HSBC USA Inc 06 10-K Pt 1e/10
HSBC Holdings PLC
05 March 2007
Part 5 of 5
Item 11. Executive Compensation
--------------------------------------------------------------------------------
The following tables and narrative text discuss the compensation awarded to,
earned by or paid to (i) Ms. Derickson, who served as our Chief Executive
Officer - Designate from September 1, 2006 to December 31, 2006, (ii) Mr. Glynn,
who served as our Chief Executive Officer during 2006, (iii) Mr. McKenna, who
served as our Chief Financial Officer during 2006, (iii) our three most highly
compensated executive officers (other than the chief executive officer and chief
financial officer) who were serving as executive officers as of December 31,
2006 and (iv) two additional individuals who served as executive officers during
2006, but were not serving as executive officers as of December 31, 2006.
Summary Compensation Table
--------------------------------------------------------------------------------
Change in
Pension Value
and
Nonqualified
Option Non-Equity Deferred All Other
Name and principal Stock Awards Incentive Plan Compensation Compensation
position Year Salary Bonus (4) Awards (5) (6) Compensation (7) Earnings (8) (9) Total
------------------------------------------------------------------------------------------------------------------------
Sandra L.
Derickson (1) 2006 $233,333 $ -- $ -- $ -- $ -- $ 63,386 $ 192,632 $ 489,351
President &
Chief Executive
Officer -
Designate
Martin J.G.
Glynn (1) 2006 700,000 -- 1,976,008 -- 1,600,000 1,899,593 7,651,080(10) 13,826,681
President &
Chief Executive
Officer
John J. McKenna 2006 321,196 -- 222,114 -- 381,934 92,238 16,685 1,034,167
Senior Executive
Vice President &
Chief Financial
Officer
Joseph A.
Belfatto 2006 250,000 1,960,000 952,379 -- -- 4,576 20,763 3,187,718
Senior Executive
Vice President &
Head, Global
Markets Americas
Marlon Young 2006 245,769 750,000 535,770 -- -- -- 1,463 1,533,002
Managing Director,
CEO Private Bank
Americas
Janet L. Burak 2006 395,176 -- 415,346 -- 736,383 368,753 92,597 2,008,255
Senior Executive
Vice President,
General Counsel
& Secretary
Brendan
McDonagh (2) 2006 676,553 -- 272,515 -- 720,000 488,925 635,401 2,793,394
Chief Operating
Officer
Joseph M.
Petri (3) 2006 206,250 3,960,000 5,420,744 -- -- 4,576 171,802(11) 9,763,372
Senior Executive
Vice President,
Treasurer and
Co-Head, CIBM
Americas
(1) Sandra L. Derickson was appointed President and Chief Executive Officer -
Designate of HUSI as of September 1, 2006 and succeeded Mr. Glynn as
President and Chief Executive Officer when he retired as of January 1,
2007. She resigned as President and Chief Executive Officer on February
20, 2007. The amount shown for Ms. Derickson is the pro rata portion of
her annual base salary of $700,000.
(2) Mr. McDonagh resigned his position as Chief Operating Officer of HUSI as
of December 1, 2006, and was appointed Group Executive of HSBC Finance
Corporation as of that date.
(3) Mr. Petri retired as Senior Executive Vice President, Treasurer and
Co-Head, CIBM Americas as of August 5, 2006.
(4) The amounts disclosed for Messrs. Belfatto, Young and Petri represent the
discretionary cash bonus relating to 2006 performance but paid in February
2007.
181
(5) Reflects the amounts of compensation expense amortized in 2006 for
accounting purposes under FAS 123R for outstanding restricted stock grants
made in the years 2003 through 2006. HUSI did not record a compensation
expense with respect to restricted stock grants made to Ms. Derickson by
HSBC Finance Corporation during this period and prior to her appointment
as President & Chief Executive Officer of HUSI. HSBC Finance Corporation
recorded an expense with respect to those grants in 2006 in the amount of
$2,720,809.
A portion of the expense reflected for Messrs. Glynn and McDonagh relates
to Performance Shares granted in 2005 and 2006 that will vest in whole or
in part three years from the date of grant if all or some of the
performance conditions are met, as follows: 50 percent of the award is
subject to a total shareholder return measure ("TSR") and will vest in
whole or in part (based on a sliding scale of 0 to 100 percent) depending
upon on how the growth in HSBC's share value, plus declared dividends,
compares to the average shareholder return of a defined competitor group,
which for 2006 grants was comprised of 28 major banking institutions,
including ABN AMRO Holding N.V., Banco Bilbao Vizcaya Argentaria, S.A.,
Banco Santander Central Hispano S.A., Bank of America Corporation, The
Bank of New York Company, Inc., Barclays PLC, BNP Paribas S.A., Citigroup,
Inc., Credit Agricole SA, Credit Suisse Group, Deutsche Bank AG, HBOS plc,
JP Morgan Chase, Lloyds TSB Group plc, Mitsubishi Tokyo Financial Group
Inc., Mizuho Financial Group Inc., Morgan Stanley, National Australia Bank
Limited, Royal Bank of Canada, The Royal Bank of Scotland Group plc,
Societe Generale, Standard Chartered PLC, UBS AG, Unicredito Italiano, US
Bancorp, Wachovia Corporation, Wells Fargo & Company and Westpac Banking
Corporation. The remaining 50 percent of the award is subject to
satisfaction of an earnings per share measure ("EPS") and may vest based
on an incremental EPS percentage in accordance with a defined formula. If
the aggregate incremental EPS is less than 24 percent, the EPS portion
will be forfeited. If it is 52 percent or more, the EPS component will
vest in full. We have reduced the amount of expense related to the
Performance Shares that would have been recorded by 50 percent due to the
probability of a 0 percent vest on the TSR portion and a 100 percent vest
on the EPS portion for both years 2005 and 2006. HUSI records expense over
the three-year period based on the fair value, which is 100 percent of the
face value on the date of the award. The remaining grants are
non-performance-based awards and are subject to various time vesting
conditions as disclosed in the footnotes to the Outstanding Equity Awards
at Fiscal Year End Table and will be released as long as the named
executive officer is still in the employ of HUSI at the time of vesting.
HUSI records expense based on the fair value over the vesting period,
which is 100 percent of the face value on the date of the award. Dividend
equivalents, in the form of cash or additional shares, are paid on all
underlying shares of restricted stock at the same rate as paid to ordinary
share shareholders.
(6) The current philosophy of HSBC and HUSI, including within the CIBM and
Private Banking businesses, is to reward executive officers with awards of
restricted shares rather than stock options. Ms. Derickson received stock
option awards from HSBC Finance Corporation in 2002 and from HSBC in 2003
and 2004, all of which were awarded prior to her appointment as President
& Chief Executive Officer of HUSI. HUSI did not record a compensation
expense with respect to those stock options in 2006. The amount of
compensation expense amortized in 2006 by HSBC Finance Corporation for
accounting purposes under FAS 123R with respect to these stock options was
$787,646, which amount did not include any compensation expense
amortization with respect to the outstanding stock options awarded in
2004. The methodology of the valuation of the outstanding stock options
awarded in 2002 and 2003 was based on a Black-Scholes model for each of
the respective years. The stock options awarded to Ms. Derickson in 2004
are performance based with 100 percent of the condition tested against TSR
in 2007. The amount of compensation expense amortized in 2006 with respect
to the stock options awarded in 2004 has been excluded from the amounts
shown because of the probability of the performance condition not being
satisfied. The performance condition will be subject to a re-test in 2008,
and again in 2009, and must be satisfied in order for the shares to vest.
(7) The amounts disclosed for Messrs. Glynn, McKenna and McDonagh and Ms.
Burak represent the incentive bonus earned in 2006 but paid in February
2007 under the Management Incentive Program.
(8) The HSBC-North America (U.S.) Retirement Income Plan ("RIP"), the
Household Supplemental Retirement Income Plan ("SRIP"), the HSBC Bank
Supplemental Plans ("Excess Plans"), the HSBC Bank Canada Qualified and
Non-Qualified Retirement Plans and the HSBC International Staff Retirement
Benefit Scheme (Jersey) ("ISRBS") are described under Savings and Pension
Plans on page 190.
Increase in values by plan for each participant are: Ms. Derickson -
$5,453 (RIP), $57,933 (SRIP); Mr. Glynn - $150,274 (Canada Qualified),
$1,749,319 (Canada Non-Qualified); Mr. McKenna - $54,991 (RIP), $37,247
(Excess); Mr. Belfatto - $4,576 (RIP); Ms. Burak - $40,402 (RIP), $328,351
(SRIP); Mr. McDonagh - $488,925 (ISRBS, net of mandatory 2006
contribution); and Mr. Petri - $4,576 (RIP).
(9) Components of All Other Compensation are disclosed in the aggregate. All
Other Compensation includes perquisites and other personal benefits
received by each named executive officer, such as financial planning
services, physical exams, club initiation fees, expatriate benefits and
car allowances, to the extent such perquisites and other personal benefits
exceeded $10,000 in 2006. The following itemizes perquisites and other
benefits for each named executive officer who received perquisites and
other benefits in excess of $10,000: Car allowances for Mr. Glynn were
$13,800 and for Mr. McDonagh were $11,375 in 2006. The tax gross up on the
car allowances were $12,138 and $9,406 respectively. Club Dues and
Membership fees for Messrs. Glynn and McDonagh were $4,100 and $22,211,
respectively, and for Ms. Derickson were $11,000. Executive Tax Services
for Messrs. Glynn and McDonagh were each $500 excluding tax gross-ups of
$458 and $84, respectively. Mr. Glynn was reimbursed for approximately
$52,500 in Legal Fees and Expenses in 2006. Financial Counseling expenses
for Ms. Derickson were $4,000 in 2006. Ms. Derickson received Executive
Umbrella Liability Coverage in the amount of $1,850 for 2006. In 2006, Mr.
Glynn had $177,600 in Rent Allowance, excluding a tax gross up of
$150,522. In 2006, Mr. McDonagh had $90,233 in Children's Education
Allowance and a corresponding tax gross-up of $75,332, $17,663 in a
Relocation Allowance, $75,000 for Rent Allowance and a corresponding tax
gross-up of $62,615, $122,383 in Housing and Furniture Allowance and a
corresponding tax gross-up of $25,575, $72,454 in Executive Travel
Allowance, a $16,879 Loan Subsidy and $33,690 of Additional Income.
182
The total in the All Other Compensation column includes life insurance
premiums paid by HUSI in 2006 for the benefit of executives, as follows:
Ms. Derickson, $7,782; Mr. Glynn, $12,462; Mr. McKenna, $1,992; Mr.
Belfatto, $7,782; Mr. Young, $1,463; Mr. Petri, $5,088 and Ms. Burak,
$6,973. All Other Compensation also includes HUSI's contribution for the
named executive officer's participation in the HSBC-North America (U.S.)
Tax Reduction Investment Plan ("TRIP") in 2006, as follows: Mr. Glynn, Mr.
Petri, Ms. Derickson and Ms. Burak each had an $11,000 contribution; Mr.
McKenna had a $12,308 contribution and Mr. Belfatto had a $12,980
contribution. In addition, Ms. Derickson and Ms. Burak each had a company
contribution in the Supplemental Tax Reduction Investment Plan ("STRIP")
of $157,000 and $68,466 respectively, in 2006. TRIP and STRIP are
described under Savings and Pension Plans - Deferred Compensation Plans on
page 194.
