Annual Report and Accounts -

RNS Number : 7299P

HSBC Holdings PLC

31 March 2009

 



	Page
Remuneration policy (unaudited)
Remuneration Committee	315
Overall principles	315
Application to executive Directors	316
HSBC performance and market context	316
Executive Director remuneration	317
Salary	317
Annual bonus	317
Long-term incentive plan	318
Funding	321
Total shareholder return	322
Pensions	322
Share ownership guidelines	322
Service contracts	322
Other directorships	323
Non-executive Directors	323
Fees	323
Remuneration review (audited)
Directors' emoluments	324
Pensions	324
Share plans	326

Remuneration Committee

The Remuneration Committee meets regularly to consider human resource issues, particularly terms and conditions of employment, remuneration and retirement benefits. Within the authority delegated by the Board, the Committee is responsible for approving the remuneration policy of HSBC including the terms of bonus plans, share plans and other long-term incentive plans and for agreeing the individual remuneration packages of executive Directors and other senior Group employees taking into account the pay and conditions across the Group. No Directors are involved in deciding their own remuneration.

Following each meeting the Committee reports to the Board on its activities. The terms of reference of the Committee are available at www.hsbc.com/boardcommittees. 

The members of the Remuneration Committee throughout 2008 were Sir Mark Moody-Stuart (Chairman), J D Coombe and G Morgan. At the conclusion of the Annual General Meeting on 30 May 2008 W S H Laidlaw became a member of the Committee.

There were seven meetings of the Remuneration Committee during 2008. The table on page 291 gives details of Directors' attendance at these meetings.

The Committee appointed Deloitte LLP and Mercer Limited to provide independent advice on executive remuneration issues during the year. Towers Perrin has been appointed by the Committee to provide remuneration data. As global firms, these firms also provided other consulting services to various parts of HSBC. Other consultants are used from time to time to advise on specific issues. During the year the Group Chief Executive provided regular briefings to the Committee. The Committee received advice from the Group Managing Director, Human Resources, A Almeida and the Head of Group Performance and Reward, J Beadle.

Overall principles

A global reward strategy for the Group was approved by the Remuneration Committee in 2007. This strategy provided a framework for the Remuneration Committee in carrying out its responsibilities during the year and includes the following key elements:

An assessment of reward with reference to clear and relevant objectives set within a balanced scorecard framework. This framework facilitates a rounded approach to objective setting. Under this framework, objectives are set under four categories - Financial, Process (including risk mitigation), Customer and People. Whilst the achievement of financial objectives is very important, the other objectives relating to efficiency and risk mitigation, customer development and the productivity of the Group's human capital are also key to financial performance and the development and sustainability of the Group over the short and medium term; 

A focus on total compensation (salary, bonus and the value of long term incentives) with variable pay (namely bonus and the value of long term incentives) differentiated by performance;

The use of considered discretion to assess the extent to which performance has been achieved rather than applying a formulaic approach which, by its nature, may encourage inappropriate risk taking and cannot cover all scenarios;

A significant proportion of variable pay being deferred into HSBC Holdings Restricted Shares to tie recipients to the future performance of the Group and to retain key talent; and

A total remuneration package (salary, bonus, long-term incentive awards and other benefits) which is competitive in relation to comparable organisations in each of the markets in which HSBC operates.

The Committee also takes into account environmental, social and governance aspects when determining executive Directors' remuneration and oversees senior management incentive structures to ensure that such structures take account of possible inadvertent consequences from these aspects.

Application to executive Directors

A number of specific changes to remuneration policy for executive Directors and other senior executives were made in 2007 and communicated to shareholders in the 2008 Directors' Remuneration Report. These changes, which are described in this report, were made to ensure closer alignment with HSBC's business strategy. They take into account competitive market practice and follow through the Group's global reward strategy for this senior executive population.

In order to ensure that executive Directors' remuneration packages are competitive, having regard to the market in which the Company competes for executive talent, the Remuneration Committee determined to consider market data from a defined remuneration comparator group. This initial group comprised nine global financial services companies, namely Banco Santander, Bank of America, Barclays, BNP Paribas, Citigroup, Deutsche Bank, Royal Bank of Scotland, Standard Chartered and UBS. These companies were selected on the basis of their broadly similar business coverage, size and international scope, and are subject to annual review for continuing relevance.

Executive Director salaries are targeted at the median of the remuneration comparator group, with an opportunity for top quartile total compensation through variable pay for higher levels of performance. The actual positioning of total compensation will depend on the performance of the Group and individual performance assessed against a combination of financial and non-financial objectives within an annual balanced scorecard.

The performance-related aspects of the remuneration package consist of a bonus of up to 400 per cent of salary and Performance Share awards with a face value of up to 700 per cent of salary. Taking into account the expected value of awards, the performance-related elements of pay make up around 80 per cent of the total remuneration package. Annual bonus payments and Performance Share awards are not pensionable.

A significant proportion of total compensation will be delivered in HSBC Holdings shares. Share ownership guidelines were increased for executive Directors and other senior executives to achieve further alignment with shareholder interests.

The above approach applies to all executive Directors with the exception of the Group Chairman, S K Green, whose variable compensation since 2007 has, at his request, been delivered exclusively through awards of Performance Shares and is thus no longer eligible to receive annual bonus payments; and S T Gulliver, whose variable compensation arrangements take into account wholesale banking market practice.

The approach will be carefully and regularly reviewed during 2009 to take account of the volatile and challenging market conditions (see following section on HSBC Performance and Market Context) and, where appropriate, shareholders will be consulted on any proposed changes in policy. Any changes will also be described in future Directors' Remuneration Reports.

The application of this policy to each component of executive Directors' remuneration for 2008 is outlined in more detail below.

HSBC performance and market context

The last year was one of unprecedented volatility and turbulence in the global financial services sector which has continued into 2009. In determining remuneration levels for 2008 and considering approaches to remuneration for 2009, the Committee was mindful of this global market context. In this volatile market environment it is difficult to appropriately apply measures such as total shareholder return and earnings per share, and it is particularly important to take account of risk from a short and medium term perspective.

