Meeting
The table below summarises the voting results at our last AGM.
|
|
For
|
Against
|
Withheld
|
|
Remuneration Report
|
90.49%
|
9.51%
|
54,280,789
|
|
(8,327,033,672)
|
(875,494,490)
|
|
|
|
Remuneration Policy
|
96.05%
|
3.95%
|
35,165,873
|
|
(8,887,168,002)
|
(365,908,568)
|
|
|
Implementation of remuneration policy in 2017 for executive Directors
Implementation of fixed remuneration is disclosed on page 156 along with the remuneration policy summary. Further details on performance measures and weightings for the 2017 annual incentive award are provided below.
Annual incentive scorecards
The weightings and performance measures to apply to the 2017 annual incentive award for Stuart Gulliver, Iain Mackay and Marc Moses are disclosed below. These align to the Group's
strategic and financial objectives set out in our Investor Update in June 2015. The performance targets for the annual incentive are commercially sensitive and it would be detrimental to the Group's interests to disclose them at the start of the financial year. Subject to commercial sensitivity, we will disclose the targets after the end of a relevant financial year in that year's remuneration report.
2017 annual incentive scorecards
Executive Directors will be eligible for an annual incentive award of up to 213% of base salary.
|
|
Stuart Gulliver
|
Iain Mackay
|
Marc Moses
|
|
Measures
|
%
|
%
|
%
|
|
Profit before tax1
|
20
|
10
|
10
|
|
Capital management
|
-
|
25
|
-
|
|
Deliver cost savings
|
20
|
10
|
-
|
|
Reduce Group RWAs
|
10
|
10
|
15
|
|
Strategic growth
|
10
|
-
|
-
|
|
Global Standards including risk and compliance
|
25
|
25
|
50
|
|
Personal objectives
|
15
|
20
|
25
|
|
Total
|
100
|
100
|
100
|
|
1
|
Adjusted profit before tax as defined for Group annual bonus pool calculation.
|
Details of the Global Standards and personal objectives measures are provided below.
|
|
Stuart Gulliver
|
Iain Mackay
|
Marc Moses
|
|
Measures
|
|
|
|
|
Global Standards including risk and compliance
|
•
Achieve and sustain compliance with global financial crime compliance policies and procedures, and/or have approved dispensations in place.•
Implement the operational risk management framework.•
Implementation of global conduct programme and maturity level achieved against the required conduct outcomes.•
Effective risk management with AML, sanctions, anti-bribery and corruption policies and Global Standards. |
•
Effective management of material operational risks.•
Implementation of the operational risk management framework.•
Proactively review and challenge the first line of defence to assess the adequacy of risk management activities relating to accounting and tax.•
Implementation of global conduct programme and maturity level achieved against the required conduct outcomes.•
Successful delivery of regulatory and internal stress tests in 2017. |
•
Ensure the Global Risk function enables and supports Financial Crime Risk function to achieve and sustain compliance with global financial crime compliance policies and procedures.•
Effective management of material operational risks.•
Implementation of the operational risk management framework.•
Proactively review and challenge the first line of defence to assess the adequacy of risk management activities and fulfil risk steward responsibilities.•
Manage credit and market risk, and oversee liquidity risk within the Board approved risk appetite.•
Implementation of global conduct programme and maturity level achieved against the required conduct outcomes.•
Successful delivery of regulatory and internal stress tests in 2017. |
|
Personal objectives
|
•
Ensure climate change is reflected across the Group's activities.•
Optimise global network and reduce complexity.•
Set-up UK ring-fenced bank headquartered in Birmingham and move the business to be ready for a UK departure from the EU.•
Delivery of high-priority projects.•
Improve customer satisfaction and employee diversity.•
Complete succession and transition planning. |
•
Enhanced environmental, social and governance ('ESG') disclosures in collaboration with External Affairs function and global businesses.•
Deliver Global Finance transformation.•
Set-up UK ring-fenced bank headquartered in Birmingham and move the business to be ready for a UK departure from the EU.•
Improve employee diversity.•
Complete succession and transition planning. |
•
Develop processes to measure exposure to carbon-intensive and low-carbon-intensive activities.•
Define opportunities to develop risk management policies and procedures consistent with Group risk appetite to protect the Group from climate change risk, and enable business activities supporting a transition to a low-carbon economy.•
Pivot to Asia and support growth of customer lending.•
Deliver Global Risk transformation.•
Improve RWA effectiveness and efficiency.•
Improve employee diversity.•
Complete succession and transition planning. |
|
HSBC Holdings plc Annual Report and Accounts 2016
|
169
|
Directors' Remuneration Report
Long-term incentives
Details of the performance measures and targets for LTI
awards to be made in 2017, in respect of 2016, are provided
on page 164.
awards to be made in 2017, in respect of 2016, are provided
on page 164.
The performance measures and targets for awards to be made in respect of 2017, granted in 2018, will be provided in the Annual Reports and Accounts 2017.
Implementation of remuneration policy in 2017 for non-executive Directors
The Committee has reviewed the fee levels payable to the non-executive Directors and details can be found on page 155.
|
Additional remuneration disclosures
|
Employee compensation and benefits
Executive Directors
Set out below are details of compensation paid to executive Directors for the year ended 31 December 2016.
|
|
Douglas Flint
|
Stuart Gulliver
|
Iain Mackay
|
Marc Moses
|
||||||||||||
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
£000
|
|
£000
|
|
£000
|
|
£000
|
|
£000
|
|
£000
|
|
£000
|
|
£000
|
|
|
Basic salaries, allowances and benefits in kind
|
2,136
|
|
2,496
|
|
3,953
|
|
4,290
|
|
1,949
|
|
2,082
|
|
1,913
|
|
2,035
|
|
|
Pension contributions
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
Performance-related pay paid or receivable 1,2
|
-
|
|
-
|
|
1,695
|
|
3,041
|
|
987
|
|
2,169
|
|
1,005
|
|
1,928
|
|
|
Inducements to join paid or receivable
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
Compensation for loss of office
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
Notional return on deferred cash
|
-
|
|
-
|
|
27
|
|
9
|
|
17
|
|
5
|
|
18
|
|
5
|
|
|
Total
|
2,136
|
|
2,496
|
|
5,675
|
|
7,340
|
|
2,953
|
|
4,256
|
|
2,936
|
|
3,968
|
|
|
Total ($000)
|
2,882
|
|
3,815
|
|
7,656
|
|
11,218
|
|
3,984
|
|
6,505
|
|
3,961
|
|
6,065
|
|
|
1
|
For the 2016 performance year, Stuart Gulliver, Iain Mackay and Marc Moses will receive an LTI award with a face value of £3,990,000, £2,232,000 and £2,232,000, respectively, which is not included in the amount above. Vesting of the award is subject to the performance conditions detailed on page 164.
|
|
2
|
For the 2015 performance year, performance-related pay includes annual incentives and GPSP.