(10) Pursuant to an agreement with HNAH entered into in connection with his
retirement, Mr. Glynn received $7,216,000 in additional cash compensation.
This included $6,600,000 for general employment benefits that would
otherwise have accrued had he retired two years after December 31, 2006,
and $616,000 as compensation for any equity-based award that would have
been awarded in 2007. See Chief Executive Officer Compensation - Mr. Glynn
in the 2006 CD&A for a description of Mr. Glynn's agreement.
(11) In 2006, Mr. Petri received $155,714 in additional compensation, which
included payment for general employment benefits that would otherwise have
accrued had his employment continued through 2006. Mr. Petri is also
entitled to receive restricted shares with a grant date value of
$3,540,000 as part of his 2006 bonus compensation. The shares vest 33 1/3
percent over the first three anniversaries from the date of grant and
forfeit only if Mr. Petri violates the terms of his separation agreement.
See Joseph M. Petri Compensation in the 2006 CD&A for a description of Mr.
Petri's separation agreement.
Grants Of Plan-Based Awards Table
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All Other All Other
Stock Option
Estimated Future Payouts Under Estimated Future Payouts Awards: Awards: Exercise Grant Date
Non-Equity Incentive Under Equity Incentive Number Number of or Base Fair Value
Plan Awards (1) Plan Awards (2) of Shares Securities Price of of Stock
----------------------------- ------------------------- of Stock Underlying Option and Option
Grant Threshold Target Maximum Threshold Target Maximum or Units Options Awards Awards
Name Date ($) ($) ($) (#) (4) (#) (#) (#) (#) ($/Sh) ($)(2)(3)
------------------------------------------------------------------------------------------------------------------------
Sandra L.
Derickson N/A N/A $700,000 $2,100,000 N/A N/A N/A N/A N/A N/A N/A
President &
Chief
Executive
Officer -
Designate
Martin J.G.
Glynn 3/6/2006 N/A 700,000 2,100,000 23,329 N/A 77,766 N/A N/A N/A $1,400,000
President &
Chief
Executive
Officer
John J.
McKenna 3/31/2006 N/A 243,788 487,575 N/A N/A N/A 23,612 (5) N/A N/A 414,785
Senior
Executive
Vice
President &
Chief
Financial
Officer
Joseph A.
Belfatto 3/6/2006 N/A N/A N/A N/A N/A N/A 83,178 (5) N/A N/A 1,440,000
Senior
Executive
Vice
President
and Head,
Global Markets
Americas
Marlon
Young 4/28/2006 N/A N/A N/A N/A N/A N/A 86,304 (5) N/A N/A 1,489,905
Managing
Director,
CEO Private
Bank
Americas
Janet L.
Burak 3/31/2006 N/A 400,208 800,416 N/A N/A N/A 29,513 (5) N/A N/A 518,447
Senior
Executive
Vice
President,
General
Counsel
& Secretary
Brendan
McDonagh 3/6/2006 N/A 676,453 1,353,106 10,596 N/A 35,319 N/A N/A N/A 635,839
Chief
Operating
Officer
Joseph M.
Petri 3/6/2006 N/A N/A N/A N/A N/A N/A 204,479 (5) N/A N/A 3,539,993
Senior
Executive
Vice
President,
Treasurer and
Co-Head, CIBM
Americas
183
(1) Pursuant to her employment agreement, Ms. Derickson was entitled to a
bonus guaranteed to be not less than $1,275,000. As discussed in the 2006
CD&A, Ms. Derickson's actual award was $0.
Messrs. Glynn, McKenna and McDonagh and Ms. Burak participate in the
Management Incentive Program. As discussed in the 2006 CD&A, the
Management Incentive Program is an annual cash incentive plan that is
comprised of both quantitative and qualitative individual, business unit
or company objectives that are determined at the beginning of the year
with each objective being assigned a target and maximum payout based upon
a percentage of base salary. The percentage of target and maximum payout
is determined by market data for the position the executive officer holds
and will not change unless the executive officer changes into a position
that has a different target and maximum payout. Typically, the maximum
payout is a 1x, 2x or 3x multiplier of target. Actual awards for the 2006
performance year for Messrs. Glynn, McKenna and Mr. McDonagh and Ms. Burak
were $1,600,000, $381,934, $720,000 and $736,383, respectively, and were
paid in February 2007. These amounts are included in the Summary
Compensation Table above under "Non-Equity Incentive Plan Compensation".
(2) Does not reflect the award of Performance Shares granted to Ms. Derickson
on March 6, 2006 while an executive with HSBC Finance Corporation and
prior to her appointment as President and Chief Executive Officer of HUSI,
the estimated future payouts under which are 41,660 (Threshold) and
138,868 (Maximum). The total grant date fair value for these Performance
Shares is $2,500,003, which amount is based on 100 percent of the fair
market value of the underlying HSBC ordinary shares on March 6, 2006 (the
date of grant) of GBP9.909706 and converted into U.S. dollars using the
GBP exchange rate at the time of funding of the grant (1.816677).
Reflects the award of Performance Shares granted to Messrs. Glynn and
McDonagh. As discussed in the 2006 CD&A and in Footnote 5 to the Summary
Compensation Table, Performance Shares are subject to two performance
conditions, each of which triggers a potential payout of 50 percent of the
aggregate award. The first objective is based upon total shareholder
return ("TSR") and the second objective is based upon earnings per share
("EPS"), both measured over a three-year performance period. TSR means the
growth in share value and declared dividend income on HSBC ordinary
shares, measured in Sterling, during the three-year performance period and
is based on HSBC's ranking against a comparator group of 28 major banks,
as listed on page 171. The calculation of the share price component within
HSBC's TSR will be the average market price over the 20 dealing days
commencing on the day when HSBC's annual results are announced with the
end point being the average market price over the 20 dealing days
commencing on the day on which the annual results of HSBC are announced
three years later. The TSR portion of the award will vest on a sliding
scale based on HSBC's relative ranking against the comparator group at the
end of the three year period. If HSBC is ranked 1st through 7th, the
vesting percentage will be 100 percent. If HSBC is ranked 8th through
14th, the vesting percentage will fall by 10 percent per rank. If HSBC is
ranked 15th through 28th, the vesting percentage will be zero. The
percentage of the TSR portion of the award that will vest is defined in
the following formula:
((X-Z) x (A-B)) + B
---------------
(Y-Z)
where:
X = the TSR performance of HSBC
Z = the TSR performance of the bank immediately below X
Y = the TSR performance of the bank immediately above X
A = the vesting percentage linked to the ranking of Y as detailed above
B = the vesting percentage linked to the ranking of Z as detailed above
The second performance condition is based upon EPS, which for purposes of
awarding Performance Shares is the profit attributable to shareholders,
divided by the weighted average number of shares in issue and held outside
of HSBC during the performance year. The base measure will be the EPS for
the financial year preceding that in which the award is made. EPS will
then be compared over the 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 measurement period between the EPS of that
year and the EPS of the base year. These percentages will be aggregated to
arrive at the total incremental EPS for the measurement period. The
percentage of the EPS objective that will vest will be determined in
accordance with the following formula: 30+2.5(X-24) where: 30 percent is
the minimum proportion of the objective that may vest and X is the
aggregate incremental EPS from the base year to the end of the measurement
period between and including 24 percent and 52 percent. If the aggregate
incremental EPS in accordance with the formula is less than 24 percent
then the EPS objective will be forfeited. If it is more than 52 percent,
then the EPS objective will vest in full.
For all plans, additional shares are awarded in amounts equivalent to the
same dividend rate on ordinary shares.
184
(3) The total grant date fair value reflected for Messrs. Glynn and McDonagh
is based on 100 percent of the fair market value of the underlying HSBC
ordinary shares on March 6, 2006 (the date of grant) of GBP9.909706 and
converted into U.S. dollars using the GBP exchange rate as of the time of
funding the grant (1.816677). The total grant date fair value reflected
for Mr. McKenna and Ms. Burak is based on 100 percent of the fair market
value of the underlying HSBC ordinary shares on March 31, 2006 (the date
of grant) of GBP9.6697 and converted into U.S. dollars using the GBP
exchange rate as of the time of funding the grant (1.816677). The total
grant date fair value reflected for Messrs. Belfatto and Petri is based on
100 percent of the fair market value of the underlying HSBC ordinary
shares on March 6, 2006 (the date of grant) of GBP 9.909706 and converted
into U.S. dollars using the GPB exchange rate at the time of purchase
(1.747). The total grant date fair value reflected for Mr. Young is based
on 100 percent of the fair market value of the underlying HSBC ordinary
shares on April 28, 2006 (the date of grant) of GBP 9.475 and converted
into U.S. dollars using the GPB exchange rate at the time of purchase
(1.822).
(4) As described in Footnote 2 above, the executives could receive no awards
under the equity incentive plan. However, the numbers presented under
"Threshold" represent the minimum awards the executives could receive if
the minimum (i.e., 30%) of either of the performance conditions is met.
(5) Reflects awards of Achievement Shares granted to Mr. McKenna and Ms.
Burak, which awards consist of shares of restricted stock that vest in
full at the end of a three-year period from the date of grant. The award
amount of Achievement Shares is based on the executive officer's position
within the organization, base salary, performance rating and scope for
growth. At the executive level, officers eligible to receive Achievement
Shares are eligible for awards ranging from 50 percent up to 300 percent
of base salary.
Reflects awards of restricted shares to Messrs. Belfatto and Petri on
March 6, 2006 and to Mr. Young on April 28, 2006, which awards consist of
shares of restricted stock that vest one-third on each of the first three
anniversaries of the date of grant. As described in the 2006 CD&A, a
portion of the executive's annual discretionary bonus award is deferred
through the award of restricted shares. The minimum deferral threshold, or
the portion of each bonus award paid in restricted shares, and vesting
schedules may vary by business unit within the parameters set by CIBM and
Private Banking, as applicable, for their businesses and approved by
REMCO.
Reflects awards of restricted shares to Mr. Young in connection with his
employment by HUSI, which were granted to compensate Mr. Young for
previous equity awards forfeited when he joined HUSI. These awards consist
of shares of restricted stock that vest one-third on each of the first
three anniversaries of the date of grant.
For all plans, additional shares are awarded in amounts equivalent to the
same dividend rate on ordinary shares.