Within this market context, HSBC's overall financial and non-financial performance was relatively strong in comparison to its peers.   

The key achievements of the Group during 2008, with reference to its objectives set under the relevant balanced scorecard categories, are summarised below.

The financial objectives included a cost efficiency target ratio which, excluding the writing off of goodwill in the US, was met and improved on compared to 2007. Profit growth, as measured by earnings per share ('EPS'), and return on capital, as measured by return on average total shareholder equity ('ROE'), did not meet the targets set and were lower than the prior year, although the Group's performance in these aspects relative to its peers remained strong. 

Process objectives focused on efficiency and qualitative measures which, in themselves, impact financial performance and mitigate risk. Although the Group did not meet its target to reduce operational losses as a percentage of revenue, the overall management of risk mitigation was judged to be strong, taking into account sound relationships with global regulatory bodies and the global investment community.

The Group improved its customer development score compared to the prior year, as measured by customer recommendation and brand health in its Personal Financial Services businesses and met its overall 2008 target relating to brand health. Both were assisted by a significant increase in intra-group referrals.

Regarding the Group's human capital, HSBC exceeded its 2008 employee engagement target as measured in a global staff survey. All regions and businesses improved their engagement scores compared to 2007 and the Group's 2008 score also exceeded the sector and global norms despite the challenging market environment. Some 316,000 (93 per cent) of staff worldwide participated in the 2008 survey, a 5 per cent increase on the prior year. This high and improving level of participation evidences alignment of employees to the Group.

Management of risk

Since 2008 the Group's Risk function has been involved in the approval of relevant incentive plans. Within the Group's wholesale businesses, where appropriate, specific conditionality will be applied to the release of HSBC Restricted Shares issued by way of deferred bonuses. From 2009, the concept of imputing the cost of capital in the determination of bonus funding will be expanded progressively across the Group, starting with the Group's wholesale businesses. Further information relating to the Group's approach to risk management is set out on pages 191 to 192.

Executive Director remuneration

Salary

The Committee reviews salary levels for executive Directors each year.

Given the relative positioning of current salaries against the remuneration comparator group, no increases in salaries were made in 2008 other than to reflect promotions to the Board.

For 2009, there will be no increase to salaries for executive Directors. A similar approach has been 

adopted for other executives across the Group other than in exceptional circumstances.

The table below shows salaries in 2008 and with effect from 1 March 2009.

	Salary
	2009		2008
	£000		£000
D J Flint	700		700
M F Geoghegan	1,070		1,070
S K Green	1,250		1,250
S T Gulliver1	800		800
	HK$000		HK$000
V H C Cheng1	9,300		9,300
A A Flockhart1	8,000		8,000

1    V H C Cheng joined the Board on 1 February 2008 and A A Flockhart and S T Gulliver on 1 May 2008. The salaries shown above represent the full year equivalent salary for these individuals.

Annual bonus

In determining annual bonus awards, the Committee took into account the extent to which the Group's annual objectives had been met under the balanced scorecard approach, the Group's absolute and relative performance compared to its peers, and competitive market practice where discernable. The consequence of this is a material fall in bonus awards across the Group in 2008. 

Within the policy parameters described above in the section Application to executive Directors, the Committee has determined that no cash bonuses will be paid to executive Directors for 2008. Instead, any bonuses will be in the form of HSBC Holdings Restricted Shares with vesting deferred for three years. 

As noted above the Group Chairman, S K Green, is, at his request, no longer eligible to receive an annual bonus payment. In line with this, no bonus award is being made to him in respect of 2008. In view of general conditions in the financial markets, the Group Chief Executive, M F Geoghegan, the Group Finance Director, D J Flint, and the Chief Executive of Global Banking and Markets and HSBC Global Asset Management, S T Gulliver, have requested that they not be considered for a bonus in respect of 2008. The Remuneration Committee has therefore decided, in spite of the performance of HSBC and the wholesale businesses in relation to its comparators, not to award these individuals a deferred bonus.

Other executive Directors have been awarded bonuses in deferred form in line with performance under the balanced scorecard framework and the overall performance of the Group, as set out above, as well as their own part of the business.

For executive Directors with responsibility for Asia, performance against financial objectives was mixed. Whilst the target for return on equity was met, overall 2008 profitability did not meet its target. Performance against Process, Customer and People objectives was stronger and this included high customer recommendation and employee engagement scores.

For Global Banking and Markets, although the financial targets for 2008 were not met, the business remained profitable and relative performance against its peers was strong. Performance against Process, Customer and People objectives was strong and included high employee engagement scores and improved positions within global markets league tables. 

The bonus awards, which are shown in the table below, have been fully deferred into HSBC Holdings Restricted Shares, issued under the HSBC Share Plan, with a vesting date three years from the date of the award. Bonus awards made in 2008, in respect of performance in 2007 are shown for reference. 

	Cash bonus
	2009		2008
	£000		£000
D J Flint1	-		800
M F Geoghegan1	-		2,140
S K Green2	-		1,750
S T Gulliver1	-		5,592
	HK$000		HK$000
V H C Cheng	-		23,864
	US$000		US$000
A A Flockhart	-		2,598

	Restricted Share Awards
	2009		2008
	£000		£000
D J Flint1	-		-
M F Geoghegan1	-		-
S K Green2	-		-
S T Gulliver1	-		3,600
	HK$000		HK$000
V H C Cheng	18,533		9,832
A A Flockhart3	18,705		-
	US$000		US$000
A A Flockhart3	-		1,184

1    M F Geoghegan, D J Flint and S T Gulliver requested that they not be considered for a bonus in respect of 2008.

2    At the Chairman's request, he is no longer eligible to receive an annual bonus payment.

3    The change in currency for A A Flockhart reflects a change of expatriate terms. The 2008 figure is on a gross equivalent basis.

Long-term incentive plan 

Under the HSBC Share Plan, executive Directors, as with other participants in the Plan, are eligible to receive awards of Performance Shares with a face value at grant of up to a maximum of seven times salary. The performance conditions associated with these awards are detailed in the next section, 'Arrangements from 2008'.