|
|
3
|
Deferred compensation accrued in 2016 for awards granted in prior years was £3,630,102 ($4,897,447) for Stuart Gulliver, £1,806,500 ($2,437,187) for Iain Mackay and £2,033,451 ($2,743,371) for Marc Moses. Deferred compensation accrued in 2015 for awards granted in prior years was £3,179,883 ($4,860,042) for Stuart Gulliver, £1,378,660 ($2,107,104) for Iain Mackay and £1,674,155 ($2,558,730) for Marc Moses.
|
The aggregate amount of Directors' emoluments as defined above (including both executive Directors and non-executive Directors) for the year ended 31 December 2016 was $23,925,335. As per our policy, benefits in kind may include, but are not limited to, the provision of medical insurance, income protection insurance, health assessment, life assurance, club membership, tax assistance, Hong Kong accommodation for Stuart Gulliver, car benefit, travel assistance, and relocation costs (including any tax due on the benefit, where applicable). Medical insurance benefit of £1,605 ($2,165) was provided to a past director, Alexander Flockhart, during the year ended 31 December 2016. Amounts are converted into US dollars based on the average year-to-date exchange rates for the respective year.
Emoluments of senior management and five highest paid employees
Set out below are details of emoluments paid to senior management (being here, executive Directors and Group Managing Directors of HSBC Holdings) for the year ended 31 December 2016 or for the period of appointment in 2016 as a Director or Group Managing Director. Details of remuneration paid to the five highest paid employees, including three executive Directors and two Group Managing Directors of HSBC Holdings, for the year ended 31 December 2016 are also presented below.
|
Emoluments
|
|
|||
|
|
Five highest paid employees
|
|
Senior management
|
|
|
|
£000
|
|
£000
|
|
|
Basic salaries, allowances and benefits in kind
|
15,474
|
|
34,101
|
|
|
Pension contributions
|
82
|
|
251
|
|
|
Performance-related pay paid or receivable1
|
17,916
|
|
32,818
|
|
|
Inducements to join paid or receivable
|
-
|
|
-
|
|
|
Compensation for loss of office
|
-
|
|
2,669
|
|
|
Total
|
33,472
|
|
69,839
|
|
|
Total ($000)
|
45,158
|
|
94,222
|
|
|
1
|
Includes the face value of LTI awards at grant.
|
|
170
|
HSBC Holdings plc Annual Report and Accounts 2016
|
The emoluments of senior management were within the following bands:
|
Hong Kong dollars
|
US dollars
|
Number of
highest paid employees
|
|
Number of
senior management
|
|
|
HK$5,500,001 - 6,000,000
|
$708,536 - 772,948
|
-
|
|
1
|
|
|
HK$10,000,001 - 10,500,000
|
$1,288,246 - 1,352,658
|
-
|
|
1
|
|
|
HK$16,500,001 - 17,000,000
|
$2,125,606 - 2,190,018
|
-
|
|
1
|
|
|
HK$22,000,001 - 22,500,000
|
$2,834,142 - 2,898,554
|
-
|
|
1
|
|
|
HK$23,500,001 - 24,000,000
|
$3,027,379 - 3,091,791
|
-
|
|
1
|
|
|
HK$29,500,001 - 30,000,000
|
$3,800,326 - 3,864,738
|
-
|
|
1
|
|
|
HK$30,500,001 - 31,000,000
|
$3,929,151 - 3,993,563
|
-
|
|
1
|
|
|
HK$34,500,001 - 35,000,000
|
$4,444,449 - 4,508,862
|
-
|
|
1
|
|
|
HK$39,500,001 - 40,000,000
|
$5,088,572 - 5,152,985
|
-
|
|
1
|
|
|
HK$44,500,001 - 45,000,000
|
$5,732,695 - 5,797,108
|
-
|
|
1
|
|
|
HK$46,000,001 - 46,500,000
|
$5,925,932 - 5,990,345
|
-
|
|
1
|
|
|
HK$47,500,001 - 48,000,000
|
$6,119,169 - 6,183,581
|
-
|
|
1
|
|
|
HK$53,500,001 - 54,000,000
|
$6,892,117 - 6,956,529
|
1
|
|
1
|
|
|
HK$54,000,001 - 54,500,000
|
$6,956,529 - 7,020,941
|
1
|
|
1
|
|
|
HK$61,000,001 - 61,500,000
|
$7,858,302 - 7,922,714
|
1
|
|
1
|
|
|
HK$80,000,001 - 80,500,000
|
$10,305,969 - 10,370,381
|
1
|
|
1
|
|
|
HK$100,500,001 - 101,000,000
|
$12,946,874 - 13,011,286
|
1
|
|
1
|
|
Pillar 3 remuneration disclosures
The following tables show the remuneration awards made by HSBC to its MRTs for 2016. Individuals have been identified as
MRTs based on the qualitative and quantitative criteria set out in the Regulatory Technical Standard EU 604/2014 and additional criteria determined by the Committee.
|
Aggregate remuneration expenditure
|
||||||
|
|
Global business aligned
|
|
|
|||
|
|
Retail Banking and Wealth Management
|
Commercial Banking
|
Global Banking and Markets
|
Global Private Banking
|
Corporate Centre
|
Total
|
|
|
$m
|
$m
|
$m
|
$m
|
$m
|
$m
|
|
2016
|
94.2
|
67.4
|
756.9
|
66.8
|
391.1
|
1,376.4
|
Includes salary and incentives awarded in respect of the performance year 2016 (including deferred component) and any pension or benefits outside of policy.
|
Remuneration - fixed and variable amounts - Group-wide
|
|||
|
|
Senior management1
|
MRTs (non-senior management)
|
Total
|
|
Number of MRTs
|
114
|
1,203
|
1,317
|
|
|
$m
|
$m
|
$m
|
|
Fixed
|
|
|
|
|
Cash-based
|
116.8
|
619.8
|
736.6
|
|
Shares-based
|
13.6
|
7.9
|
21.5
|
|
Total fixed
|
130.4
|
627.7
|
758.1
|
|
Variable2
|
|
|
|
|
Cash
|
20.9
|
138.2
|
159.1
|
|
Non-deferred shares3
|
25.9
|
127.7
|
153.6
|
|
Deferred cash
|
29.1
|
116.3
|
145.4
|
|
Deferred shares
|
40.5
|
119.7
|
160.2
|
|
Total variable pay4
|
116.4
|
501.9
|
618.3
|
|
1
|
Definition of senior management for Pillar 3 disclosure includes our members of the Group Management Board, Group General Managers and non-executive Directors.
|
|
2
|
Variable pay awarded in respect of 2016.
|
|
3
|
Vested shares, subject to a six-month retention period.
|
|
4
|
In accordance with shareholder approval received on 23 May 2014, for each MRT the variable component of remuneration for any one year is limited to 200% of fixed component of the total remuneration of the MRT.