185
Outstanding Equity Awards At Fiscal Year-End Table
--------------------------------------------------------------------------------
Option Awards
-----------------------------------------------------------------------
Equity
Incentive
Plan
Awards:
Number of Number of Number of
Securities Securities Securities
Underlying Underlying Underlying
Unexercised Unexercised Unexercised Option Option
Options (#) Options (#) Unearned Exercise Expiration
Name Exercisable Unexercisable Options (#) Price Date
--------------------------------------------------------------------------------------------
Sandra L. 107,000 (4) $ 18.40 11/13/2010
Derickson (3) 133,750 (4) $ 21.37 11/12/2011
President & 267,500 (4) $ 10.66 11/20/2012
Chief Executive 153,000 (5) 51,000 (5) GBP9.1350 11/03/2013
Officer - Designate 102,000 (6) GBP8.2830 04/30/2014
Martin J.G. Glynn
President &
Chief Executive
Officer
John J. McKenna
Senior Executive
Vice President &
Chief Financial
Officer
Joseph A. Belfatto
Senior Executive
Vice President and
Head, Global
Markets Americas
Marlon Young
Managing Director,
CEO Private Bank
Americas
Janet L. Burak 26,750 (4) $ 13.71 11/9/2008
Senior Executive 26,750 (4) $ 16.96 11/8/2009
Vice President, 26,750 (4) $ 18.40 11/13/2010
General Counsel &
Secretary
Brendan 18,900 (4) GBP6.3754 3/29/2009
McDonagh 9,000 (4) GBP6.2767 3/16/2008
Chief Operating
Officer
Joseph M. Petri
Senior Executive
Vice President,
Treasurer and
Co-Head, CIBM
Americas
Stock Awards
----------------------------------------------------
Equity Equity
Incentive Incentive
Plan Plan
Awards: Awards:
Number Market or
Number of Payout
of Unearned Value of
Shares Market Shares, Unearned
or Units Value of Units or Shares,
of Stock Shares or Other Units or
That Units of Rights Other
Have Stock that That Rights
Not Have Not Have Not That Have
Vested Vested Vested Not Vested
Name (#)(1) ($)(2) (#)(1) ($)(2)
-------------------------------------------------------------------------
Sandra L. 141,421 (7) $2,578,105 158,399 (9) $2,887,614
Derickson (3) 302,481 (8) $5,514,229 138,868 (10) $2,531,564
President &
Chief Executive
Officer - Designate
Martin J.G. Glynn 25,434 (11) $ 463,662
President & 34,339 (12) $ 626,000
Chief Executive 46,659 (9) $ 850,594
Officer 21,602 (10) $ 393,804
John J. McKenna 9,456 (13) $ 172,383 8,280 (15) $ 150,944
Senior Executive 23,612 (14) $ 430,429 8,697 (16) $ 158,546
Vice President &
Chief Financial
Officer
Joseph A. Belfatto 37,562 (17) $ 684,755
Senior Executive 22,567 (18) $ 411,396
Vice President and 2,594 (19) $ 47,289
Head, Global 83,178 (20) $1,516,335
Markets Americas
Marlon Young 31,778 (21) $ 579,313
Managing Director, 24,898 (22) $ 453,891
CEO Private Bank 29,628 (23) $ 540,118
Americas
Janet L. Burak 5,351 (24) $ 97,548 20,004 (26) $ 364,673
Senior Executive 13,334 (25) $ 243,079
Vice President, 31,678 (13) $ 577,490
General Counsel & 29,513 (14) $ 538,022
Secretary
Brendan 11,392 (27) $ 207,676 14,612 (15) $ 266,377
McDonagh 15,259 (16) $ 278,172
Chief Operating 23,734 (9) $ 432,671
Officer 35,319 (10) $ 643,865
Joseph M. Petri 77,818 (19) $1,418,622 9,176 (15) $ 167,278
Senior Executive 111,487 (17) $2,032,408 8,526 (16) $ 155,429
Vice President,
Treasurer and 204,479 (20) $3,727,652
Co-Head, CIBM
Americas
(1) Share amounts do not include additional awards accumulated over the
vesting periods.
(2) The market value of the shares on December 29, 2006 was GBP9.31 and the
exchange rate from GBP to U.S. dollars was 1.958, which equates to a U.S.
dollar share price of $18.23 per share.
(3) All amounts shown for Ms. Derickson reflect equity awards received while
an executive of HSBC Finance Corporation and prior to her appointment as
President & Chief Executive Officer of HUSI.
(4) Reflects fully vested options. Options shown for Ms. Burak reflect equity
awards received while employed by HSBC Finance Corporation and prior to
her appointment as Senior Executive Vice President, General Counsel and
Secretary of HUSI. Options shown for Mr. McDonagh reflect equity awards
received from HSBC prior to his appointment to HUSI.
186
(5) Seventy-five percent of this award vested on November 3, 2006. The
remaining 25 percent will vest on November 3, 2007.
(6) This award will vest in full, subject to satisfaction of performance
conditions, on the third anniversary of the date of grant, which was April
30, 2004. If the performance conditions are not satisfied on the third
anniversary, the performance conditions will be re-tested on the fourth
and fifth anniversaries of the date of grant. If the performance
conditions are not met on the fifth anniversary of the date of grant, the
options will be forfeited.
(7) Twenty percent this award vested on each of March 31, 2004, March 31, 2005
and March 31, 2006. Twenty percent of the award will vest on each of March
30, 2007 and May 31, 2008.
(8) Twenty percent of this award vested on May 26, 2006. Twenty percent of
this award will vest on each of May 25, 2007, May 26, 2008, May 26, 2009
and May 26, 2010.
(9) These awards will vest in part or in full on March 31, 2008 if performance
conditions are met. For Mr. Glynn, the amount of the award was pro-rated
based on the number of months between date of grant and date of retirement
divided by 36, pursuant to the terms of the agreement entered into in
connection with his retirement.
(10) These awards will vest in part or in full on March 31, 2009 if performance
conditions are met. For Mr. Glynn, the amount of the award was pro-rated
based on the number of months between date of grant and date of retirement
divided by 36, pursuant to the terms of the agreement entered into in
connection with his retirement.
(11) These awards vest in full on March 31, 2007 if performance conditions are
met. If the performance conditions are not met, the performance conditions
will be re-tested on March 31, 2008 and, if met, the shares will vest in
full. If the performance conditions are not met, the shares will be
forfeited.
(12) This award vests in full on March 31, 2007 if performance conditions are
met. If the performance conditions are not met, the shares will be
forfeited.
(13) These awards vest in full on March 31, 2008.
(14) These awards vest in full on March 31, 2009.
(15) These awards vest in full five years from date of grant (April 2, 2003) if
performance conditions are met as of the third, fourth or fifth
anniversary of the date of grant. If performance conditions are not met on
the fifth anniversary of the date of grant, the shares will be forfeited.
(16) These awards vest in full on the fifth anniversary of the date of grant
(April 1, 2004) if performance conditions are met as of the third
anniversary of the date of grant. If performance conditions are not met,
the shares will be forfeited with no re-test provision.
(17) Thirty-three percent of these awards vested on March 6, 2006. Thirty-three
percent will vest on announcement of 2006 annual results in 2007 and the
remaining 34 percent will vest on announcement of 2007 annual results in
2008.
(18) Fifty percent of this award vested on February 28, 2005 and the remaining
50 percent will vest on announcement of 2006 annual results in 2007.
(19) Thirty-three percent of this award vested on February 28, 2005 and 33
percent vested on March 6, 2006. The remaining 34 percent will vest on
announcement of 2006 annual results in 2007.
(20) Thirty-three percent of these awards will vest on March 5, 2007, 33
percent will vest on February 28, 2008 and 34 percent will vest on
February 28, 2009.
(21) Forty-three percent of this award will vest on January 31, 2007, 22
percent will vest on each of January 31, 2008 and 2009 and 13 percent will
vest on January 31, 2010.
(22) This award will vest in full on January 31, 2009.
(23) This award will vest in full on April 30, 2009.
(24) Thirty-three percent this award vested on November 21, 2005 and 33 percent
vested on November 20, 2006. The remaining 34 percent of this award will
vest on November 20, 2007.
(25) Thirty-three percent of this award vested on October 31, 2006.
Thirty-three percent of the award will vest on each of October 31, 2007
and 2008.
(26) Thirty-three percent of this award will vest on each of the third, fourth
and fifth anniversaries of the date of grant (April 30, 2004) if
performance conditions are satisfied as of the third anniversary of the
date of grant. If the performance conditions are not met as of the third
anniversary, the performance conditions will be re-tested on the fourth
and fifth anniversaries of the date of grant. If the performance
conditions are not met as of the fifth anniversary of the date of grant,
the shares will be forfeited.
(27) This award vests in full on April 16, 2007.
187
Option Exercises and Stock Vested Table
--------------------------------------------------------------------------------
Option Awards Stock Awards
------------------------------------- ---------------------------------------
Number of Value Realized Number of Shares Value Realized
Shares Acquired on Exercise Acquired on Vesting on Vesting
Name on Exercise(#) ($) (1) (#) (2) ($) (1)
--------------------------------------------------------------------------------------------------------
Sandra L. Derickson 161,201 (3) $2,769,142
President &
Chief Executive
Officer - Designate
Martin J.G. Glynn 34,936 (4) 580,052
President &
Chief Executive
Officer
John J. McKenna 26,600 (5) $129,162
Senior Executive Vice
President & Chief
Financial Officer
Joseph A. Belfatto 47,497 (6) 819,080
Senior Executive Vice
President and Head,
Global Markets
Americas
Marlon Young
Managing Director,
CEO Private Bank
Americas
Janet L. Burak 12,017 (7) 226,653
Senior Executive Vice
President, General
Counsel & Secretary
Brendan McDonagh 6,000 (8) 51,335 11,843 (9) 211,649
Chief Operating
Officer
Joseph M. Petri 254,908 (10) 4,408,267
Senior Executive Vice
President, Treasurer
and Co-Head, CIBM
Americas
(1) Value realized on exercise or vesting uses the GBP fair market value on
the date of exercise/release and the exchange rate from GBP to U.S.
dollars on the date of settlement.
(2) Includes the release of additional awards accumulated over vesting period.
(3) The amount shown for Ms. Derickson reflects equity awards received while
an executive of HSBC Finance Corporation and prior to her appointment as
President and Chief Executive Officer of HUSI and includes the release of
70,710 shares granted on April 15, 2003 and 75,620 shares granted on May
26, 2005. The remaining shares reflect the release of additional awards
accumulated over the vesting period.
(4) Includes the release of 9,829 shares granted on April 30, 2001 and 18,123
shares granted on March 8, 2002. Remaining shares are release of
additional awards accumulated over the vesting period.
(5) Includes the exercise of stock options granted on March 24, 1997 (3,000),
March 16, 1998 (4,500), March 29, 1999 (9,600), April 3, 2000 (3,000) and
April 23, 2001 (6,500).
(6) Includes the release of 18,781 shares granted on February 28, 2005, 2,594
shares granted on March 8, 2004 and 21,949 shares granted on March 13,
2003. Remaining shares are release of additional awards accumulated over
the vesting period.
(7) Includes the release of 5,350 shares granted on November 20, 2002 and
6,667 shares granted on November 3, 2003.
(8) Includes the exercise of stock options granted on March 24, 1997 from HSBC
prior to his appointment to HUSI.
188
(9) Includes the release of 7,645 shares granted on April 30, 2001 and 2,061
shares granted on May 12, 2003. Remaining shares are release of additional
awards accumulated over the vesting period.
(10) Includes release of 5,461 shares granted on April 30, 2001, 7,595 shares
granted on April 15, 2002, 83,173 shares granted on March 13, 2003, 77,817
shares granted on March 8, 2004 and 55,743 shares granted on February 28,
2005. Remaining shares are release of additional awards accumulated over
the vesting period.