No awards of Performance Shares have been made to date in 2009. Awards may be granted later in 2009, taking into account performance and the market context at the time.

The face and expected values of individual awards made in 2008, in respect of the prior 2007 performance year, are shown for reference.

	2008
	Face value		Expected value1
	£000		£000
D J Flint	3,182		1,305
M F Geoghegan	7,477		3,066
S K Green	8,750		3,587
S T Gulliver	473		194
	HK$000		HK$000
V H C Cheng	17,231		7,065
	US$000		US$000
A A Flockhart	2,172		890

1    41 per cent of the face value for the 2008 award.

Arrangements from 2008

The performance measures for the long-term incentive awards of Performance Shares under the HSBC Share Plan were amended last year following approval by shareholders at the 2008 Annual General Meeting.

From 2008, the vesting of awards is based on three independent performance measures and an overriding 'sustained improvement' judgement by the Committee. The three Group measures are relative total shareholder return (40 per cent of the award); economic profit (40 per cent of the award); and growth in earnings per share ('EPS') (20 per cent of the award).

These measures provide a basis on which to measure HSBC's absolute and relative performance over the long-term taking into account an external measure of value creation, a measure of the extent to which the return on capital invested in HSBC is in excess of a benchmark return and a direct measure of the profits generated for shareholders. 

Awards will not vest unless the Remuneration Committee is satisfied that HSBC Holdings' financial performance has shown a sustained improvement in the period since the award date. In determining whether HSBC Holdings has achieved such sustained improvement the Remuneration Committee will take account of all relevant factors, in particular, comparisons against the TSR comparator group in areas such as revenue growth and mix, cost efficiency, credit performance, cash return on cash invested, dividend performance and TSR.

The performance conditions are measured over a three year performance period and awards forfeited to the extent that they have not been met.

The performance measures and the targets described below apply for awards made in 2008. The Remuneration Committee will review annually whether the performance targets remain appropriate and challenging, or should be recalibrated, for awards made thereafter, taking into account factors such as economic expectations, the industry's outlook and shareholders' interests. The Committee will consult in accordance with institutional shareholder guidelines on any further changes proposed to the nature of the performance measures and their percentage split referred to above.

TSR award

TSR is measured against a comparator group comprising the largest global banks in the world as well as other banks against which HSBC competes for business on a regional and/or local level. These companies are:

Banco Bradesco	HBOS
Banco Itau	ICBC
Banco Santander	JP Morgan Chase
Bank of America	Lloyds Banking Group
Bank of China	National Australia Bank
Barclays	Royal Bank of Canada
BBVA	Royal Bank of Scotland
BNP Paribas	Société Générale
Citigroup	Standard Chartered
Credit Suisse Group	UBS
DBS Group	UniCredito Italiano
Deutsche Bank	Wells Fargo
Fortis	Wachovia

During 2008, HBOS and Wachovia merged with other banks in the comparator group. The Committee determined that the comparator group will remain large enough to be statistically valid and as such it was not necessary to introduce any replacement banks. 

To reflect the fact that the range of market capitalisations within the comparator group is very wide, a free float market capitalisation ('FFMC') weighted method is used to calculate TSR performance. Under this approach, HSBC's out-performance of the comparator group will be calculated by dividing the total FFMC of all of the companies that HSBC has outperformed in terms of TSR by the total FFMC of all of the companies in the comparator group.

The extent to which the TSR award will vest will be determined as follows:

If HSBC's TSR outperforms companies comprising		Proportion of TSR Award vesting1
75 per cent of the total FFMC		100%
50 per cent of the total FFMC		20%
< 50 per cent of the total FFMC		nil

1    Vesting will occur in a straight line between 20 per cent and 100 per cent where HSBC's performance falls between these incremental steps.

In line with the commitment made to shareholders in 2008, the Remuneration Committee reviewed the methodology and concluded that it continues to be appropriate. The Committee then wrote to HSBC Holdings' sixty largest shareholders advising them of this conclusion and offering them the opportunity to comment.

Economic profit award

Economic Profit ('EP') is calculated as the average annual difference between return on invested capital and the Group's benchmark cost of capital and is expressed as a percentage. EP is a key measure of shareholder value creation as it rewards management progressively to the extent that the return on the capital invested in HSBC by its shareholders is in excess of a threshold return, which itself exceeds the Group's benchmark cost of capital.

For the awards made in 2008 the benchmark cost of capital is 10 per cent. Return on invested capital is based on the profit attributable to shareholders as defined on page 18.

The extent to which the EP award will vest will be determined as follows:

Average annual EP over  three years		Proportion of EP Award vesting1
8 per cent or above		100%
< 3 per cent		nil

1    Vesting will occur in a straight line between 0 per cent and 100 per cent where HSBC's performance falls between these incremental steps.

Earnings per share award

Growth in Earnings per Share (EPS) is measured on a point to point basis, by comparing EPS in the third financial year of the performance period with EPS in the financial year preceding that in which the award is made. This approach is aimed at simplifying the use of EPS as a performance measure and takes into account feedback received during consultation with institutional shareholders.

EPS growth in Year 3 over  the base EPS		Proportion of EPS  award vesting1
28 per cent or above		100%
16 per cent		20%
< 16 per cent		nil

1    Vesting will occur in a straight line between 20% and 100% where HSBC's performance falls between these incremental steps.

If events occur which cause the Remuneration Committee to consider that a performance condition has become unfair or impractical in either direction, the right is reserved to the Remuneration Committee, if it considers it appropriate to do so, to amend, relax or waive the condition.

Awards will vest in full, immediately in cases of death. In the event of redundancy, retirement on grounds of injury or ill health and where a participant ceases to be employed by HSBC due to a company ceasing to be part of HSBC, awards will normally vest at the end of the vesting period on a time-apportioned basis to the extent that the performance conditions have been satisfied. In the event of a change of control, awards will normally vest immediately and on a time-apportioned basis to the extent that the performance conditions have been satisfied. Awards will normally be forfeited if the participant is dismissed for cause or resigns from HSBC. In all circumstances the Committee retains discretion to ensure fair and reasonable treatment.