|
|
HSBC Holdings plc Annual Report and Accounts 2016
|
171
|
Directors' Remuneration Report
|
Remuneration - fixed and variable amounts - UK based
|
|||
|
|
Senior management1
|
MRTs (non-senior management)
|
Total
|
|
Number of MRTs
|
76
|
522
|
598
|
|
|
$m
|
$m
|
$m
|
|
Total fixed
|
80.4
|
255.8
|
336.2
|
|
Variable2
|
|
|
|
|
Cash
|
11.6
|
57.3
|
68.9
|
|
Non-deferred shares3
|
16.6
|
51.4
|
68.0
|
|
Deferred cash
|
16.3
|
47.7
|
64.0
|
|
Deferred shares
|
27.7
|
48.4
|
76.1
|
|
Total variable pay4
|
72.2
|
204.8
|
277.0
|
|
1
|
Definition of senior management for Pillar 3 disclosure includes our members of the Group Management Board, Group General Managers and non-executive Directors.
|
|
2
|
Variable pay awarded in respect of 2016.
|
|
3
|
Vested shares, subject to a six-month retention period.
|
|
4
|
In accordance with shareholder approval received on 23 May 2014, for each MRT the variable component of remuneration for any one year is limited to 200% of fixed component of the total remuneration of the MRT.
|
|
Deferred remuneration1
|
||||||
|
|
Senior management
|
|
MRTs (non-senior management)
|
|
Total
|
|
|
|
$m
|
|
$m
|
|
$m
|
|
|
Deferred remuneration at 31 Dec
|
|
|
|
|||
|
Outstanding, unvested
|
280.3
|
|
657.1
|
|
937.4
|
|
|
Awarded during the year
|
86.2
|
|
331.1
|
|
417.3
|
|
|
Paid out2
|
53.2
|
|
216.8
|
|
270.0
|
|
|
Reduced through malus
|
-
|
|
-
|
|
-
|
|
|
1
|
This table provides details of actions taken during performance year 2016. For details of variable pay awards granted for 2016, please refer to both the 'remuneration'
tables above. |
|
2
|
Vested shares are valued using the closing share price on the business day immediately preceding the vesting day.
|
|
Sign-on and severance payments
|
||||
|
|
Senior management
|
|
MRTs (non-senior management)
|
Total
|
|
Sign-on payments1
|
|
|
|
|
|
Made during year ($m)
|
1.6
|
|
11.7
|
13.3
|
|
Number of beneficiaries
|
1
|
|
18
|
19
|
|
Severance payments2
|
|
|
|
|
|
Awarded and made during year ($m)
|
3.2
|
|
4.0
|
7.2
|
|
Number of beneficiaries
|
1
|
|
7
|
8
|
|
Highest such award to a single person ($m)
|
3.2
|
|
1.8
|
5.0
|
|
1
|
Guaranteed variable pay awards granted to new hires and limited to their first year of service.
|
|
2
|
Represents non-standard termination payments made in excess of any local policies, standards or statutory amounts.
|
|
Material risk takers' remuneration by band1
|
||||||
|
|
Senior management
|
|
MRTs (non-senior management)
|
|
Total
|
|
|
€0 - 1,000,000
|
37
|
|
917
|
|
954
|
|
|
€1,000,000 - 1,500,000
|
20
|
|
180
|
|
200
|
|
|
€1,500,000 - 2,000,000
|
13
|
|
53
|
|
66
|
|
|
€2,000,000 - 2,500,000
|
12
|
|
29
|
|
41
|
|
|
€2,500,000 - 3,000,000
|
10
|
|
13
|
|
23
|
|
|
€3,000,000 - 3,500,000
|
6
|
|
3
|
|
9
|
|
|
€3,500,000 - 4,000,000
|
3
|
|
2
|
|
5
|
|
|
€4,000,000 - 4,500,000
|
3
|
|
5
|
|
8
|
|
|
€4,500,000 - 5,000,000
|
1
|
|
-
|
|
1
|
|
|
€5,000,000 - 6,000,000
|
5
|
|
1
|
|
6
|
|
|
€6,000,000 - 7,000,000
|
2
|
|
-
|
|
2
|
|
|
€7,000,000 - 8,000,000
|
-
|
|
-
|
|
-
|
|
|
€8,000,000 - 9,000,000
|
1
|
|
-
|
|
1
|
|
|
€9,000,000 - 10,000,000
|
-
|
|
-
|
|
-
|
|
|
€10,000,000 - 11,000,000
|
1
|
|
-
|
|
1
|
|
|
1
|
Table prepared in euros in accordance with Article 450 of the European Union Capital Requirements Regulation, using the rates published by the European Commission for financial programming and budget for December of the reported year as published on its website.
|
|
172
|
HSBC Holdings plc Annual Report and Accounts 2016
|
Directors' Responsibility Statement
|
Directors' Responsibility Statement
|
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the parent company ('Company') and Group financial statements in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union. In preparing these financial statements, the Directors have also elected to comply with IFRSs, issued by the International Accounting Standards Board ('IASB'). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and Group and of the profit or loss of the Company and Group for that period. In preparing these financial statements, the Directors are required to:
|
•
|
select suitable accounting policies and then apply them consistently;
|
|
•
|
make judgements and estimates that are reasonable and prudent;
|
|
•
|
state whether applicable IFRSs as adopted by the European Union and IFRSs issued by IASB have been followed, subject to any material departures disclosed and explained in the financial statements; and
|
|
•
|
prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company and Group will continue in business.
|
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the Annual Report and Accounts 2016 as they appear on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The Directors consider that the Annual Report and Accounts 2016, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position, performance, business model and strategy.
Each of the Directors, whose names and functions are listed in the 'Report of the Directors: Corporate Governance' section on pages 133 to 137 of the Annual Report and Accounts 2016, confirm that, to the best of their knowledge:
|
•
|
the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group; and
|
|
•
|
the management report represented by the Report of the Directors includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.
|
In accordance with Section 418 of the Companies Act 2006, the Directors' report includes a statement, in the case of each Director in office as at the date the Report of the Directors is approved, that:
|
•
|
so far as the Director is aware, there is no relevant audit information of which the Company's auditors are unaware; and
|
|
•
|
they have taken all the steps they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Company's auditors are aware of that information.
|
On behalf of the Board
Douglas Flint
Group Chairman
21 February 2017
|
HSBC Holdings plc Annual Report and Accounts 2016
|
173
|
Report of the independent auditors to the members of HSBC Holdings plc
|
Report of the independent auditors to the members of HSBC Holdings plc
|
Our opinion on the financial statements
In our opinion HSBC Holdings plc's ('HSBC') Group financial statements and parent company financial statements:
|
•
|
give a true and fair view of the state of the Group's and parent company's affairs at 31 December 2016 and of the Group's and parent company's profit and cash flows for the year then ended;
|
|
•
|
have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union ('IFRS'); and
|
|
•
|
have been prepared in accordance with the requirements of the Companies Act 2006, and as regards the Group financial statements, Article 4 of the IAS Regulation.
|
Performing the audit
On behalf of PricewaterhouseCoopers LLP ('PwC'), it is my responsibility to form these opinions. This was the second year that you have appointed PwC as HSBC's auditors, and I have therefore provided information on how PwC approached the audit, how it changed from the previous year and details of the significant discussions on key audit matters that I, and my senior colleagues, had with the Group Audit Committee ('GAC').