Pension Benefits
--------------------------------------------------------------------------------
Number of Years Present Value Payments
Credited Service of Accumulated During Last
Name Plan Name (1) (#) Benefit Fiscal Year
--------------------------------------------------------------------------------------------------------
Sandra L. Derickson RIP-Account Based 6.3 $ 30,539 $ 0
President & SRIP-Account Based 6.3 $ 195,884 $ 0
Chief Executive Officer -
Designate
Martin J.G. Glynn (2) Canada Qualified 24.1 $ 528,375 $ 0
President & Canada Non-Qualified 24.1 $ 4,785,734 $ 0
Chief Executive Officer
John J. McKenna (3) RIP-HSBC Old 20.2 $ 261,473 $ 0
Senior Executive Vice Excess-HSBC Old 20.2 $ 37,247 $ 0
President & Chief Financial
Officer
Joseph A. Belfatto RIP-Account Based 4.6 $ 8,776 $ 0
Senior Executive Vice
President and Head,
Global Markets Americas
Marlon Young (4) RIP-Account Based 0.8 $ 0 $ 0
Managing Director, CEO SRIP-Account Based 0.8 $ 0
Private Bank Americas
Janet L. Burak RIP-Household New 14.8 $ 280,648 $ 0
Senior Executive Vice SRIP-Household New 14.8 $ 927,033 $ 0
President, General Counsel &
Secretary
Brendan McDonagh (5) ISRBS 26.0 $ 2,634,208 $ 0
Chief Operating Officer
Joseph M. Petri RIP-Account Based 6.7 $ 8,776 $ 0
Senior Executive Vice
President, Treasurer and Co-
Head, CIBM Americas
(1) Plan described under Savings and Pension Plans below.
(2) Value reflects January 1, 2007 retirement and actual benefit election.
(3) Value of age 65 benefit. At age 60, participant would be eligible for
unreduced early retirement, and accrued benefit has a present value of
$389,571 (RIP) and $55,432 (SRIP).
(4) Not yet a participant; will participate upon completion of one year of
service.
(5) Value of age 53 benefit. Participant is also eligible for an immediate
early retirement benefit with value of $3,130,166.
189
Savings and Pension Plans
Retirement Income Plan (RIP)
The HSBC-North America (U.S.) Retirement Income Plan ("RIP") is a
non-contributory, defined benefit pension plan for employees of HSBC North
America and its U.S. subsidiaries who are at least 21 years of age with one year
of service and not part of a collective bargaining unit. Benefits are determined
under a number of different formulas that vary based on year of hire and
employer.
Supplemental Retirement Income Plan (SRIP)
HSBC Bank (HBUS) Supplemental Plans (Excess Plans)
Supplemental Retirement Income Plan ("SRIP") is a non-qualified retirement plan
that is designed to provide benefits that are precluded from being paid to
legacy Household employees by the RIP due to legal constraints applicable to all
qualified plans. The HBUS Supplemental Benefit Plan and the Benefit Equalization
Plan (the "Excess Plans") are designed to provide benefits that are precluded
from being paid to legacy HBUS employees by the defined benefit formula under
the Retirement Income Plan (RIP) due to legal constraints applicable to all
qualified plans. For example, the maximum amount of compensation during 2006
that can be used to determine a qualified plan benefit is $220,000 and the
maximum annual benefit commencing at age 65 in 2006 is $175,000. SRIP and Excess
Plan benefits are calculated without regard to these limits. The resulting
benefit is then reduced by the value of qualified benefits payable by RIP so
that there is no duplication of payments. Benefits are paid in a lump sum for
retired executives covered by a Household Old, Household New, or Account Based
Formula, and in the same manner as elected for the qualified plan for executives
covered by a HBUS Old or New Plan Formula.
Formulas for Calculating Benefits
HBUS Old Plan Formula: Applies to executives who were participants in the HBUS
pension plan before January 1, 1989. The normal retirement benefit is the sum of
A and B below:
A. A benefit determined under the HBUS New Plan Formula, provided
service for this purpose is limited to 30 years reduced by years of
service used in B.
B. A benefit determined by multiplying (a) by (b) as described below:
(a) The gross benefit prior to offset by an integration amount is
equal to two percent of average salary multiplied by the first
30 years of service. This gross benefit is then reduced by an
integration amount equal to 2/3 of one percent of Social
Security multiplied by the first 30 years of service. However,
the integration amount cannot reduce the gross benefit by more
than 50 percent. Average salary, service, and Social Security
for the gross benefit and integration amount are determined as
of December 31, 1988.
(b) The benefit in (a) is multiplied by a fraction (but not less
than one), the numerator of which is average salary at date of
retirement and the denominator is average salary on December
31, 1988.
For this purpose, salary includes base wages but excludes bonuses. The formula
uses an average of salaries for the 60 highest consecutive months selected from
the 120 consecutive months preceding date of retirement. Executives who are at
least age 60 with 30 or more years of service are eligible to retire with
unreduced benefits. Executives who are at least age 55 with 10 or more years of
service may retire before age 65 in which case the benefit is reduced 3/12 of
one percent for the first 60 months and 5/12 of one percent for the next 60
months that payment precedes age 65.
190
HBUS New Plan Formula: Applies to executives who were hired prior to January 1,
1997 by HBUS and became participants in the pension plan after December 31,
1988. The normal retirement benefit at age 65 is the sum of (i) 1.55 percent of
average salary and (ii) 0.4 percent of average salary in excess of the
integration amount. The total of (i) and (ii) is then multiplied by the first 30
years of service. For this purpose, the integration amount is an average of the
Social Security taxable wage bases for the 35 year period ending with the year
in which full benefits are available; any such wage bases that have to be
estimated are based on the current wage base for the year of retirement. Salary
includes base wages but excludes bonuses. The formula uses an average of
salaries for the 60 highest consecutive months selected from the 120 consecutive
months preceding date of retirement. Executives who are at least age 60 with 30
or more years of service are eligible to retire with unreduced benefits.
Executives who are at least age 55 with 10 or more years of service may retire
before age 65 in which case the benefit is reduced 3/12 of one percent for the
first 60 months and 5/12 of one percent for the next 60 months that payment
precedes age 65.
Household Old Formula: Applies to executives who were hired prior to January 1,
1990 by Household International. The benefit at age 65 is determined under
whichever formula, A or B below, provides the higher amount.
A. The normal retirement benefit at age 65 is the sum of (i) 51 percent
of average salary that does not exceed the integration amount and
(ii) 57 percent of average salary in excess of the integration
amount. For this purpose, the integration amount is an average of
the Social Security taxable wage bases for the 35 year period ending
with the year of retirement. The benefit is reduced pro rata for
executives who retire with less than 15 years of service. If an
executive has more than 30 years of service, the benefit percentages
in the formula, (the 51 percent and 57 percent) are increased 1/24
of 1 percentage point for each month of service in excess of 30
years, but not more than 5 percentage points. The benefit
percentages are reduced for retirement prior to age 65.
B. The normal retirement benefit at age 65 is determined under (a)
below, limited to a maximum amount determined in (b):
(a) 55 percent of average salary, reduced pro rata for less than
15 years of service, and increased 1/24 of 1 percentage point
for each month in excess of 30 years, but not more than 5
percentage points; the benefit percentage of 55 percent is
reduced for retirement prior to age 65.
(b) The amount determined in (a) is reduced as needed so that when
added to 50 percent of the primary Social Security benefit,
the total does not exceed 65 percent of the average salary.
This maximum is applied for payments following the age at
which full Social Security benefits are available.
Both formulas use an average of salaries for the 48 highest consecutive months
selected from the 120 consecutive months preceding date of retirement; for this
purpose, salary includes total base wages and bonuses.
For executives who were participants on January 1, 1978, had attained age 35 and
had at least 10 years of employment, the minimum normal retirement benefit is 55
percent of final average salary. For this purpose, salary does not include
bonuses and the average is based on 60 consecutive months, rather than 48.
Executives who are at least age 50 with 15 years of service or at least age 55
with 10 years of service may retire before age 65, in which case the benefits
are reduced.
191
Household New Formula: Applies to executives who were hired after December 31,
1989, but prior to January 1, 2000, by Household International. The normal
retirement benefit at age 65 is the sum of (i) 51 percent of average salary that
does not exceed the integration amount and (ii) 57 percent of average salary in
excess of the integration amount. For this purpose, salaries include total base
wages and bonuses and are averaged over the 48 highest consecutive months
selected from the 120 consecutive months preceding date of retirement. The
integration amount is an average of the Social Security taxable wage bases for
the 35 year period ending with the year of retirement. The benefit is reduced
pro rata for executives who retire with less than 30 years of service. If an
executive has more than 30 years of service, the percentages in the formula,
(the 51 percent and 57 percent) are increased 1/24 of 1 percentage point for
each month of service in excess of 30 years, but not more than 5 percentage
points. Executives who are at least age 55 with 10 or more years of service may
retire before age 65 in which case the benefit percentages (51 percent and 57
percent) are reduced.
Account Based Formula: Applies to executives who were hired by Household
International after December 31, 1999. It also applies to executives who were
hired by HBUS after December 31, 1996 and became participants in the Retirement
Income Plan on January 1, 2005, or were hired by HSBC after March 28, 2003. The
formula provides for a notional account that accumulates two percent of annual
salary for each calendar year of employment. For this purpose, salary includes
total base wages and bonuses. At the end of each calendar year, interest is
credited on the notional account using the value of the account at the beginning
of the year. The interest rate is based on the lesser of average yields for
10-year and 30-year Treasury bonds during September of the preceding calendar
year. The notional account is payable at termination of employment for any
reason after three years of service although payment may be deferred to age 65.
Provisions Applicable to All U.S. Formulas: The amount of salary used to
determine benefits is subject to an annual maximum that varies by calendar year.
The limit for 2006 is $220,000. The limit for years after 2006 will increase
from time-to-time as specified by IRS regulations. Benefits are payable as a
life annuity, or for married participants, a reduced life annuity with 50
percent continued to a surviving spouse. Participants (with spousal consent, if
married) may choose from a variety of other optional forms of payment, which are
all designed to be equivalent in value if paid over an average lifetime. Retired
executives covered by a Household Old, Household New or Account Based Formula
may elect a lump sum form of payment (spousal consent is needed for married
executives).
Canadian Plans applicable to Martin Glynn
HSBC Bank Canada's qualified pension plan is a defined benefit plan under which
benefits are determined primarily by final average earnings, years of service
and a plan formula. Benefits payable under this plan are limited to the maximum
allowed by Canada Revenue Agency (CRA). For example, in year 2005 the limit was
$2,000 and in year 2006, the limit is $2,111.11 per year of pensionable service.
The following table, which is presented in Canadian currency, indicates the
maximum pension benefits allowed by law for plan participants in the specified
compensation and years of service classifications for year 2006. The table
assumes payments in the form of a life annuity, guaranteed for ten years.
--------------------------------------------------------------------------------
Compensation 15 20 25 30
--------------------------------------------------------------------------------
$ 500,000 $ 31,666 $ 42,222 $ 52,777 $ 63,333
600,000 31,666 42,222 52,777 63,333
700,000 31,666 42,222 52,777 63,333
800,000 31,666 42,222 52,777 63,333
900,000 31,666 42,222 52,777 63,333
1,000,000 31,666 42,222 52,777 63,333
The pension benefit for plan participants in the compensation levels presented
above is capped for all participants having the number of years of credited
service indicated. The compensation covered by the plan is limited to straight
salary. At the plan's normal retirement date of age 60, Mr. Glynn will have
28.75 years of credited service.