Arrangements from 2005 to 2007

Vesting of the awards of Performance Shares made under the HSBC Share Plan from 2005 to 2007 is based on two independent measures, relative TSR and growth in EPS. The performance conditions are measured over a three-year performance period and awards forfeited to the extent that they have not been met. The vesting of 50 per cent of the awards is based on TSR and the remaining 50 per cent on growth in EPS.

TSR award

The comparator group of 28 banks for the TSR award comprises the largest banks in the world, on the basis of their market capitalisation, their geographic spread and the nature of their activities:

ABN AMRO1	Mitsubishi UFJ Financial Group2
Banco Santander	Mizuho Financial Group
Bank of America	Morgan Stanley
Bank of New York	National Australia Bank
Barclays	Royal Bank of Canada
BBVA	Royal Bank of Scotland
BNP Paribas	Société Générale
Citigroup	Standard Chartered
Crédit Agricole	UBS
Credit Suisse Group	UniCredito Italiano
Deutsche Bank	US Bancorp
HBOS1	Wachovia1
JP Morgan Chase	Wells Fargo
Lloyds Banking Group	Westpac Banking Corporation

1    ABN AMRO, HBOS and Wachovia have delisted since the start of the performance period for the 2006 and 2007 awards. These comparators have been replaced from the point of delisting by Fortis, Commonwealth Bank of Australia and Toronto Dominion Bank respectively.

2    Mitsubishi UFJ Financial Group, Inc was previously known as Mitsubishi Tokyo Financial Group prior to the acquisition of UFJ Holdings on 1 October 2005.

The extent to which the TSR award will vest will be determined on a sliding scale based on HSBC's relative TSR ranking, measured over the three years, against the comparator group as shown below:

If HSBC's performance matches		Proportion of TSR Award vesting1
Banks ranking 1st to 7th		100%
Bank ranking 8th		90%
Bank ranking 9th		80%
Bank ranking 10th		70%
Bank ranking 11th		60%
Bank ranking 12th		50%
Bank ranking 13th		40%
Bank ranking 14th		30%
Banks ranking below 14th		nil

1    Vesting will occur in a straight line where HSBC's performance falls between these incremental steps.

Earnings per share award

The method for calculating EPS growth is described below. This is in line with the approach described in the 2005, 2006 and 2007 Directors' Remuneration Reports, as well as in the circular containing the Notice of Annual General Meeting for 2005.

The percentage of the conditional award vesting will depend upon the absolute growth in EPS achieved over the three years ('the performance period'). 30 per cent of the conditional shares will vest if the incremental EPS over the performance period is 24 per cent or more of EPS in the base year. The percentage of shares vesting will rise on a straight line proportionate basis to 100 per cent if HSBC's incremental EPS over the performance period is 52 per cent or more of EPS in the base year. In the interests of clarity, this has been set out in graphical form in the chart below.

For the EPS element of the award, the base measure shall be EPS for the financial year preceding that in which the award is made ('the base year'). Absolute growth in EPS will then be compared with the base year over three consecutive financial years commencing with the year in which the award is made. Incremental EPS will be calculated by expressing as a percentage of the EPS of the base year the difference each year of the three-year performance period between the EPS of that year and the EPS of the base year. These percentages will then be aggregated to arrive at the total incremental EPS for the performance period. As illustrated in the table below, an incremental EPS of 51 per cent over three years would equate to a compound annual growth rate of 8 per cent. 

Illustration of incremental EPS of 51 per cent over three years.

Percentage difference between:						Total incremental EPS for the performance period
Year 1 EPS and Base Year EPS	+	Year 2 EPS and Base Year EPS	+	Year 3 EPS and Base year EPS	=
8%		17%		26%		51%

If EPS in any of the Years 1, 2 or 3 is below the base year, then the percentage difference between that particular year and the base year is negative. 

For this purpose, EPS means the profit attributable to the Shareholders (expressed in US dollars), excluding goodwill amortisation, divided by the weighted average number of Ordinary Shares in issue and held outside the Group during the year in question. In the event that the published EPS for the base year is restated during the performance period to adjust for changes in accounting standards, that restated EPS will be used for the purposes of the EPS performance condition.

In addition, awards will not vest unless the Remuneration Committee is satisfied that HSBC Holdings' financial performance has shown a sustained improvement in the period since the award date. In determining whether HSBC Holdings has achieved a sustained improvement in performance the Remuneration Committee will take account of all relevant factors but in particular comparisons against the comparator group in areas such as revenue growth and mix, cost efficiency, credit performance, cash return on cash invested, dividend performance and TSR.

If events occur which cause the Remuneration Committee to consider that a performance condition has become unfair or impractical in either direction, the right is reserved to the Remuneration Committee, if it considers it appropriate to do so, to amend, relax or waive the condition.

Awards will vest in full immediately in cases of death. In the event of redundancy, retirement on grounds of injury or ill health, early retirement by agreement, normal retirement and where a participant ceases to be employed by HSBC due to a company ceasing to be part of HSBC, awards will normally vest at the end of the vesting period on a time-apportioned basis to the extent that the performance conditions have been satisfied. In the event of a change of control, awards will normally vest immediately and on a time-apportioned basis to the extent that the performance conditions have been satisfied. Awards will normally be forfeited if the participant is dismissed for cause or resigns from HSBC. In all circumstances the Committee retains discretion to ensure fair and reasonable treatment.

Arrangements from 2002 to 2004

Between 2002 and 2004, awards of Performance Shares were made under the HSBC Holdings Restricted Share Plan 2000. Vesting was based on HSBC's relative TSR performance over a threeߛyear period from the date of the award, with full vesting of awards and transfer of shares to participants being no earlier than the fifth anniversary of the date of award.

Only one set of awards (the 2003 award) was outstanding at the start of 2008. At the second and final re-test of this award the performance targets were not met and therefore the award lapsed.

Funding

The dilution limits set out in the HSBC share plans comply with the Association of British Insurers' guidelines. The Company's policy to date is to fund long-term incentive awards of Performance Shares and Restricted Shares under the HSBC Share Plan through employee benefit trusts which undertake market purchases of HSBC Holdings' shares.