How the audit approach was structured
The audit approach was structured to reflect how HSBC is organised. It incorporated 4 important aspects.
(1) Risk assessment and audit planning at a Group level, having regard to HSBC's global businesses and its key legal entities:
In 2015 I appointed partners to lead the audits for each global business. These partners continued in their roles and met regularly with the relevant HSBC management to understand strategy and matters which arose throughout the year that could have impacted financial reporting. The partners are specialists in the nature of the relevant businesses and were best placed to design the appropriate audit approach for that part of HSBC. They oversaw each PwC member firm involved in the audit of that global business and assisted me in my review of their work.
(2) Audit work performed at global shared service centres:
A significant amount of HSBC's operational processes which are critical to financial reporting are undertaken in global shared service centres across 10 individual sites in 6 countries. Additionally, many financial reporting processes required to produce the financial statements are performed in HSBC's Global Finance Centre based in Gurugram and Hyderabad, India. Working closely with me, a partner coordinated the audit work performed by PwC member firms in each of the global shared service locations. This work established an end-to-end picture of the key processes that supported material balances, classes of transactions and disclosures within the HSBC financial statements. We then evaluated the effectiveness of the controls over these processes and considered the implications for the remainder of our audit work.
(3) Audit work executed on individual legal entities:
We received opinions from PwC member firms which have been appointed as the external auditors of The Hongkong and Shanghai Banking Corporation Limited, HSBC Bank plc, HSBC North America Holdings Inc, HSBC Mexico S.A., HSBC Bank Argentina S.A., HSBC Bank Middle East Limited, HSBC Bank Canada and HSBC Private Banking Holdings (Suisse) S.A.
I was in active dialogue throughout the year with the partners responsible for these audits; this included consideration of how well they planned and performed their work. My senior colleagues and I visited these subsidiaries, and attended Audit Committees meetings for most of them. We also visited businesses in a further 5 countries. I also attended meetings with management in each of these key subsidiaries at the year-end.
The audits of these key subsidiaries relied upon work performed by PwC member firms in Bahrain, China, France, Germany, India, Qatar and Turkey. I considered how my subsidiary audit teams instructed and reviewed the work undertaken in these locations in order to ensure the quality and adequacy of their work. Collectively, the PwC member firms completed procedures covering 85% of assets, 85% of total operating income and 92% of profit before tax.
(4) Audit procedures undertaken at a Group level and on the parent company:
I ensured that appropriate further work was undertaken for the HSBC parent company. This work included auditing, for example, the consolidation of the Group's results, the preparation of the financial statements, certain disclosures within the Directors' Remuneration Report, litigation provisions and exposures, and management's entity level and oversight controls relevant to financial reporting. A consideration was also made of all changes to, and pending changes to, financial reporting standards and requirements. As an example, we considered the parent company's decision to adopt the provisions of IFRS 9 'Financial Instruments' relating to the fair value of its own debt, and work continues to be performed as part of wider preparations for the full implementation of the standard.
In aggregate, these four areas provided me with the evidence required to form an opinion on the consolidated financial statements of HSBC.
|
|
|
1
|
HSBC Holdings plc's financial statements comprise the consolidated and parent company balance sheets as at 31 December 2016, the consolidated and parent company income statements and the consolidated statement of comprehensive income for the year then ended, the consolidated and parent company statement of cash flows for the year then ended, the consolidated and parent company statements of changes in equity for the year then ended, and the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information. Certain required disclosures have been presented elsewhere in the Annual Report and Accounts 2016, rather than in the notes to the financial statements. These are cross-referenced from the financial statements and are identified as audited.
|
|
174
|
HSBC Holdings plc Annual Report and Accounts 2016
|
Changes to the approach in 2016
In March, I chaired a two-day meeting in London of the partners and staff from PwC member firms who undertake audits of the most significant HSBC subsidiaries. This meeting provided an opportunity for those partners and staff to hear directly from HSBC management and the Chair of the GAC. We considered during this meeting how our view of significant audit risks had changed. In doing so, we used our experience in 2015 and considered how the strategic actions and their related targets may influence areas of significant judgement.
The amount of work required to perform the audit was lower because of the audit knowledge that we had acquired during the previous 18 months, and many of the transition processes were not repeated.
More detailed changes in the approach arose because of 4 areas:
(1) Changes in the structure and strategy of the HSBC Group
The presentation of the financial statements has been amended to reflect the new operating segments adopted by HSBC. Audit work has been completed to ensure that this change is both appropriate, and that previously reported information has been represented correctly.
During the year, HSBC Bank Brazil was sold. As a consequence the audit work undertaken on this business was limited to detailed procedures on the loss on disposal and an assessment of whether it is appropriately classified in the Group's income statement.
In assessing the subsidiaries which were significant in 2016, I concluded that HSBC Insurance (Bermuda) Limited was no longer material, and therefore the scope of the audit was changed.
(2) Changes to HSBC processes and controls
As part of the efforts to streamline controls and reduce costs, more activities continued to be migrated to the global shared service centres. This resulted in work moving between PwC member firms. In July, a workshop was held in Paris for significant subsidiaries and service centre teams so that they could understand the impact of these changes. The other objective was to further standardise controls tested and understand the end to end process for significant classes of transaction.
(3) Assessment of controls
I reported to the GAC detailed observations on controls over financial reporting in relation to our work in 2015. The audit was designed to consider the work that HSBC management undertook to address these observations. For example, in my 2015 report to you I referenced the improvements management was making to controls around privileged access to systems. During 2016, my team performed extensive work on management's actions in this area.
(4) Changes in the macro environment
I considered other macro factors to determine if changes in the approach were required, for example the impact of the United Kingdom's decision to leave the European Union, the devaluation of the Mexican Peso and changes in the credit environment. I reported to the GAC in December that I did not believe that these changed my original risk assessment.
The purpose and scope of the audit
An audit has an important role in providing confidence in the financial statements that are provided by companies to their members. The audit opinion does not provide assurance over any particular number or disclosure, but over the financial statements taken as a whole. It is the Directors' responsibility to prepare the financial statements and to be satisfied that they give a true and fair view. These responsibilities have been recognised on behalf of the Board of Directors on page 173.