192
In addition to the pension benefit available from the HSBC Bank Canada qualified
plan, Mr. Glynn is entitled to receive an annual pension benefit during his
lifetime pursuant to a non-qualified supplemental retirement agreement with HSBC
Bank Canada. Under the terms of this agreement, the supplemental allowance is
forfeited if Mr. Glynn ceases employment with HSBC before age 55 and goes to
work for a competitor within two years. The supplemental allowance is calculated
based on Mr. Glynn's highest three years average base salary, excluding all
bonuses. The supplemental pension agreement formula is 2.5 percent of final
average earnings, times years of pensionable service. Mr. Glynn's earnings under
this formula are converted into Canadian currency by multiplying his current
earnings in U.S. currency by 1.3333.
Based on an annual salary of $933,310 in Canadian currency, the estimated annual
total pension benefit at the normal retirement age of 60 for Mr. Glynn is
$670,815. Of this amount, $60,694 is payable from the HSBC Bank Canada qualified
plan and $610,121 from the non-qualified supplemental retirement agreement. In
U.S. currency, these pension benefits amount to $45,522 from the qualified plan
and $457,602 from the non-qualified plan. Mr. Glynn attained age 55 on September
30, 2006 and retired effective as of January 1, 2007. Therefore, his pension
which began as of January 1 was reduced by 1/4 of one percent for each month
between the commencement date and his 60th birthday.
HSBC International Staff Retirement Benefits Scheme
The HSBC International Staff Retirement Benefits Scheme (Jersey) ("ISRBS") is a
defined benefit plan maintained for certain international managers. Each member
during his service must contribute five percent of his salary to the plan but
each member who has completed 20 years of service or who enters the senior
management or general management sections during his service shall contribute 6
2/3 percent of his salary. In addition, a member may make voluntary
contributions, but the total of voluntary and mandatory contributions cannot
exceed 15 percent of his total compensation. Upon leaving service, the value of
the member's voluntary contribution fund, if any, shall be commuted for a
retirement benefit.
The annual pension payable at normal retirement is 1/480 of the member's final
salary for each completed month in the executive section, 1.25/480 of his final
salary for each completed month in the senior management section, and 1.50/480
of his final salary for each completed month in the general management section.
A member's normal retirement date is the first day of the month coincident with
or next following his 53rd birthday. Payments may be deferred or suspended but
not beyond age 75.
If a member leaves before normal retirement with at least 15 years of service,
he will receive a pension which is reduced by .25 percent for each complete
month by which termination precedes normal retirement. If he terminates with at
least 5 years of service, he will receive an immediate lump sum equivalent of
his reduced pension.
Present Value of Accumulated Benefits
For the Account Based formula: The value of the notional account balances
currently available on December 31, 2006.
For other formulas: The present value of benefit payable at assumed retirement
using interest and mortality assumptions consistent with those used for
financial reporting purposes under SFAS 87 with respect to the company's audited
financial statements for the period ending December 31, 2006. However, no
discount has been assumed for separation prior to retirement due to death,
disability or termination of employment. Further, the amount of the benefit so
valued is the portion of the benefit at assumed retirement that has accrued in
proportion to service earned on December 31, 2006.
193
Deferred Compensation Plans
Tax Reduction Investment Plan HNAH maintains the HSBC-North America (U.S.) Tax
Reduction Investment Plan ("TRIP"), which is a deferred profit-sharing and
savings plan for its eligible employees. With certain exceptions, a U.S.
employee who has been employed for 30 days and who is not part of a collective
bargaining unit may contribute into TRIP, on a pre-tax and after-tax basis, up
to 40 percent (15 percent if highly compensated) of the participant's cash
compensation (subject to a maximum annual pre-tax contribution by a participant
of $15,000, as adjusted for cost of living increases, and certain other
limitations imposed by the Internal Revenue Code) and invest such contributions
in separate equity or income funds.
If the employee has been employed for at least one year, HUSI contributes three
percent of compensation on behalf of each participant who contributes one
percent and matches any additional participant contributions up to four percent
of compensation. However, matching contributions will not exceed six percent of
a participant's compensation if the participant contributes four percent or more
of compensation. The plan provides for immediate vesting of all contributions.
With certain exceptions, a participant's after-tax contributions which have not
been matched by us can be withdrawn at any time. Both our matching contributions
made prior to 1999 and the participant's after-tax contributions which have been
matched may be withdrawn after five years of participation in the plan. A
participant's pre-tax contributions and our matching contributions after 1998
may not be withdrawn except for an immediate financial hardship, upon
termination of employment, or after attaining age 59 1/2. Participants may
borrow from their TRIP accounts under certain circumstances.
Supplemental Tax Reduction Investment Plan HNAH also maintains the Supplemental
Tax Reduction Investment Plan ("STRIP"), which is an unfunded plan for eligible
employees of HUSI and its participating subsidiaries who are legacy Household
employees and whose participation in TRIP is limited by the Internal Revenue
Code. Only matching contributions required to be made by us pursuant to the
basic TRIP formula are invested in STRIP through a credit to a bookkeeping
account maintained by us which deems such contributions to be invested in equity
or income funds selected by the participant.
Non-Qualified Deferred Compensation Plan HNAH maintains a Non-Qualified Deferred
Compensation Plan for the highly compensated employees in the organization,
including executives of HUSI. The named executive officers are eligible to
contribute up to 80 percent of their salary and/or cash bonus compensation in
any plan year. Participants are required to make an irrevocable election with
regard to an amount or percentage of compensation to be deferred and the timing
and manner of future payout. Two types of distributions are permitted under the
plan, either a scheduled in-service withdrawal which must be scheduled at least
2 years after the end of the plan year in which the deferral is made, or payment
upon termination of employment. For either the scheduled in-service withdrawal
or payment upon termination, the participant may elect either a lump sum payment
or if the participant has made at least $25,000 of contributions and has over 10
years of service, he may request installment payments over 10 years. Due to the
unfunded nature of the plan, participant elections are deemed investments whose
gains or losses are calculated by reference to actual earnings of the investment
choices. The deemed investment choices are reviewed on a periodic basis by the
Investment Committee for the Plan which consists of members chosen by the Board
or Directors or Chief Executive Officer of HSBC North America Holdings Inc. and
are chosen based on a conservative mix of funds and currently include Van Kampen
Real Estate Securities - A Shares, Oppenheimer Global - A Shares, AIM Small Cap
Growth - Class A, HSBC Investor Small Cap Equity - Class Y, Fidelity Advisor Mid
Cap Stock - Class A, Dreyfus S&P 500 Index, HSBC Investor Growth & Income -
Class Y, HSBC Investor Fixed Income - Class Y and HSBC Investor Money Market -
Class Y. In order to provide the participants with the maximum amount of
protection under an unfunded plan, a Rabbi Trust has been established where the
participant contributions are segregated from the general assets of HUSI. The
Investment Committee for the plan endeavors to invest the contributions in a
manner consistent with the participant's deemed elections reducing the
likelihood of an underfunded plan.
194
Nonqualified Defined Contribution and Other Nonqualified Deferred Compensation
Plans
--------------------------------------------------------------------------------
NonQualified Supplemental
Deferred Tax Reduction
Compensation Investment
Plan (1) Plan (2)
Executive HUSI Aggregate Aggregate
Contributions in Contributions in Aggregate Withdrawals/ Balance at
Name 2006 2006 Earnings in 2006 Distributions 12/31/2006
---------------------------------------------------------------------------------------------------------------------
Sandra L. Derickson $ 0 $ 157,000 $ 161,379 $ 0 $ 2,286,511
President & Chief Executive
Officer - Designate
Martin J.G. Glynn 100,000 N/A 5,608 0 105,608
President &
Chief Executive Officer
John J. McKenna N/A N/A N/A N/A N/A
Senior Executive Vice
President & Chief Financial
Officer
Joseph A. Belfatto N/A N/A N/A N/A N/A
Senior Executive Vice
President and Head, Global
Markets Americas
Marlon Young N/A N/A N/A N/A N/A
Managing Director, CEO
Private Bank Americas
Janet L. Burak 19,822 68,466 54,776 0 638,286
Senior Executive Vice
President, General Counsel
& Secretary
Brendan McDonagh N/A N/A N/A N/A N/A
Chief Operating Officer
Joseph M. Petri N/A N/A N/A 73,423 (3) N/A
Senior Executive Vice
President, Treasurer and
Co-Head, CIBM Americas
(1) The Nonqualified Deferred Compensation Plan is described under Savings and
Pension Plans on page 194. Ms. Derickson has made prior contributions to
the plan, but elected not to make contributions in 2006.
(2) The Supplemental Tax Reduction Investment Plan (STRIP) is described under
Savings and Pension Plans on page 194. Company contributions are invested
in STRIP through a credit to a bookkeeping account, which deems such
contributions to be invested in equity or income mutual funds selected by
the participant. For this purpose, compensation includes amounts that
would be compensation but for the fact they were deferred under the terms
of the HSBC North America Non-Qualified Deferred Compensation Plan.
Distributions are made in a lump sum upon termination of employment. These
figures are also included in the "Other Compensation" column of the
Summary Compensation Table on page 181.
(3) The figure above represents a distribution from Mr. Petri's participation
in the HSBC Investment Banking and Markets 2001 Notional Co-Investment
Plan. This plan allowed the participant to waive some or all of a
discretionary cash bonus and have the notional amount contributed as a
deemed investment in European private equity and technology transactions
through the HSBC Private Equity Partnership Scheme and the HPE Technology
Fund.
195
Potential Payments Upon Termination Or Change-In-Control
--------------------------------------------------------------------------------
The following tables describe the payments that HUSI would be required to make
as of December 31, 2006 to Ms. Derickson, Mr. McKenna, Mr. Belfatto, Mr. Young
and Ms. Burak as a result of their termination, retirement, disability or death
or a change in control of the company as of that date. The specific
circumstances that would trigger such payments are identified in the tables. The
amounts and terms of such payments are defined by HSBC's employment and
severance policies, the particular terms of any equity-based awards and, in the
case of Ms. Derickson and Mr. Young, Ms. Derickson's employment agreement and
Mr. Young's offer letter.
Mr. Glynn retired as President and Chief Executive Officer as of December 31,
2006. The amounts paid to Mr. Glynn by HUSI were agreed to in an agreement
between Mr. Glynn and HNAH entered into in connection with his retirement.
Similarly, the amounts paid to Mr. Petri in connection with his retirement in
2006 were agreed to in a separation agreement between Mr. Petri and HBUS. These
agreements are summarized in the 2006 CD&A under Compensation of Officers
Reported in the Summary Compensation Table. Mr. McDonagh resigned his position
with HUSI and was appointed Group Executive of HSBC Finance Corporation, an
affiliate of HUSI, in 2006. His resignation and appointment did not trigger a
payment obligation on the part of HUSI. In addition, the termination of Mr.
McDonagh's employment with HSBC Finance Corporation for any reason would not
trigger a payment obligation on the part of HUSI. As a result, no additional
information for Messrs. Glynn, Petri or McDonagh is required or provided below.