Total shareholder return

Pursuant to the Directors' Remuneration Report Regulations 2002, the graph below shows HSBC's TSR performance against the FTSE 100 Index, for the five-year period ended 31 December 2008. The FTSE 100 Index has been chosen as this is a recognised broad equity market index of which HSBC Holdings is a member.

HSBC TSR and FTSE 100 Index

Source: IDC

Pensions

The normal retirement age for executive Directors is 65 with the exception of V H C Cheng, where no retirement age is specified in keeping with local legislation. The pension entitlements of the executive Directors for 2008 are set out on page 324.

Share ownership guidelines

To ensure appropriate alignment with shareholders HSBC operates a formal share ownership policy, expressed as a number of shares, for executive Directors and the Group Managing Directors. The Committee considers that material share ownership by executives creates a community of interest between the leadership and shareholders. 

To demonstrate further alignment with shareholders the share ownership guidelines were significantly increased from 2008. 

Under the guidelines, the shareholding is expected to be achieved within five years of the executive's appointment or three years from the date of approval of amendments to the HSBC Share Plan on 30 May 2008, whichever is the later. 

The executive Directors and Group Managing Directors are now required to build and retain the following shareholdings.

	Number of shares1
	to be held		held at 31     December     2008
V H C Cheng	200,000		386,948
D J Flint	200,000		109,122
A A Flockhart	200,000		238,639
M F Geoghegan	600,000		477,434
S K Green	600,000		667,421
S T Gulliver	200,000		3,230,453
Group Managing Directors	125,000		-2

1    For the purposes of the guidelines, unvested awards of Restricted Shares held in employee benefit trusts are included. Unvested Performance Share awards are excluded.

2    A majority of the Group Managing Directors exceed the expected holdings; where the holdings are below, the executives are within five years of their appointment and working towards the expected level.

The Remuneration Committee will monitor compliance annually. The Committee will have full discretion in determining any penalties in cases of non-compliance, which could include a reduction of future awards of long-term incentives and/or an increase in the proportion of the annual bonus that is deferred into shares. 

Service contracts

HSBC's policy is to employ executive Directors on one-year rolling contracts although longer initial terms may be approved by the Remuneration Committee if considered appropriate. The Remuneration Committee will, consistent with the best interests of the Group, seek to minimise termination payments.

S K Green, M F Geoghegan, V H C Cheng, D J Flint, A A Flockhart and S T Gulliver have rolling service contracts with a notice period of 12 months for either party.

In the event of early termination of employment other than for cause, of S K Green, M F Geoghegan, V H C Cheng, D J Flint, A A Flockhart or S T Gulliver, HSBC is entitled to make a payment in lieu of notice equal to base salary, pension entitlements and other benefits.

D J Flint, AA Flockhart and S T Gulliver will be eligible to be considered for a bonus on termination of employment by HSBC other than for cause. S T Gulliver will also be eligible to be considered for a bonus upon termination of employment by either party within 12 months following a change of control.

On termination of employment by HSBC, other than for cause (or termination by either party within 12 months following a change of control), S K Green and M F Geoghegan will be eligible for a bonus calculated as not less than the average of the previous two years of bonus payments received, proߛrated for any part year worked to termination.

Dates of service contracts - executive Directors

	Contract date
V H C Cheng	29 August 2008
D J Flint	14 October 2008
A A Flockhart	2 December 2008
M F Geoghegan	29 February 2008
S K Green	28 February 2008
S T Gulliver	5 September 2008

Other directorships

Executive Directors, if so authorised by either the Nomination Committee or the Board, may accept appointments as non-executive directors of suitable companies which are not part of HSBC. Approval will not be given for executive Directors to accept a non-executive directorship of more than one FTSE 100 company nor the chairmanship of such a company. When considering a non-executive appointment, the Nomination Committee or Board will take into account the expected time commitment of such appointment. The time commitment for executive Directors' external appointments will be reviewed as part of the annual Board review. Any remuneration receivable in respect of an external appointment is normally paid to HSBC, unless otherwise approved by the Remuneration Committee. D J Flint has elected to donate his fees as a non-executive Director of BP p.l.c. to charity.

Non-executive Directors

Non-executive Directors are appointed for fixed terms not exceeding three years, subject to their reߛelection by shareholders at Annual General Meetings. Non-executive directors have no service contract and are not eligible to participate in HSBC's share plans. Current non-executive Directors' terms of appointment will expire as follows: 

• in 2010, R A Fairhead, W K L Fung, Sir Mark Moody-Stuart and G Morgan;

• in 2011, S A Catz, J D Coombe, J L Dúran, J W J Hughes-Hallett, W S H Laidlaw and N R N Murthy; and 

• in 2012, S M Robertson and Sir Brian Williamson.

J R Lomax and J L Thornton were appointed non-executive Directors with effect from 1 December 2008 and M K T Cheung was appointed a non-executive Director with effect from 1 February 2009. Subject to their re-election by shareholders at the Annual General Meeting in 2009, their terms of appointment will expire in 2012.

Fees

Non-executive Directors' fees are regularly reviewed and compared with other large international companies. The current fee, which was approved by shareholders in 2006, is £65,000 per annum.

A fee of £30,000 per annum is payable to the senior independent non-executive Director. In addition, non-executive Directors receive the following fees for service on Board Committees:

Fees - non-executive Directors

Chairman, Audit Committee	£50,000 p.a.
Member, Audit Committee	£20,000 p.a.

During 2008, 8 meetings of the Group Audit Committee were held.

Chairman, Remuneration Committee	£40,000 p.a.
Member, Remuneration Committee	£20,000 p.a.

During 2008, 7 meetings of the Remuneration Committee were held.

Chairman, Nomination Committee	£30,000 p.a.
Member, Nomination Committee	£20,000 p.a.

During 2008, 5 meetings of the Nomination Committee were held.

Chairman, Corporate Sustainability Committee	£30,000 p.a.
Member, Corporate Sustainability Committee	£20,000 p.a.