The scope of an audit is sometimes not fully understood. I believe that it is important that you understand the scope in order to understand the assurance that my opinion provides. My responsibility is to undertake my work and express my opinion in accordance with applicable law and the International Standards on Auditing (UK and Ireland) as issued by the Financial Reporting Council of the United Kingdom. These standards also require me to comply with the Auditing Practices Board's Ethical Standards for Auditors. A description of the scope of an audit is provided on the Financial Reporting Council's website at www.frc.org.uk/auditscopeukprivate; I recommend that you read this description carefully. It is also important that you understand the inherent limitations of the audit which are disclosed in this description, for example the possibility that an approach based upon sampling and other audit techniques may not identify all issues.
In order for me to perform my work, I had regard to the concept of materiality. I determined materiality as follows:
|
Overall Group materiality
|
$950m.
|
|
How I determined it
|
5% of adjusted profit before tax excluding the debit valuation adjustment and non-qualifying hedges.
|
|
Why I believe this is appropriate
|
Given the geographically dispersed nature of HSBC and the diversity of its banking activities, I believe a standard benchmark of 5% of adjusted profit before tax is an appropriate quantitative indicator of materiality, although of course an item could also be material for qualitative reasons.
I selected adjusted profit before tax, because as discussed on page 48, management believes it best reflects the performance of HSBC. I excluded the debit valuation adjustment and non-qualifying hedges as they are recurring items that in my view form part of ongoing business performance. |
When planning the audit, I considered if multiple errors might exist which, when aggregated, could exceed $950m. In order to reduce the risk of multiple errors that could aggregate to this amount, I used a lower level of materiality, known as performance materiality, of $710m to identify the individual balances, classes of transactions and disclosures that were subject to audit. I asked each of the partners reporting to me on the subsidiaries of HSBC to work to assigned materiality levels reflecting the size of the operations they audited. These ranged from $67m (HSBC Mexico S.A.) to $760m (The Hongkong and Shanghai Banking Corporation Limited).
|
HSBC Holdings plc Annual Report and Accounts 2016
|
175
|
Report of the independent auditors to the members of HSBC Holdings plc
Where the audit identified some items that were not reflected appropriately in the audited financial information, I considered these items carefully to assess if they were individually or in aggregate material. I reported any such items which exceeded $50m to the GAC. The Directors have concluded that all items which remained unadjusted were not material to the financial statements, either individually or in aggregate. I agree with their conclusion.
Matters discussed with the GAC
I attended each of the 8 GAC meetings held during the year. Part of each meeting involved a discussion with me without management present. I also met with members of the Committee on an ad hoc basis. During these various conversations we discussed my observations on a variety of accounting matters and observations on controls over financial reporting.
During the April meeting, the audit plan was presented to the Committee. The plan included the matters which I considered presented the highest risk to the audit and other information, such as our approach to the audit of journals, interest income and financial instrument valuation, and where the latest technology would be used to obtain better quality audit evidence. Throughout the year, this plan was refreshed and revised to account for changes in the external and internal environment at HSBC. As a result of operational issues in the US we changed our view of the risks associated with the accounting for pensions. This change led to a change in our audit approach which was discussed with the GAC.
In December, the GAC held a meeting with a particular focus on control matters. We also discussed their impact on our audit approach, for example we explored how our audit approach would be amended to focus more on the controls used by management over key spreadsheets and system-generated information used in financial reporting.
The areas of highest audit risk, where I focused most effort and resource, were:
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•
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IT access management;
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•
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impairment of loans and advances;
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|
•
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goodwill;
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•
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investment in Bank of Communications Co., Ltd (BoCom);
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•
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application of hedge accounting;
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•
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litigation and regulatory enforcement actions;
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|
•
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impact of the deferred prosecution agreement (DPA); and
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•
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pension liabilities.
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To help you understand their impact on the audit, I have listed them in order of decreasing audit effort. Some of them are common to other international banks, and some are specific to HSBC. I have included at the end of this report an explanation of each item, why it was considered an area of audit focus and how the audit approach was tailored to address the risk of misstatement.
Going concern
The Directors have made a statement on page 146 regarding going concern. This statement is based on their belief that the Group and parent company intend to, and have sufficient resources to, remain in business for 12 months from the date of this report. I am required to review this statement, and in doing so I have considered HSBC's budgets, cash flows, capital plan and stress tests. I have nothing to report as a result of my review. I also have nothing material to add or draw attention to in relation to the statement.
Other reporting
The Annual Report and Accounts 2016 also contains a considerable amount of other information that is required by various regulators or standard setters. In respect of this information, my responsibilities and my reporting are set out in the table below.
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176
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HSBC Holdings plc Annual Report and Accounts 2016
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Area of the Annual Report and Accounts 2016
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My responsibility
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My reporting
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Directors' Remuneration Report on pages 153 to 172
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Those parts of which are clearly marked as audited.
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Consider whether the information is properly prepared.
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In my opinion, this information has been properly prepared in accordance with the Companies Act 2006.
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Other remuneration report disclosures.
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Consider whether certain other disclosures specified by the Companies Act have been made.
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The other required disclosures have been made.
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Other areas
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Strategic Report and the Directors' Report (as defined on page 30).
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Consider whether they are consistent with the audited financial statements.
Consider whether they are prepared in accordance with applicable legal requirements.
Report if I have identified any material misstatements in either report. This is based on my knowledge and understanding of the Group and parent company that was obtained during the audit, and the environment they operate in.
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In my opinion, the information in these reports is consistent with the audited financial statements and prepared in accordance with applicable legal requirements.
I have no material misstatements to report.
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Viability statement on page 146 which considers the longer term sustainability of the Group's business model.
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Review the statement in the light of the knowledge gathered during the audit.
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I have nothing material to draw attention to or to add to the statement.
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Directors' confirmation of their robust assessment of principal risks, and disclosures describing those risks and how they are managed or mitigated on page 146.
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Review the confirmation and description in the light of the knowledge gathered during the audit.
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I have nothing material to draw attention to or to add to the confirmation or description.
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GAC Report on page 141.
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Consider whether it deals appropriately with those matters that I reported to the GAC.
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No exceptions to report.
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Directors' statement (on page 173) that they consider the HSBC Annual Report and Accounts 2016, taken as a whole, to be fair, balanced and understandable and provides the information necessary for you to assess HSBC's position and performance, business model and strategy.
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Consider whether any information found during the course of the audit would cause me to disagree.
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No disagreements to report.
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Corporate governance report (on pages 132 to 173).
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Review the remaining 10 provisions of the UK Corporate Governance Code specified for our review by the UK Listing Rules.
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Nothing to report following our review.
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All other information in the Annual Report and Accounts 2016 aside from the audited financial statements.
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Consider whether it is materially inconsistent or materially incorrect based on the knowledge gained in my audit, or otherwise misleading.
Consider whether it is materially inconsistent with the audited financial statements.
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No exceptions to report.
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In addition, I am required to report to you if:
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•
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I have not received all of the information and explanations required for my audit;
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•
|
adequate accounting records have not been kept by the parent company;
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•
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returns adequate for my audit have not been received from branches not visited by PwC; and
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•
|
the parent company financial statements and the audited part of the Directors' Remuneration Report do not agree with the accounting records and returns.