Sandra L. Derickson
-----------------------------------------------------------------------------------
Involuntary
Executive Benefits Not for
and Payments Upon Voluntary Normal Cause
Termination Termination Disability Retirement Termination
-----------------------------------------------------------------------------------
Cash Compensation
Base Salary -- -- -- $ 875,000 (1)
Short Term Incentive -- -- -- 1,593,750 (1)
Long Term Incentive
Performance Shares (6) -- $2,317,332 (2) $2,317,332 (2) 2,317,332 (2)
Stock Options: -- -- -- 222,583 (4)
Unvested and
Accelerated
Restricted Stock (6): -- -- 8,092,333 (5)
Unvested and
Accelerated
Benefits and Perks
Healthcare -- -- -- 28,366
Life Insurance -- -- -- 1,800
Financial Planning -- -- -- 20,000
Umbrella Liability -- -- -- 3,700
-----------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Voluntary
Executive Benefits for Good Change in
and Payments Upon For Cause Reason Control
Termination Termination Termination Death Termination
-------------------------------------------------------------------------------
Cash Compensation
Base Salary -- $ 875,000 (1) -- --
Short Term Incentive -- 1,593,750 (1) -- --
Long Term Incentive
Performance Shares (6) -- 2,317,332 (2) $5,419,177 (3) $2,317,332 (2)
Stock Options: -- 222,583 (4) 222,583 (4) --
Unvested and
Accelerated
Restricted Stock (6): -- 8,092,333 (5) $8,092,333 (5) --
Unvested and
Accelerated
Benefits and Perks
Healthcare 28,366 -- --
Life Insurance 1,800 -- --
Financial Planning 20,000 -- --
Umbrella Liability 3,700 -- --
-------------------------------------------------------------------------------
(1) As of December 31, 2006, Ms. Derickson has an employment agreement, which
stipulates that she will receive her current salary and 75 percent of the
average of her bonus in the years 2003, 2004 and 2005 from the date of
termination through March 28, 2008. The figures above assume a termination
date of December 31, 2006.
(2) The figures above represent the pro-rata portion of the Performance
Shares, assuming "good leaver" status is granted by REMCO, that would vest
three years from the date of grant assuming a termination date of December
31, 2006, and are calculated using the closing price of HSBC ordinary
shares and exchange rate on December 29, 2006. For an explanation of the
performance conditions, please refer to Footnote 2 of the Grants of
Plan-Based Awards Table.
(3) The figure above represents a full vest of the Performance Shares that
would vest three years from the date of grant assuming a termination date
of December 31, 2006, and is calculated using the closing price of HSBC
ordinary shares and exchange rate on December 29, 2006.
(4) In the event of death, the figure represents accelerated vesting of 100
percent of the outstanding, unvested stock options assuming the difference
between the strike price and the fair market value of HSBC ordinary shares
on December 29, 2006. The amounts represent outstanding unvested stock
options that would continue to vest according to schedule, if REMCO
approves such continued vesting, if a termination was involuntary not for
cause, or voluntary for good reason, and assumes the satisfaction of all
applicable performance conditions.
(5) The figures above represent a full vest of the outstanding restricted
shares assuming a termination date of December 31, 2006 and are calculated
using the closing price of HSBC ordinary shares and exchange rate on
December 29, 2006.
(6) Does not include additional awards accumulated through December 31, 2006,
the assumed date of termination.
196
John J. McKenna
------------------------------------------------------------------------------------------------------------------------
Executive
Benefits Involuntary Voluntary
and Payments Not for for Change in
Upon Voluntary Normal Cause For Cause Good Reason Control
Termination Termination Disability Retirement Termination Termination Termination Death Termination
------------------------------------------------------------------------------------------------------------------------
Cash
Compensation
Base Salary -- -- -- $ 250,038 (1) -- -- -- --
Short Term
Incentive -- -- -- 381,934 (1) -- -- -- --
Long Term
Incentive
Performance
Shares (6) -- $ 309,491 (2) -- 309,491 (3) -- -- $309,491 (5) $ 309,491 (3)
Restricted
Stock (6): -- 208,164 (4) -- 208,164 (4) -- $ 208,164 (4) 602,811 (5) 208,164 (4)
Unvested and
Accelerated
------------------------------------------------------------------------------------------------------------------------
(1) Under the terms of the HSBC Severance Policy, Mr. McKenna would receive 40
weeks of his current salary upon separation from the company and a
pro-rata amount of his earned bonus. The figures above represent the bonus
payment earned in 2006 assuming a termination date of December 31, 2006.
(2) The figures above represent accelerated vesting of 100 percent of the
outstanding Performance Shares assuming "good leaver" status is granted by
REMCO, a termination date of December 31, 2006 and that the performance
test has been passed using the month end prior to exit date as the
performance period. The amount has been calculated using the closing price
of HSBC ordinary shares and exchange rate on December 29, 2006. If the
performance test is not passed, 100 percent of the award remains
outstanding and the performance condition is re-tested on the third,
fourth and fifth anniversary of the award date. If the performance
condition is not passed by the fifth anniversary, the shares are
forfeited.
(3) The figures above represent accelerated vesting of 100 percent of the
outstanding Performance Shares assuming "good leaver" status is granted by
REMCO, a termination date of December 31, 2006 and that the performance
test has been passed using the month end prior to exit date as the
performance period. The amount has been calculated using the closing price
of HSBC ordinary shares and exchange rate on December 29, 2006. If the
performance test is not passed, the shares are forfeited.
(4) The figure represent a pro-rata portion of the March 31, 2005 and March
31, 2006 outstanding restricted share awards based on the number of months
elapsed between the date of grant and date of termination assuming a
termination date of December 31, 2006 and are calculated using the closing
price of HSBC ordinary shares and exchange rate on December 29, 2006.
(5) The figures above represent continued vesting of the outstanding shares
assuming a termination date of December 31, 2006, and are calculated using
the closing price of HSBC ordinary shares and exchange rate on December
29, 2006.
(6) Does not include additional awards accumulated through December 31, 2006,
the assumed termination date.
Joseph A. Belfatto
------------------------------------------------------------------------------------------------------------------------
Executive
Benefits Involuntary Voluntary
and Payments Not for for Change in
Upon Voluntary Normal Cause For Cause Good Reason Control
Termination Termination Disability Retirement Termination Termination Termination Death Termination
------------------------------------------------------------------------------------------------------------------------
Cash
Compensation
Base Salary -- -- -- $ 57,692 (1) -- -- -- --
Short Term
Incentive -- -- -- -- -- -- -- --
Long Term
Incentive
Restricted
Stock (4): -- $2,659,775 (2) -- $ 2,659,775 (2) -- -- $2,659,775 (2) $ 2,659,775 (3)
Unvested and
Accelerated
------------------------------------------------------------------------------------------------------------------------
(1) Under the terms of the HSBC Severance Policy, Mr. Belfatto will receive
12 weeks of his current salary upon separation from the company and a
pro-rata amount of his earned bonus. The figures above represent the bonus
payment earned in 2006 assuming a termination date of December 31, 2006.
(2) The figures above represent continued vesting of the outstanding
restricted shares assuming a termination date of December 31, 2006 and
assuming "good leaver" status is granted by REMCO, which shares will be
released according to the original vesting schedule. The figures are
calculated using the closing price of HSBC ordinary shares and exchange
rate on December 29, 2006.
(3) The figures above represent a full vest of the outstanding restricted
shares assuming a termination date of December 31, 2006 and are calculated
using the closing price of HSBC ordinary shares and exchange rate on
December 29, 2006.
(4) Does not include additional awards accumulated through December 31, 2006,
the assumed termination date.
197
Marlon Young
------------------------------------------------------------------------------------------------------------------------
Executive
Benefits Involuntary Voluntary
and Payments Not for for Change in
Upon Voluntary Normal Cause For Cause Good Reason Control
Termination Termination Disability Retirement Termination Termination Termination Death Termination
------------------------------------------------------------------------------------------------------------------------
Cash
Compensation
Base Salary -- -- -- $ 86,538 (1) -- -- -- --
Short Term
Incentive -- $1,000,000 (1) -- 1,000,000 (1) -- -- $1,000,000 (1) --
Long Term
Incentive
Restricted
Stock (4): -- 2,073,322 (2) -- 2,073,000 (2) -- $ 2,073,000 (2) 2,073,000 (2) $ 1,573,322 (3)
Unvested and
Accelerated
------------------------------------------------------------------------------------------------------------------------
(1) Under the terms of the HSBC Severance Policy, Mr. Young will receive 12
weeks of his current salary upon separation from the company. Pursuant to
his offer letter, Mr. Young would also receive his guaranteed cash bonus
for 2006 and 2007.
(2) The figures above represent a full vest of the outstanding restricted
shares assuming a termination date of December 31, 2006 and assuming "good
leaver" status is granted by REMCO. The figures are calculated using the
closing price of HSBC ordinary shares and exchange rate on December 29,
2006.
(3) The figure above represents a full vest of the outstanding restricted
shares assuming a termination date of December 31, 2006 and assuming "good
leaver" status is granted by REMCO. These figures are calculated using the
closing price of HSBC ordinary shares and exchange rate on December 29,
2006.
(4) Does not include additional awards accumulated through December 31, 2006,
the assumed termination date.
198
Janet L. Burak
------------------------------------------------------------------------------------------------------------------------
Executive
Benefits Involuntary Voluntary
and Payments Not for for Change in
Upon Voluntary Normal Cause For Cause Good Reason Control
Termination Termination Disability Retirement Termination Termination Termination Death Termination
------------------------------------------------------------------------------------------------------------------------
Cash
Compensation
Base Salary -- -- -- $ 215,497 (1) -- -- -- --
Short Term
Incentive -- -- -- 736,383 (1) -- -- -- --
Long Term
Incentive
Performance
Shares (9) -- $ 364,673 (2) -- 364,673 (2) -- -- $ 364,673 (3) $ 364,673 (3)
Restricted
Stock (9): -- $ 794,118 (4) -- 812,002 (5) -- $ 97,549 (6) $1,438,256 (7) $ 714,453 (8)
Unvested and
Accelerated
------------------------------------------------------------------------------------------------------------------------
(1) Under the terms of the HSBC Severance Policy, Ms. Burak will receive 28
weeks of her current salary upon separation from the company and a
pro-rata amount of her earned bonus. The figures above represent the bonus
payment earned in 2006 assuming a termination date of December 31, 2006.
(2) The figures above represent a full vest of the Performance Shares,
assuming "good leaver" status is granted by REMCO, a termination date of
December 31, 2006, and 100 percent of the performance condition being met
on the third anniversary of the date of grant. If the performance
condition is not passed on the third anniversary, the award is subject to
a re-test provision on the fourth and fifth anniversary of the date of
grant. If the performance condition is not passed on the fifth
anniversary, the award is forfeited. The amount is calculated using the
closing price of HSBC ordinary shares and exchange rate on December 29,
2006.
(3) The figures above represent a full vest of the Performance Shares that
would vest three years from the date of grant assuming a termination date
of December 31, 2006, and is calculated using the closing price of HSBC
ordinary shares and exchange rate on December 29, 2006.
(4) The figures above represent (a) a pro-rata portion of the November 20,
2002, March 31, 2005 and March 31, 2006 outstanding restricted share
awards based on the number of months elapsed between date of grant and
date of termination ($551,039) and (b) a full vest of the 11/3/03
outstanding restricted share award ($243,079) assuming a termination date
of December 31, 2006 and assuming "good leaver" status is granted by
REMCO. The figures are calculated using the closing price of HSBC ordinary
shares and exchange rate on December 29, 2006.