During 2008, 4 meetings of the Corporate Sustainability Committee were held.

Directors' emoluments

(Audited)

The emoluments of the Directors of HSBC Holdings for 2008 were as follows:

	Fees		Salary		Allowance1		Benefits                 in kind2		Bonuses3		Total                 2008		Total                 2007
	£000		£000		£000		£000		£000		£000		£000
Executive Directors
V H C Cheng4 ..	–		534		67		545		–		1,146		–
D J Flint ..........	–		700		385		22		–		1,107		1,878
A A Flockhart5 ........................	–		229		–		355		–		584		–
M F Geoghegan ........................	–		1,070		535		62		–		1,667		3,536
S K Green ........	–		1,250		–		15		–		1,265		3,012
S T Gulliver5 ...	–		533		–		14		–		547		–
Non-executive Directors
Lord Butler6 ....	40		–		–		–		–		40		103
S A Catz5 ........	43		–		–		–		–		43		–
J D Coombe ....	105		–		–		–		–		105		105
Baroness Dunn6 ........................	35		–		–		–		–		35		85
J L Durán7 .......	65		–		–		–		–		65		–
R A Fairhead...	127		–		–		–		–		127		103
W K L Fung8....	122		–		–		–		–		122		122
J W J Hughes-Hallett ............	105		–		–		–		–		105		97
W S H Laidlaw7 ........................	77		–		–		–		–		77		–
J R Lomax9 .....	5		–		–		–		–		5		–
Sir Brian Moffat6 ...........	35		–		–		–		–		35		110
Sir Mark Moody-Stuart ..	125		–		–		–		–		125		125
G Morgan.........	85		–		–		–		–		85		77
N R N Murthy5 ........................	45		–		–		–		–		45		–
S W Newton10 .	66		–		–		–		–		66		77
S M Robertson	115		–		–		–		–		115		94
J L Thornton9,11 ...	89		–		–		–		–		89		–
Sir Brian Williamson .....	95		–		–		–		–		95		91
Total12 ............	1,379		4,316		987		1,013		–		7,695		9,738
Total (US$000)12 .....	2,529		7,916		1,810		1,858		–		14,113		19,493

1    Executive allowance paid to fund personal pension arrangements.

2    Benefits in kind for executive Directors include provision of company car, medical insurance, other insurance cover, accountancy advice and travel assistance. V H C Cheng and A A Flockhart receive housing and other benefits in kind that are normal within the location in which they are employed. 

3    These discretionary bonuses are in respect of 2008. See page 318 for comparison with 2007.

4    Appointed a Director on 1 February 2008.

5    Appointed a Director on 1 May 2008.

6    Retired as a Director on 30 May 2008.

7    Appointed a Director on 1 January 2008.

8    Includes fees as a non-executive Director of The Hongkong and Shanghai Banking Corporation.

9    Appointed a Director on 1 December 2008.

10    Retired as a Director on 10 October 2008.

11    Includes fees as non-executive Chairman of HSBC North America Holdings Inc.

12    Total emoluments for 2007 include the emoluments of Directors who retired in that year.

Pensions 

(Audited)

V H C Cheng ceased membership of, and accrual of benefits under, the HSBC Group Hong Kong Local Staff Retirement Benefit Scheme - Defined Benefit Section on 31 July 2008. The rules of the Scheme provide for a lump sum payment of benefit (rather than an annual pension) and Mr Cheng received a cash retirement benefit payment of HK$46,614,583 on 3 September 2008 in respect of reaching the age of 60, the normal retirement age under the Scheme. Mr Cheng's accrued benefit and its transfer value under the Scheme at 31 December 2007 was HK$32,906,250 and the increase of the accrued benefit and transfer value during 2008 (less personal contributions) was HK$13,708,333. As Mr Cheng has ceased membership of the Scheme, no accrued benefit or transfer value remained in the Scheme at 31 December 2008. The employer contribution to Mr Cheng's retirement benefits Scheme for the period 1 January 2008 to 31 July 2008 was HK$626,250.

With effect from 1 August 2008 Mr Cheng has been a member of the Hong Kong Special Administrative Region Mandatory Provident Fund ('MPF') and receives an executive allowance of 25 per cent of annual basic salary, less the mandatory contributions to the MPF by both the employer and employee, to fund personal pension arrangements. The mandatory employer contribution to the MPF in respect of Mr Cheng for the period 1 August 2008 to 31 December 2008 was HK$5,000.

D J Flint receives an executive allowance of 55 per cent of annual basic salary to fund personal pension arrangements.

A A Flockhart left the International Staff Retirement Benefits Scheme on 30 November 2008. With effect from 2 December 2008 employer contributions equivalent to 40 per cent of annual basic salary are now made to a personal pension plan in respect of Mr Flockhart. During 2008, employer contributions of HK$258,000 were paid into this plan.

Mr Geoghegan receives an executive allowance of 50 per cent of annual basic salary to fund personal pension arrangements. In 2008, an employer contribution was made to the HSBC Asia Holdings Pension Plan of £225,000 from a bonus sacrifice in respect of 2007 (in 2007, an employer contribution of £215,000 was made arising entirely from a bonus sacrifice in respect of 2006). There were no other employer contributions made to this plan.

S K Green ceased membership of the HSBC Bank (UK) Pension Scheme on 5 April 2006. Since 6 April 2006, Mr Green has been entitled to receive benefits from an Employer Funded Retirement Benefits Scheme which together with entitlements from the HSBC Bank (UK) Pension Scheme will provide benefits to Mr Green that would be broadly comparable to an accrual rate of one-thirtieth of pensionable salary for each year of pensionable service.

S T Gulliver left the International Staff Retirement Benefits Scheme on 31 March 2006. Employer contributions equivalent to 30 per cent of annual basic salary are now made to a personal pension plan in respect of Mr Gulliver. During 2008, employer contributions of £225,000 were paid into this plan. 