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I have no exceptions to report as a result of any of these responsibilities.
Use of this report
This report, including the opinions, has been prepared for and only for you, the parent company's members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006, and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come except where expressly agreed by our prior written consent.
Richard Oldfield
(Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London, United Kingdom
21 February 2017
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HSBC Holdings plc Annual Report and Accounts 2016
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177
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Report of the independent auditors to the members of HSBC Holdings plc
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Appendix: Key audit matters discussed with the Group Audit Committee ('GAC')
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IT Access Management
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Nature of area of focus
|
Matters discussed with the GAC
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|
All banks are highly dependent on technology due to the significant number of transactions that are processed daily. The audit approach relies extensively on automated controls and therefore procedures are designed to test access and control over IT systems.
As reported in the prior year, controls over individuals' access rights to operating systems, applications and data used in the financial reporting process required improvement. Access rights are important as they ensure that changes to applications and data are authorised and made in an appropriate manner. Ensuring staff only have appropriate access, and that the access is monitored, are key controls to mitigate the potential for fraud or error as a result of a change to an application or underlying data.
A number of enhancements to the control environment have been made by management since our last report but some controls were not fully remediated by the year end and we continued to assess the risk of a material misstatement arising from access to technology as significant for the audit.
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The original approach discussed with the GAC was based on the control enhancements proposed by management, and involved the testing of new and improved control processes. This was supplemented with other control and substantive procedures required for the periods of the year when the changes would not yet have been effective. As the timing of the enhancements to controls changed during the year, we reflected this in the nature and extent of testing, and our final approach was discussed with the GAC in October.
At each GAC meeting, there was a discussion on the status of the control remediation programme, work performed by management and results of testing performed.
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Procedures performed to support our discussions and conclusions
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|
|
Access rights were tested over the various aspects of technology relied upon for financial reporting. Specifically, the audit tested that:
•
new access requests for joiners were properly reviewed and authorised;•
application user access rights were removed on a timely basis when an individual left or moved role;•
access rights to applications were periodically monitored for appropriateness; and•
highly privileged access was restricted to appropriate personnel.Other areas that were independently assessed included password policies, security configurations, controls over changes to applications and databases and that business users, developers and production support did not have access to change applications, the operating system or databases in the production environment.
As a consequence of the deficiencies identified a range of other procedures were performed:
•
where inappropriate access was identified, we understood the nature of the access, and, where possible, obtained additional evidence on the appropriateness of the activities performed;•
additional substantive testing was performed on specific year-end reconciliations (i.e. custodian, bank account and suspense account reconciliations) and confirmations with external counterparties;•
testing was performed on other compensating controls such as business performance reviews; and•
a list of users with access to systems was obtained and manually compared to other access lists where segregation of duties was deemed to be of higher risk, for example users having access to both core banking and payments systems. |
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|
Relevant references in the Annual Report and Accounts 2016
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|
|
GAC Report, page 141.
Effectiveness of internal controls, page 145. |
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|
Impairment of loans and advances
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|
Nature of the area of focus
|
Matters discussed with the GAC
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|
Impairment allowances represent management's best estimate of the losses incurred within the loan portfolios at the balance sheet date. They are calculated on a collective basis for portfolios of loans of a similar nature and on an individual basis for significant loans. The calculation of both collective and individual impairment allowances is inherently judgemental for any bank.
Collective impairment allowances are calculated using models which approximate the impact of current economic and credit conditions on large portfolios of loans. The inputs to these models are based on historical loss experience with judgement applied to determine the assumptions used to calculate impairment. Model overlays are applied where data driven parameters or calculations are not considered representative of current risks or conditions of the loan portfolios.
For specific impairments, judgement is required to determine when an impairment event has occurred and then to estimate the expected future cash flows related to that loan.
The audit was focused on impairment due to the materiality of the loan balances and associated impairment allowances and the subjective nature of the impairment calculation.
The largest loan portfolios are in Europe and Asia with the more significant impairment allowances being in Europe, North America and Latin America.
|
At each GAC and Group Risk Committee meeting there was a discussion on changes to risk factors and other inputs within the collective allowance models as well as discussions on individually significant loan impairments.
We discussed a number of specific risks that changed or emerged during the course of the year, including the impact of the UK's decision to leave the European Union; the economic slowdown in China; volatility in the oil price which impacted individual credits; and the increased macroeconomic uncertainty in North America. In all of these cases we discussed the performance of the existing credit exposures, and the potential need for changes to modelling approaches.
We also discussed any significant changes made to the inputs or models impacting the collective impairment allowance as well as changes in the control environment. These included key assumptions over the retail impairment models and improvements in the way higher risk loans were identified and escalated within the organisation.
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178
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HSBC Holdings plc Annual Report and Accounts 2016
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Impairment of loans and advances
|
|
|
Procedures performed to support our discussions and conclusions
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|
|
The controls management has established to support their collective and specific impairment calculations were tested.
•
For collective impairment, this included controls over the appropriateness of models used to calculate the charge, the process of determining key assumptions and the identification of loans to be included within the calculation.•
For specific impairment charges on individual loans, this included controls over the monitoring of the credit watch list, credit file review processes, approval of external collateral valuation vendors and review controls over the approval of significant individual impairments.•
For collective allowances, the appropriateness of the modelling policy and methodology used for material portfolios was independently assessed by reference to the accounting standards and market practices. Model calculations were tested through reperformance and code review. Specifically with respect to the collective impairment models for the retail portfolios, we reviewed the enhancements made to the models and methodology to ensure they were appropriate.•
The appropriateness of management's judgements was also independently considered in respect of calculation methodologies, segmentation, economic factors and judgemental overlays, the period of historical loss rates used, loss emergence periods, cure rates for impaired loans, and the valuation of recovery assets and collateral.•
For specific allowances, the appropriateness of provisioning methodologies and policies was independently assessed for a sample of loans across the portfolio selected on the basis of risk. An independent view was formed on the levels of provisions booked based on the detailed loan and counterparty information in the credit file. Calculations within a sample of discounted cash flow models were reperformed. |
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|
Relevant references in the Annual Report and Accounts 2016
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|
|
Impaired loans, page 90.
GAC Report, page 141. Note 1 (d): Financial instruments measured at amortised cost, page 198. |
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|
Goodwill
|
|
|
Nature of the area of focus
|
Matters discussed with the GAC
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|
The Group had goodwill of $15.5bn from a number of historical acquisitions across cash-generating units (CGUs).
An assessment is required annually to establish whether a CGU's goodwill should continue to be recognised, or if any impairment exists. At each reporting period, management is also required to identify any potential indicators, and to perform an impairment assessment if any are identified.
The impairment assessment calculation used for the tests were based on estimated future cash flows for each CGU discounted at an appropriate cost of equity rate. HSBC used its Annual Operating Plan as the basis for the first five years of cash flows and then extrapolated returns into perpetuity using a terminal growth factor. Cost of equity rates were based on the investment rates used within the global business and approved by the Board.