(5) The figures above represent (a) a pro-rata portion of the March 31, 2005
and March 31, 2006 outstanding restricted share awards based on the number
of months elapsed between date of grant and date of termination ($471,374)
and (b) a full vest of the November 20, 2002 and November 3, 2003
outstanding restricted share awards ($340,628) assuming a termination date
of December 31, 2006 and assuming "good leaver" status is granted by
REMCO. The figures are calculated using the closing price of HSBC ordinary
shares and exchange rate on December 29, 2006.
(6) The figures above represent the full vest of the November 20, 2002
outstanding restricted share award assuming a termination date of December
31, 2006 and assuming "good leaver" status is granted by REMCO. The
figures are calculated using the closing price of HSBC ordinary shares and
exchange rate on December 29, 2006.
(7) The figures above represent (a) a pro-rata portion of the November 20,
2002 outstanding restricted share award based on the number of months
elapsed between date of grant and date of termination ($79,665) and (b) a
full vest of the November 3, 2002, March 31, 2005 and March 31, 2006
outstanding restricted share awards ($1,358,591) assuming a termination
date of December 31, 2006. The figures are calculated using the closing
price of HSBC ordinary shares and exchange rate on December 29, 2006.
(8) The figures above represent (a) a pro-rata portion of the March 31, 2005
and March 31, 2006 outstanding restricted share awards based on the number
of months elapsed between date of grant and date of termination ($471,374)
and (b) a full vest of the November 3, 2003 outstanding restricted share
award assuming a termination date of December 31, 2006 ($243,079). The
figures are calculated using the closing price of HSBC ordinary shares and
exchange rate on December 29, 2006.
(9) Does not include additional awards accumulated through December 31, 2006,
the assumed date of termination.
199
Director Compensation
The following table and narrative text discusses the compensation awarded to,
earned by or paid to our Directors in 2006.
Director Compensation
---------------------------------------------------------------------------------------------------------------------
Change in
Pension Value
Fees and
Earned or Non-Equity Nonqualified
Paid in Stock Option Incentive Plan Deferred All Other
Cash Awards Awards Compensation Compensation Compensation Total
Name ($)(1) ($)(2) ($)(3) ($)(4) Earnings ($)(5) ($)(6) ($)
---------------------------------------------------------------------------------------------------------------------
Salvatore H. Alfiero $60,000 -- -- -- $25,000 -- $ 85,000
Donald K. Boswell 50,000 -- -- -- -- -- 50,000
James H. Cleave 56,000 -- -- -- -- -- 56,000
Sandra L. Derickson -- -- -- -- -- -- --
Frances D. Fergusson 52,500 -- -- -- -- -- 52,500
Michael F. Geoghegan -- -- -- -- -- -- --
Martin J.G. Glynn -- -- -- -- -- -- --
Stuart T. Gulliver -- -- -- -- -- -- --
Richard A. Jalkut 83,500 -- -- -- 25,000 -- 108,500
Peter Kimmelman 56,000 -- 56,000
Siddharth N. Mehta -- -- -- -- -- -- --
Charles G. Meyer, Jr. 52,500 -- -- -- -- -- 52,500
James L. Morice 50,000 -- -- -- -- -- 50,000
(1) In 2006, the non-management Directors of HUSI received an annual cash
retainer of $50,000 for their services on the boards of HUSI and HBUS
(with the exception of Mr. Jalkut, who as Lead Director and Chair of the
Executive Committee, received a retainer of $75,000). In addition to the
Board retainer, Mr. Cleave, Mr. Jalkut and Mr. Kimmelman each received an
additional $6,000 for their membership in the Audit Committee, Mr. Alfiero
received an additional $10,000 as Chair of the Audit Committee, Mr. Meyer
received an additional $2,500 as Chair of the Fiduciary Committee, Dr.
Fergusson received an additional $2,500 as Chair of the Human Resources &
Compensation Committee, Mr. Jalkut received an additional $2,500 as Chair
of the Nominating & Governance Committee. Other than as stated above, HUSI
does not pay additional compensation for committee membership, or meeting
attendance fees to its Directors. Directors who are employees of HUSI or
any of its affiliates do not receive any additional compensation related
to their Board service. In September 2006, the Nominating & Governance
Committee reviewed its directors' compensation philosophy compared to
other same sized financial and professional service organizations and
determined that the current compensation structure should be reevaluated.
Non-management Directors elected prior to 1999 may elect to participate in
the HUSI/HBUS Plan for Deferral of Directors' Fees. Under this plan, they
may elect to defer receipt of all or a part of their retainer. The
deferred retainers accrue interest on a quarterly basis at the one to two
year Employee Extra CD rate in effect on the first business day of each
quarter. Upon retirement from the Board, the deferrals plus interest are
paid to the Director either in a lump sum or in quarterly or annual
installments over a one, five or ten year period. No Director elected to
defer receipt of their retainer for 2006.
(2) HUSI does not grant stock awards to its non-management directors nor do
any portion of employee directors' stock awards reflect services related
to their Board positions.
(3) HUSI does not grant stock option awards to its non-management directors.
(4) HUSI does not award directors' non-equity incentive plan compensation to
its non-management directors nor does any portion of the employee
directors' non-equity incentive plan compensation reflect compensation for
services related to their Board positions.
(5) The HUSI Directors' Retirement Plan covers non-management directors
elected prior to 1998 and excludes those serving as directors at the
request of HSBC. Eligible directors with at least five years of service
will receive quarterly retirement benefit payments commencing at the later
of age 65 or retirement from the Board, and continuing for ten years. The
annual amount of the retirement benefit is a percent of the annual
retainer in effect at the time of the last Board meeting the director
attended. The percentage is 50 percent after five years of service and
increases by five percent for each additional year of service to 100
percent upon completion of 15 years of service. If a director who has at
least five years of service dies before the retirement benefit has
commenced, the director's beneficiary will receive a death benefit
calculated as if the director had retired on the date of death. If a
retired director dies before receiving retirement benefit payments for the
ten year period, the balance of the payments will be continued to the
director's beneficiary. The plan is unfunded and payment will be made out
of the general funds of HUSI or HBUS.
200
(6) Non-management directors are offered, on terms that are not more favorable
than those available to the general public, a MasterCard/Visa credit card
issued by one of our subsidiaries with a credit limit of $15,000. HUSI
guarantees the repayment of amounts charged on each card. Under HUSI's
Matching Gift Program, HUSI matches charitable gifts to qualified
organizations (subject to a maximum of $10,000 per year), with a double
match for the first $500 donated to higher education institutions (both
public and private) and eligible non-profit organizations which promote
neighborhood revitalization or economic development for low and moderate
income populations. Each current independent Director may ask us to
contribute up to $10,000 annually to charities of the Director's choice
which qualify under our philanthropic program.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
--------------------------------------------------------------------------------
Security Ownership of Certain Beneficial Owners
HSBC USA Inc.'s common stock is 100 percent owned by HSBC North America Inc.
("HNAI"). HNAI is an indirect wholly owned subsidiary of HSBC.
Security Ownership by Management
The following table lists the beneficial ownership, as of January 31, 2007, of
HSBC ordinary shares or interests in HSBC ordinary shares and HSBC's American
Depositary Shares, Series A, by each director and the executive officers named
in the Summary Compensation Table on page 181, individually, and the directors
and executive officers as a group. Each of the individuals listed below and all
directors and executive officers as a group own less than one percent of the
HSBC ordinary shares. No director or executive officer of HUSI owned any of
HUSI's outstanding series of preferred stock at January 31, 2007.
------------------------------------------------------------------------------------------------------------------------
HSBC
Ordinary
Number of Shares That HSBC HSBC
HSBC May Be Restricted Holdings plc
Ordinary Acquired Shares Number of American
Shares Within 60 Days Released HSBC Ordinary Total HSBC Depositary
Beneficially By Exercise of Within 60 Share Ordinary Shares,
Owned (1)(2) Options (3) Days (4) Equivalents (5) Shares Series A (6)
------------------------------------------------------------------------------------------------------------------------
Directors
Salvatore H. Alfiero ....... 259,000 -- -- -- 259,000 325,000
Donald K. Boswell .......... 220 -- -- -- 220 --
James H. Cleave ............ 220,465 -- -- -- 220,465 --
Dr. Frances D. Fergusson ... 100 -- -- -- 100 --
Michael F. Geoghegan ....... 113,525 -- 45,449 -- 158,974 --
Stuart T. Gulliver ......... 1,192,823 -- -- -- 1,192,823 --
Paul J. Lawrence ........... -- -- -- -- -- --
Richard A. Jalkut .......... 250 -- -- -- 250 --
Peter Kimmelman ............ 5,335 -- -- -- 5,335 --
Charles G. Meyer, Jr. ...... -- -- -- -- -- --
James L. Morice ............ 631 -- -- -- 631 --
--
Named Executive Officers
Sandra L. Derickson ........ 93,003 661,250 70,710 27,079 852,042 --
Martin J.G. Glynn .......... 80,263 -- -- -- 80,263 --
John J. McKenna ............ 3,000 -- -- 1,550 4,550 --
Joseph A. Belfatto ......... 26,451 -- 71,668 -- 98,119 --
Marlon Young ............... -- -- 10,486 -- 10,486 --
Janet L. Burak ............. 17,982 80,250 -- -- 98,232 --
Brendan McDonagh ........... 40,960 27,900 -- -- 68,860 --
Joseph M. Petri ............ -- -- 199,702 -- 199,702 --
All directors and executive
officers as a group ..... 2,120,240 815,900 398,015 30,156 3,364,311 325,000
201
(1) Directors and executive officers have sole voting and investment power
over the shares listed above, except as follows.
The number of ordinary shares held by spouses, children and charitable or
family foundations for which a director or executive officer does not have
voting and investment power and beneficial ownership of which is denied is
as follows: Mr. Kimmelman, 1,756; Ms. Burak, 910; and Directors and
executive officers as a group, 3,612.
(2) Some of the shares included in the table above were held in American
Depository Shares, each of which represents five HSBC ordinary shares.
(3) Represents the number of ordinary shares that may be acquired by HUSI's
Directors and executive officers through April 1, 2007 pursuant to the
exercise of stock options.
(4) Represents the number of ordinary shares that may be acquired by HUSI's
Directors and executive officers through April 1, 2007 pursuant to the
satisfaction of certain conditions.
(5) Represents the number of ordinary share equivalents owned by executive
officers under HSBC-North America (U.S.) Tax Reduction Investment Plan and
HSBC-North America Employee Non-Qualified Deferred Compensation Plan. Some
of the shares included in the table above were held in American Depository
Shares, each of which represents five HSBC ordinary shares.
(6) Each depositary share represents one-fortieth of a share of HSBC's 6.20%
Non-Cumulative Dollar Preference Shares, Series A
Item 13. Certain Relationships and Related Transactions, and Director
Independence
--------------------------------------------------------------------------------
Transactions with Related Persons
During the fiscal year ended December 31, 2006, HUSI was not a participant in
any transaction, and there is currently no proposed transaction, in which the
amount involved exceeded or will exceed $120,000, and in which a director or an
executive officer, or a member of the immediate family of a director or an
executive officer, had or will have a direct or indirect material interest,
other than the agreements with Messrs. Glynn and Petri and Ms. Derickson
described in Item 11. Executive Compensation - Compensation Discussion and
Analysis - Compensation of Officers Reported in the Summary Compensation Table.
During 2006, HBUS provided loans to certain directors and executive officers of
HUSI and its subsidiaries in the ordinary course of business. Such loans were
provided on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable loans with persons
not related to HUSI and do not involve more than the normal risk of
collectibility or present other unfavorable features.