	Accrued  annual pension at      31 December 2008		Increase in accrued pension      during      2008		Increase in accrued pension during 2008, excluding any increase      for inflation		Transfer     value      of accrued      pension at      31 December     20071		Transfer      value     of accrued pension at      31 December      20081		Increase of transfer value of accrued  pension (less     personal contributions)      in 20081	Transfer value  less personal contributions) at 31 December	Transfer value     (less personal contributions) at      31 December 2008 relating to increase      in accrued pensions during  2008, excluding any increase  for inflation1
	£000		£000		£000		£000		£000		£000		£000
A A Flockhart2	254		25		15		4,467		4,644		161		238
S K Green	669		42		10		12,780		17,7163		4,9363		272
S T Gulliver4	138		11		5		2,716		2,749		33		95

1    The transfer value represents a liability of HSBC's pension funds and not a sum paid or due to the individual; it cannot therefore meaningfully be added to annual remuneration.

2    A A Flockhart left the International Staff Retirement Benefits Scheme ('ISRBS') on 30 November 2008. The ISRBS retains a liability for a contingent spouse's pension equal to £126,000 per annum as at 31 December 2008. Mr Flockhart made personal contributions to the ISRBS amounting to £16,000 during the year.

3    During 2008, the Trustee of the HSBC Bank (UK) Pension Scheme decided to change the basis used to calculate transfer values from the Scheme for all Scheme members, in order to allow for lower expectations of future investment returns and improved longevity. The impact of this is reflected in the increase in the transfer value of accrued pension. If the Trustee had not changed the transfer value basis, the change in transfer value during 2008 would have been £2.48 million (£1.698 million during 2007).

4    S T Gulliver left the ISRBS on 31 March 2006. The ISRBS retains a liability for a contingent spouse's pension equal to £61,000 per annum as at 31 December 2008.

The unfunded pension payments tabulated below, in respect of which provision has been made, were made during 2008 to five former Directors of HSBC Holdings. 

The payments in respect of R Delbridge and Sir Brian Pearse were made by HSBC Bank plc as former Directors of that bank. The payment in respect of C F W de Croisset was made by HSBC France as a former Director of that bank.

	2008 £		2007 £
B H Asher	97,752		93,812
C F W de Croisset	221,100		194,077
R Delbridge	140,601		134,934
Sir Brian Pearse	58,632		56,269
Sir William Purves	103,481		99,310
	621,566		578,402

Share plans

(Audited)

At 31 December 2008, the undernamed Directors held Performance Share awards, Restricted Share awards and options to acquire the number of HSBC Holdings ordinary shares set against their respective names. 

HSBC Holdings savings-related share option plans 

(Audited)

HSBC Holdings ordinary shares of US$0.50

	Date of     award		Exercise      price (£)		Exercisable     from1		Exercisable     until		Options held     at 1 January     2008 or date     appointed if     later		Options     awarded     during year		Options     exercised     during year		Options      held at      31 December     2008
V H C Cheng2	23 Apr 2003		5.3496		1 Aug 2008		31 Jan 2009		3,0703		-		3,0703		-
D J Flint	25 Apr 2007		7.0872		1 Aug 2012		31 Jan 2013		2,310		-		-		2,310
A A Flockhart4	25 Apr 2007		7.0872		1 Aug 2010		31 Jan 2011		1,332		-		-		1,332
S K Green	23 Apr 2003		5.3496		1 Aug 2008		31 Jan 2009		3,070		-		3,0705		-

The HSBC Holdings savings-related share option plans are all-employee share plans under which eligible HSBC employees may be granted options to acquire HSBC Holdings ordinary shares. Employees may make contributions of up to £250 (or equivalent) each month over a period of one, three or five years which may be used on the first, third or fifth anniversary of the commencement of the relevant savings contract, at the employee's election, to exercise the options. The plans help align the interests of employees with the creation of shareholder value and, as such, exercise of the options is not subject to any performance conditions. The options were awarded for nil consideration and are exercisable at a 20 per cent discount to the average market value of the ordinary shares on the five business days immediately preceding the invitation date. No options lapsed during the year. There are no performance criteria conditional upon which the outstanding options are exercisable and there have been no variations to the terms and conditions since the awards were made. The market value of the ordinary shares at 31 December 2008 was £6.62. The highest and lowest market values during the year were £9.2775 and £6.1225. Market value is the mid-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.

1    May be advanced to an earlier date in certain circumstances, e.g. retirement.

2    Appointed a Director on 1 February 2008.

3    At the date of exercise, 8 August 2008, the market value per share was £8.5850.

4    Appointed a Director on 1 May 2008.

5    At the date of exercise, 22 December 2008, the market value per share was £6.1225.

Awards of Performance Shares

HSBC Holdings Restricted Share Plan 2000

(Audited)

HSBC Holdings ordinary shares of US$0.50

	Date of     award		Year in      which      awards      may vest		Awards held     at 1 January     2008 or date     appointed if     later		Awards     held at     31 December     20081
V H C Cheng2	5 Mar 2003		2008		55,028		-
D J Flint	5 Mar 2003		2008		136,192		-
M F Geoghegan	5 Mar 2003		2008		63,558		-
S K Green	5 Mar 2003		2008		136,192		-

Vesting of these awards was subject to the achievement of corporate performance conditions. Under the Securities and Futures Ordinance of Hong Kong, interests held through the HSBC Holdings Restricted Share Plan 2000 were categorised as the interests of a beneficiary of a trust.

1    The corporate performance conditions were not met and, under the rules of the Plan, the awards (including additional shares arising from scrip dividends) held by: V H C Cheng, 55,028 shares; D J Flint, 137,568 shares; M F Geoghegan, 64,200 shares; and S K Green, 137,568 shares, were forfeited on 4 April 2008. The awards held by A A Flockhart, 27,514 shares; and S T Gulliver, 55,028 shares, who were appointed as Directors on 1 May 2008, were also forfeited on 4 April 2008. As a consequence, the fourth interim dividend for 2007 did not accrue on these forfeited share awards.