The estimation of future cash flows and the level to which they are discounted is inherently uncertain and requires significant judgement. The extent of judgement and the size of the goodwill, resulted in this matter being identified as an area of focus.
|
We discussed the conclusions of goodwill assessments with the GAC when they considered the annual test and at each reporting period when they considered whether indicators of impairment existed.
At 30 June, indicators of impairment were identified in GPB - Europe and GB&M - Europe, which prompted a full impairment test for these two CGUs. This led to an impairment of $800m of goodwill in GPB - Europe. The annual assessment was performed in the third quarter based on 1 July data. This assessment concluded no further impairment of goodwill was required. The discussions with the GAC focused on the key assumptions, both individually and when combined together. During these discussions, management confirmed their view that the forecasts for each CGU remained appropriate. Subsequently, we discussed with the GAC the impact of changing segments on the CGUs, particularly the decision to change the CGU associated with GB&M, as disclosed on page 240. The discussion also covered the decision not to change the other CGUs. At 31 December, management identified further indicators of impairment in the GPB - Europe CGU. A retest was performed and it was concluded that all remaining goodwill for the CGU should be written off. In reaching this conclusion, a view was taken on the future performance of the business, and the risk associated with these forecasts. We discussed the approach and adjustments with the GAC. |
|
Procedures performed to support our discussions and conclusions
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|
|
•
Goodwill was assessed immediately before and after the new reporting segments were established. Both bases of the assessment were considered in the audit.•
PwC's independent valuation experts critically assessed the discount rate and terminal growth rates used in the discounted cash flow models. The focus was on the methodology used to estimate discount rates of a CGU; and whether the use of the nominal GDP growth rates was the most appropriate in estimating the terminal growth rates into perpetuity for each CGU.•
The calculations used in the model were reperformed to check accuracy and the key inputs in the model were agreed to underlying sources.•
Management's future cash flow forecasts used in the model were assessed by:- testing that the forecasts agreed to the latest Annual Operating Plan approved by management;
- considering current year performance against plan and the reasons for any deviation, and key drivers or strategies underlying the plan. These were discussed with management of the Global Businesses for each sensitive CGU;
- reviewing the historical achievement of the Annual Operating Plan. Given the uncertainties in forecasting, this identified that forecasts have been less accurate for prior periods, and we considered if this was appropriately factored into the valuation model;
- independent sensitivity analysis was performed to identify any further CGUs with a risk of impairment. The reasonableness of management's threshold of sensitive CGUs was assessed; and
- the appropriateness of disclosures made in relation to goodwill was also considered.
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|
|
Relevant references in the Annual Report and Accounts 2016
|
|
|
GAC Report, page 141.
Note 20: Goodwill and intangible assets, page 239. |
|
|
HSBC Holdings plc Annual Report and Accounts 2016
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179
|
Report of the independent auditors to the members of HSBC Holdings plc
|
Investment in associate - Bank of Communications Company, Limited ('BoCom')
|
|
|
Nature of the area of focus
|
Matters discussed with the GAC
|
|
HSBC's investment in BoCom is accounted for as an associate, using the equity method.
This is the fourth consecutive year end that the market value of BoCom has been below the carrying value. At 31 December, the market value based on the share price was $11.1bn compared with the carrying value of $15.8bn.
This is considered an indicator of potential impairment under IFRS. An impairment test was performed by HSBC using a value in use model to estimate the investment's value assuming it continues to be held in perpetuity rather than sold ($16.1bn). On this basis no impairment was recorded and the share of BoCom's profits has been recognised in the consolidated income statement.
The value in use model determines the present value of HSBC's share of BoCom's future cash flows. The model is dependent on many assumptions, both short-term and long-term in nature. These assumptions are derived from a combination of management estimates, analysts' forecasts and market data, and are highly judgemental.
|
Discussions with the GAC were focused on:
•
the continued appropriateness of the value in use model given the period of time that the carrying value has been in excess of market value;•
the key assumptions used in the model with a particular focus on the assumptions with the highest level of uncertainty including the long-term growth rate and the long term loan loss rate;•
the reasonably possible alternative assumptions that were considered to identify those assumptions to which the value in use was most sensitive and to demonstrate the impact on the value in use of a movement in those assumptions; and•
the overall justifications for the divergence between the value in use and market value.During these discussions, HSBC confirmed its view that the model, assumptions and cash flow forecasts remained appropriate.
|
|
Procedures performed to support our discussions and conclusions
|
|
|
•
The conclusions on the appropriateness of the model were reviewed and the discount rate used within the model was independently recalculated with the assistance of our valuation experts.•
Inputs used in the determination of assumptions within the model were challenged and corroborating information was obtained with reference to external market information, third-party sources, including analyst reports, and historical publicly available BoCom information.•
The controls in place over the model were tested.•
The year-end meeting between management and senior BoCom executive management, held specifically to identify facts or circumstances impacting management assumptions, was observed.•
The mathematical accuracy of the model was tested.•
Disclosures made in the Annual Report and Accounts 2016 in relation to BoCom were reviewed. |
|
|
Relevant references in the Annual Report and Accounts 2016
|
|
|
Note 1.1(f): Critical accounting estimates and judgements, page 196.
Note 17: Interests in associates and joint ventures, page 232.
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|
Application of hedge accounting
|
|
|
Nature of the area of focus
|
Matters discussed with the GAC
|
|
To qualify for hedge accounting, certain criteria must be met including documenting the nature and purpose of the hedge and performing regular testing over its effectiveness.
Due to the complex nature of the hedge accounting rules this is often an area of significant risk for banks.
In our prior report to you, we noted that audit testing had identified a number of instances where hedging was applied, but the accounting rules had not been adequately met. This resulted in the remediation of existing controls and the implementation of new controls in the last quarter of 2015.
In light of the prior year matters, we determined this to be an area of significant audit risk.
|
We discussed with the GAC during the year, the progress made by management in the implementation of the new controls.
During December 2016, management in France identified a further issue with an established hedging relationship, which resulted in a partial discontinuation of the hedge. A discussion was held with the GAC regarding both the root cause of the matter, the period in which the adjustment should be recognised and over which controls that had not operated effectively.
As indicated by the above matter, not all of the hedge accounting controls operated effectively in the year. The exceptions noted were limited to France.
|
|
Procedures performed to support our discussions and conclusions
|
|
|
•
For all significant macro cash flow hedges, documentation was examined and the relationships assessed to determine if the hedges had been appropriately designated. This included consideration of the hedge objectives and specific compliance with IFRS.•
A sample of new hedging relationships was examined and the relationships assessed to determine if they had been appropriately designated. This included consideration of the hedge objectives and specific compliance with IFRS.•
Management's hedge effectiveness reviews, and the measurement and recording of hedge ineffectiveness, were tested for a sample of hedge relationships.•
Understood and tested controls over the documentation and review of the hedge relationships and their initial and ongoing effectiveness.•
Additional substantive audit procedures were performed over the partial discontinuation of the hedging relationship in France. |
|
|
Relevant references in the Annual Report and Accounts 2016
|
|
|
GAC Report, page 141.