HUSI maintains a written Policy for the Review, Approval or Ratification of
Transactions with Related Persons, which provides that any "Transaction with a
Related Person" must be reviewed and approved or ratified in accordance with
specified procedures. The term "Transaction with a Related Person" includes any
transaction, arrangement or relationship, or series of similar transactions,
arrangements or relationships, in which (1) the aggregate dollar amount involved
will or may be expected to exceed $120,000 in any calendar year, (2) HUSI or any
of its subsidiaries is, or is proposed to be, a participant, and (3) a director
or an executive officer, or a member of the immediate family of a director or an
executive officer, has or will have a direct or indirect material interest
(other than solely as a result of being a director or a less than 10 percent
beneficial owner of another entity). The following are specifically excluded
from the definition of Transaction with a Related Person:
o compensation paid to directors and executive officers reportable under
rules and regulations promulgated by the Securities and Exchange
Commission;
o transactions with other companies if the only relationship of the
director, executive officer or family member to the other company is as an
employee (other than an executive officer), director or beneficial owner
of less than 10 percent of such other company's equity securities;
o charitable contributions, grants or endowments by HUSI or any of its
subsidiaries to charitable organizations, foundations or universities if
the only relationship of the director, executive officer or family member
to the organization, foundation or university is as an employee (other
than an executive officer) or a director;
202
o transactions where the interest of the director, executive officer or
family member arises solely from the ownership of HUSI's equity securities
and all holders of such securities received or will receive the same
benefit on a pro rata basis;
o transactions where the rates or charges involved are determined by
competitive bids;
o loans made in the ordinary course of business on substantially the same
terms (including interest rates and collateral requirements) as those
prevailing at the time for comparable loans with persons not related to
HUSI or any of its subsidiaries and that do not involve more than the
normal risk for collectibility or present other unfavorable features; and
o transactions involving services as a bank depositary of funds, transfer
agent, registrar, trustee under a trust indenture or similar services.
The policy requires each director and executive officer to notify the Office of
the General Counsel in writing of any Transaction with a Related Person in which
the director, executive officer or an immediate family member has or will have
an interest and to provide specified details of the transaction. The Office of
the General Counsel, through the Corporate Secretary, will deliver a copy of the
notice to the Chair of the Nominating & Governance Committee of the Board of
Directors. The Nominating & Governance Committee will review the facts of each
proposed Transaction with a Related Person at each regularly scheduled committee
meeting and approve, ratify or disapprove the transaction.
The vote of a majority of disinterested members of the Nominating & Governance
Committee is required for the approval or ratification of any Transaction with a
Related Person. The Nominating & Governance Committee may approve or ratify a
transaction if the committee determines, in its business judgment, based on the
review of all available information, that the transaction is fair and reasonable
to, and consistent with the best interests of, HUSI and its subsidiaries. In
making this determination, the Nominating & Governance Committee will consider,
among other things, (i) the business purpose of the transaction, (ii) whether
the transaction is entered into on an arms-length basis and on terms no less
favorable than terms generally available to an unaffiliated third-party under
the same or similar circumstances, (iii) whether the interest of the director,
executive officer or family member in the transaction is material and (iv)
whether the transaction would violate any provision of the HSBC North America
Holdings Inc. Statement of Business Principles and Code of Ethics, the HSBC USA
Inc. Code of Ethics for Senior Financial Officers or the HSBC USA Inc. Corporate
Governance Standards, as applicable.
In any case where the Nominating & Governance Committee determines not to
approve or ratify a transaction, the matter will be referred to the Office of
the General Counsel for review and consultation regarding the appropriate
disposition of such transaction including, but not limited to, termination of
the transaction, rescission of the transaction or modification of the
transaction in a manner that would permit it to be ratified and approved.
Director Independence
The HSBC USA Inc. Corporate Governance Standards, together with the charters of
the committees of the Board of Directors, provide the framework for HUSI's
corporate governance. Director independence is defined in the Corporate
Governance Standards, which are based upon the rules of the New York Stock
Exchange. The HSBC USA Inc. Corporate Governance Standards are incorporated by
reference to Exhibit 99.1 of this Form 10-K and are available upon written
request made to HSBC USA Inc., 452 Fifth Avenue, New York, New York 10018,
Attention: Corporate Secretary.
203
According to HUSI's Corporate Governance Standards, a majority of the members of
the Board of Directors must be independent. The composition requirement for each
committee of the Board of Directors is as follows:
Committee Independence/ Member Requirements
--------- ---------------------------------
Audit Committee Chair and all voting members
Fiduciary Committee Chair and all voting members
Human Resources & Compensation Committee Chair and a majority of members
Nominating & Governance Committee Chair and all voting members
Executive Committee Chair and all voting members,
other than the
Chief Executive Officer
Messrs. Alfiero, Boswell, Cleave, Jalkut, Kimmelman, Meyer and Morice and Dr.
Fergusson are considered to be independent directors. Mr. Geoghegan currently
serves as Group Chief Executive Officer; Mr. Lawrence currently serves as
President and Chief Executive Officer of HUSI and HBUS; and Mr. Gulliver
currently serves an HSBC Managing Director and Head of CIBM. Because of the
positions held by Messrs. Geoghegan, Lawrence and Gulliver, they are not
considered to be independent directors.
During 2006, Sandra L. Derickson, Martin J.G. Glynn and Siddharth N. (Bobby)
Mehta served as directors of HUSI and HBUS. Ms. Derickson also served as
President and Chief Executive Officer - Designate of HUSI and HBUS for part of
2006, Mr. Glynn served as President and Chief Executive Officer of HUSI and HBUS
in 2006 and Mr. Mehta served as Chief Executive Officer of HSBC Finance
Corporation, another principal subsidiary of HNAH, in 2006. Because of the
positions held by Ms. Derickson, Mr. Glynn and Mr. Mehta, they were not
considered to be independent directors.
See Item 10. Directors, Executive Officers and Corporate Governance - Corporate
Governance for more information about HUSI's Board of Directors and its
committees.
Item 14. Principal Accounting Fees and Services
--------------------------------------------------------------------------------
Fees billed to HUSI by its auditing firm, KPMG LLP, were as follows.
--------------------------------------------------------------------------------------------------------------
Year Ended December 31 2006 2005
--------------------------------------------------------------------------------------------------------------
(in thousands)
Audit fees:
Auditing of financial statements, quarterly reviews, statutory audits,
preparation of comfort letters, consents and review of registration statements .... $ 5,522 $ 5,137
Audit related fees:
Employee benefit plan audits, due diligence assistance, internal control review
assistance, and certain attestation services ...................................... 467 870
Tax fees:
Tax related research, general tax services in connection with transactions and
legislation, and assistance with preparation of certain required filings .......... 34 51
------- --------
Total KPMG LLP fees ..................................................................... $ 6,023 $ 6,058
======= ========
Audit Committee Pre-approval Policies and Procedures
It is the practice of the Audit Committee of HUSI's Board of Directors to
approve the annual audit fees, including those covering audit services beyond
HUSI's financial statements, before any audit procedures are undertaken. Prior
to 2003, management had the implicit pre-approval of the Audit Committee to
engage KPMG LLP, or any other professional service firm, to perform tax and
other services. Any such services provided by KPMG LLP were reported to the
Audit Committee after the fact. Beginning in 2003, the Audit Committee assumed
responsibility for pre-approving all auditing services and permitted
non-auditing services, including the related fees and terms thereof.
204
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
--------------------------------------------------------------------------------
(a) (1) Financial Statements
HSBC USA Inc.:
Consolidated Balance Sheet
Consolidated Statement of Income
Consolidated Statement of Changes in Shareholders' Equity
Consolidated Statement of Cash Flows
HSBC Bank USA, National Association:
Consolidated Balance Sheet
Notes to Financial Statements
(2) Not applicable
(3) Exhibits
3 (i) Articles of Incorporation and amendments and
supplements thereto (incorporated by reference to Exhibit
3(a) to HUSI's Annual Report on Form 10-K for the year
ended December 31, 1999, filed with the Securities and
Exchange Commission on March 30, 2000, Exhibit 3 to HUSI's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000, filed with the Securities and Exchange
Commission on November 9, 2000, Exhibits 3.2 and 3.3 to
HUSI's Current Report on Form 8-K dated March 30, 2005,
filed with the Securities and Exchange Commission on April
4, 2005, Exhibit 3.2 to HUSI's Current Report on Form 8-K
dated October 11, 2005 and filed with the Securities and
Exchange Commission on October 14, 2005 and Exhibit 3.1 to
HUSI's Current Report on Form 10-Q dated May 16, 2006,
filed with the Securities and Exchange Commission on May
22, 2006).
3 (ii) By-Laws dated February 5, 2007.
4 (i) Senior Indenture, dated as of October 24, 1996, by and
between HUSI and Bankers Trust Company, as trustee, as
amended and supplemented (incorporated by reference to
Exhibits 4.1 and 4.2 to Post-Effective Amendment No. 1 to
HUSI's registration statement on Form S-3, Registration No.
333-42421, filed with the Securities and Exchange
Commission on April 3, 2002, Exhibit 4.1 to HUSI's Current
Report on Form 8-K dated November 21, 2005 and filed with
the Securities and Exchange Commission on November 28,
2005).
4 (ii) Subordinated Indenture, dated as of October 24, 1996, by
and between HUSI and Bankers Trust Company, as trustee, as
amended and supplemented (incorporated by reference to
Exhibits 4.3, 4.4, 4.5 and 4.6 to Post-Effective Amendment
No. 1 to HUSI's registration statement on Form S-3,
Registration No. 333-42421, filed with the Securities and
Exchange Commission on April 3, 2002.
12 Computation of Ratio of Earnings to Fixed Charges and
Earnings to Combined Fixed Charges and Preferred Stock
Dividends
14 Code of Ethics for Senior Financial Officers
18 Letter from Independent Accountant Regarding Change in
Accounting Principles (incorporated by reference to Exhibit
18 to HUSI's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2006 filed with the Securities and
Exchange Commission on November 13, 2006).
21 Subsidiaries of HSBC USA Inc.
23 Consent of Independent Registered Public Accounting Firm
31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification of Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
99 (i) HSBC USA Inc. Corporate Governance Standards
205
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
HSBC USA Inc.
Registrant
--------------------------------------------------
/s/ Janet L. Burak
--------------------------------------------------
Janet L. Burak
Senior Executive Vice President, General Counsel
and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed on March 5, 2007 by the following persons on behalf of the
registrant and in the capacities indicated:
/s/ John J. McKenna Michael F. Geoghegan*
----------------------------------- Chairman of the Board
John J. McKenna Salvatore H. Alfiero* Director
Senior Executive Vice President and Donald K. Boswell* Director
Chief Financial Officer James H. Cleave* Director
(Principal Financial Officer) Frances D. Fergusson* Director
Paul J. Lawrence*
Director, President and Chief
Executive Officer
Stewart T. Gulliver * Director
/s/ Clive R. Bucknall Richard A. Jalkut* Director
----------------------------------- Peter Kimmelman* Director
Clive R. Bucknall Charles G. Meyer, Jr.* Director
Chief Accounting Officer James L. Morice* Director
(Principal Accounting Officer)
* /s/ Janet L. Burak
----------------------------------------
Janet L. Burak
Attorney-in-fact
206
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