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 $3,540,000 as part of his 2006 bonus compensation. The shares vest 33 1/3 percent over the first three anniversaries from the date of grant and forfeit only if Mr. Petri violates the terms of his separation agreement. See Joseph M. Petri Compensation in the 2006 CD&A for a description of Mr. Petri's separation agreement. Grants Of Plan-Based Awards Table -------------------------------------------------------------------------------- All Other All Other Stock Option Estimated Future Payouts Under Estimated Future Payouts Awards: Awards: Exercise Grant Date Non-Equity Incentive Under Equity Incentive Number Number of or Base Fair Value Plan Awards (1) Plan Awards (2) of Shares Securities Price of of Stock ----------------------------- ------------------------- of Stock Underlying Option and Option Grant Threshold Target Maximum Threshold Target Maximum or Units Options Awards Awards Name Date ($) ($) ($) (#) (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 This information is provided by RNS The company news service from the London Stock Exchange

Companies

HSBC Holdings (HSBA)

Full Archive

UK 100

Latest directors dealings

All directors dealings today