Note 14: Derivatives, page 227. |
|
|
180
|
HSBC Holdings plc Annual Report and Accounts 2016
|
|
Litigation and regulatory enforcement actions
|
|
|
Nature of the area of focus
|
Matters discussed with the GAC
|
|
HSBC, like other global banking institutions, is exposed to a significant number of open legal cases and regulatory investigations in a number of its markets. Given the business is geographically dispersed, the same matter could be subject to investigation in multiple jurisdictions.
Provisions of $2.4bn have been established to account for legal settlements and regulatory fines. The most significant provisions relate to tax-related investigations and foreign exchange market manipulation. There are a number of legal and regulatory matters for which no provision has been established, as discussed on page 257. There is an inherent risk that legal exposures are not identified and considered for financial reporting purposes on a timely basis. Importantly, the decision to recognise a provision and the basis of measurement are judgemental. |
Group Legal provided to each GAC meeting an update on the status of legal cases. These updates considered whether all related litigation or investigations about a specific matter had been identified.
Material matters were discussed during each meeting and the need for changes to provisions considered. We participated in these discussions, including consideration of whether any constructive obligation had arisen in individual cases.
|
|
Procedures performed to support our discussions and conclusions
|
|
|
•
Controls designed to ensure the completeness and adequacy of current legal and regulatory provisions were tested. Regulatory correspondence from material markets was also read, and a sample of legal expenses were reviewed.•
Open legal cases were discussed with Group Legal and in certain instances we obtained and reviewed the relevant regulatory and litigation documents in order to assess the facts and circumstances.•
The range of reasonably possible outcomes was considered for material provisions to independently assess the appropriateness of the judgement made by HSBC.•
The disclosures of legal exposures and provisions were assessed for completeness and accuracy. |
|
|
Relevant references in the Annual Report and Accounts 2016
|
|
|
GAC Report, page 141.
Note 27: Provisions, page 244. Note 35: Legal proceedings and regulatory matters, page 257. |
|
|
Impact of the deferred prosecution agreement ('DPA')
|
|
|
Nature of the area of focus
|
Matters discussed with the GAC
|
|
HSBC and HSBC Bank USA, N.A., ('HBUS') entered into a DPA with the US Department of Justice (DoJ), Federal Reserve Board and Financial Conduct Authority in 2012 regarding non-compliance with the US Bank Secrecy Act, anti-money laundering rules, and sanctions laws. The duration of the DPA is five years.
If the DOJ were to conclude that a breach of the DPA had occurred, there are a number of potential penalties that could be imposed that could have a material adverse effect on HSBC's business. This could include loss of business and withdrawal of funding, restrictions on US dollar clearing functions through HSBC Bank USA or revocation of bank licences. The loss of this ability could have a significant adverse impact on the going concern status of HSBC and its individual subsidiaries in the future.
|
In considering going concern as the basis of preparation of the financial statements, a discussion was held with the GAC about the progress being made in responding to the requirements of the DPA. The conversation specifically considered the 2016 report of the Monitor.
In the report, he expressed significant concerns about the pace of progress, instances of potential financial crime and systems and control deficiencies, whether HSBC is on track to meet its goal to the Monitor's satisfaction within the five-year period and, pending further review and discussion with HSBC, did not certify as to HSBC's implementation of, and adherence to, remedial measures specified in the DPA.
Assurances were sought from the Directors that they were not aware of any information to suggest that the DoJ had concluded that the DPA had been breached.
|
|
Procedures performed to support our discussions and conclusions
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|
|
•
The likelihood of the DPA being breached and a restriction to US dollar clearing imposed was independently assessed through:- inquiry with the Monitor, whose role is explained on page 82, to understand the status of his work, the outcome of his most recent country reviews, his assessment of management's progress against the requirements of the DPA and his reporting to the DoJ and FCA;
- reading the 2016 Monitor annual report and the 11 country reports issued during the year; and
- reading a sample of reports produced by the compliance function that undertook a Global Standards operational effectiveness exercise, and an assessment of the findings.
•
Each Group Risk Committee meeting was attended during the year. At each meeting a report was provided by Group Risk on the status of the Global Standards programme, which aims to address the DPA recommendations. The related discussion was observed.•
The papers supporting the Financial System Vulnerabilities Committee meeting at the year-end were read. This meeting discussed the 2016 Monitor report and management's response.•
Compliance with the DPA was discussed with Group Legal and other members of senior management. |
|
|
Relevant references in the Annual Report and Accounts 2016
|
|
|
Top and emerging risks, page 64.
Areas of special interest: the Monitor, page 82. Financial System Vulnerabilities Committee, page 143. Going concern and viability statements, page 146. Note 35: Legal proceedings and regulatory matters, page 257. |
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HSBC Holdings plc Annual Report and Accounts 2016
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181
|
Report of the independent auditors to the members of HSBC Holdings plc
|
Pension liabilities
|
|
|
Nature of the area of focus
|
Matters discussed with the GAC
|
|
HSBC has $39.8bn of pension liabilities as a result of defined benefit pension schemes.
The calculation of these pension liabilities is complex and HSBC uses third party actuaries to provide support in the process to ensure appropriate expertise is applied to the calculation. The use of these actuaries also increases the risk of error as data is passed to third parties for analysis and calculation purposes.
Considering all of these factors, our initial assessment of the risk of misstatement did not identify pension liabilities as an area of significant focus as there was no history of error and the pension funds were in surplus reducing the risk of fraud.
During the year management identified errors in the transfer and use of data by third parties for one of the schemes in the US. As a result of this error, we reconsidered our assessment of the audit risk surrounding pension liability valuations and increased our scope of testing in this area.
|
The change in the assessment of risk was discussed and agreed with the GAC in December 2016.
We focused our testing response and our discussions with GAC on the largest schemes in the UK and US, which made up 84% of the overall liability balance at 31 December 2016. Our increased testing was focused on the transfer and use of data by third parties to form the calculation.
|
|
Procedures performed to support our discussions and conclusions
|
|
|
•
The controls over the review and approval of actuarial assumptions, the completeness and accuracy of data provided to external actuaries, and the reconciliation to data used in experts calculation were tested.•
Controls over the third party vendors were tested and the third party assurance reports covering controls operated by the vendors were reviewed.•
The output from external actuaries was inspected and an independent view was formed of key actuarial assumptions.•
Data used by the actuary in the calculation and the system to ledger reconciliations was independently tested. |
|
|
Relevant references in the Annual Report and Accounts 2016
|
|
|
Note 5: Page 208
|
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182
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HSBC Holdings plc Annual Report and Accounts 2016
|
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