2    Appointed a Director on 1 February 2008.

Awards of Performance Shares

HSBC Share Plan 

(Audited)

HSBC Holdings ordinary shares of US$0.50

			Year in		Awards     held at     1 January		Awards made during year or since date appointed if later1				Awards vested during year or since date appointed if later2				Awards
	Date of     award		which     awards      may vest	2008 or date     appointed      if later			Number		Monetary     value		Number		Monetary     value		held at 31    December     20083
									£000				£000
V H C Cheng4	27 May 2005	2008	2008		91,824		-		-		47,002		405		-5
	6 Mar 2006	2009	2009		88,534		-		-		-		-		92,689
	5 Mar 2007	2010	2010		172,636		-		-		-		-		180,739
	3 Jun 2008	2011	2011		-		129,325		1,103		-		-		130,852
D J Flint	27 May 2005	2008	2008		194,796		-		-		100,721		868		-5
	6 Mar 2006	2009	2009		175,296		-		-		-		-		185,378
	5 Mar 2007	2010	2010		256,029		-		-		-		-		270,755
	3 Jun 2008	2011	2011		-		372,940		3,182		-		-		377,343
A A Flockhart6	27 May 2005	2008	2008		779		-		-		779		7		-5
	6 Mar 2006	2009	2009		66,401		-		-		-		-		69,518
	5 Mar 2007	2010	2010		114,998		-		-		-		-		120,395
	3 Jun 2008	2011	2011		-		127,174		1,085		-		-		128,675
M F Geoghegan	27 May 2005	2008	2008		259,728		-		-		134,295		1,157		-5
	6 Mar 2006	2009	2009		219,121		-		-		-		-		231,724
	5 Mar 2007	2010	2010		581,884		-		-		-		-		615,351
	3 Jun 2008	2011	2011		-		876,408		7,477		-		-		886,755
S K Green	27 May 2005	2008	2008		324,659		-		-		167,868		1,446		-5
	6 Mar 2006	2009	2009		273,900		-		-		-		-		289,653
	5 Mar 2007	2010	2010		436,413		-		-		-		-		461,513
	3 Jun 2008	2011	2011		-		1,025,584		8,750		-		-		1,037,692
S T Gulliver6	27 May 2005	2008	2008		1,559		-		-		1,559		14		-5
	6 Mar 2006	2009	2009		110,667		-		-		-		-		115,861
	5 Mar 2007	2010	2010		127,730		-		-		-		-		133,725
	3 Jun 2008	2011	2011		-		55,409		473		-		-		56,063

Vesting of these Performance Share awards is subject to the achievement of the corporate performance conditions set out on pages 318 to 319. Under the Securities and Futures Ordinance of Hong Kong, interests held through the HSBC Share Plan are categorised as the interests of a beneficiary of a trust.

1    At the date of the award, 3 June 2008, the market value per share was £8.56. The shares acquired by the Trustee of the Plan were purchased at an average price of £8.53173.

2    The Earnings Per Share element of the performance conditions was met and that element of the Performance Share Awards vested on 1 April 2008, when the market value per share was £8.61, as follows: V H C Cheng, 45,911 shares; D J Flint, 98,382 shares, M F Geoghegan, 131,176 shares; and S K Green, 163,970 shares. The awards held by A A Flockhart (32,794) shares, and S T Gulliver (65,587) shares, who were appointed as Directors on 1 May 2008, also vested on 1 April 2008. Awards representing the fourth interim dividend for 2007 vested on 7 May 2008, when the market value per share was £8.875, as follows: V H C Cheng, 1,091 shares; D J Flint, 2,339 shares; A A Flockhart, 779 shares; M F Geoghegan, 3,119 shares; S K Green, 3,898 shares; and S T Gulliver, 1,559 shares. The market value per share on the date of the award, 27 May 2005, was £8.68.

3    Includes additional shares arising from scrip dividends.

4    Appointed a Director on 1 February 2008.

5    The Total Shareholder Return element of the performance conditions was not met and, under the terms of the Plan, that element of the Performance Share awards held by: V H C Cheng, 45,913 shares; D J Flint, 98,383 shares; M F Geoghegan, 131,177 shares; and S K Green, 163,971 shares was forfeited on 2 April 2008. The awards held by A A Flockhart, 32,795 shares; and S T Gulliver, 65,589 shares, who were appointed as Directors on 1 May 2008, were also forfeited on 2 April 2008. As a consequence, the fourth interim dividend for 2007 did not accrue on the forfeited shares.

6    Appointed a Director on 1 May 2008.

Awards of Restricted Shares 

HSBC Share Plan 

(Audited)

HSBC Holdings ordinary shares of US$0.50

			Year in     which		Awards     held		Awards made during year or since date appointed if later				Awards vested during year or since date appointed if later				Awards     held at 31
	Date of      award		awards      may vest	on date     appointed			Number		Monetary     value		Number		Monetary     value		December     20082
									£000				£000
V H C Cheng3	3 Mar 2008	2008	2011		-		82,2951		646		-		-		86,158
A A Flockhart4	31 Oct 2007		2010		51,167		-		-		-		-		53,568
	3 Mar 2008		2011		11,929		-		-		-		-		12,488
S T Gulliver4	6 Mar 2006		20095		143,677		-		-		-		-		150,421
	5 Mar 2007	2010	2009-20105		305,591		-		-		-		-		319,934
	3 Mar 2008	2011	2009-20115		458,708		-		-		-		-		480,237

Vesting of Restricted Share awards is normally subject to the Director remaining an employee on the vesting date. The vesting date may be advanced to an earlier date in certain circumstances, e.g. death or retirement. Under the Securities and Futures Ordinance of Hong Kong, interests held through the HSBC Share Plan are categorised as the interests of a beneficiary of a trust.

1    At the date of the award, 3 March 2008, the market value per share was £7.90. The shares acquired by the Trustee of the Plan were purchased at an average price of £7.848143.

2    Includes additional shares arising from scrip dividends.

3    Appointed a Director on 1 February 2008.

4    Appointed a Director on 1 May 2008.

5    33 per cent of the award vests on each of the first and second anniversaries of the date of the award, with the balance vesting on the third anniversary of the date of the award.

On behalf of the Board     2 March 2009

Sir Mark Moody-Stuart, Chairman of Remuneration Committee

 

END

 

 

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