HSBC 2005 Annual Report Download - page 223

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relative to the banks immediately above and below
it.
For example, if HSBC’s TSR falls half way
between the bank ranked 12th (where, a release of
50 per cent of the TSR award would occur) and the
bank ranked 13th (where a release of 40 per cent of
the TSR award would occur), then the actual
proportion of the TSR award released would be
45 per cent, i.e. half way between 40 per cent and
50 per cent.
For the EPS award, the base measure shall be
EPS for the financial year preceding that in which
the award is made (‘the base year’). EPS will then be
compared with the base year over three consecutive
financial years commencing with the year in which
the award is made. Incremental EPS shall be
calculated by expressing as a percentage of the EPS
of the base year the difference each year of the three-
year performance period between the EPS of that
year and the EPS of the base year (with a negative
percentage for any year in which the EPS is less than
the EPS of the base year). These percentages will
then be aggregated to arrive at the total incremental
EPS for the performance period. In the event that the
published EPS for the base year is restated during
the performance period to adjust for changes in
accounting standards, that restated EPS will be used
for the purposes of the EPS performance condition.
The percentage of the conditional EPS award
vesting will depend upon the absolute growth in EPS
achieved over the three years. 30 per cent of the EPS
award will vest if the incremental EPS over the
performance period is 24 per cent or more.
The percentage of shares vesting will rise on a
straight line proportionate basis to 100 per cent if
HSBC’s incremental EPS over the performance
period is 52 per cent or more.
No element of the TSR award will vest if over
the three-year performance period HSBC’s TSR is
below that of the bank ranked 14th in the comparator
group list and no element of the EPS award will vest
if HSBC’s incremental EPS over the performance
period is less than 24 per cent.
To the extent that the performance conditions
have not been met at the third anniversary, the shares
awarded will be forfeited.
In addition, awards will not vest unless the
Remuneration Committee is satisfied that HSBC
Holdings’ financial performance has shown a
sustained improvement in the period since the award
date.
In determining whether HSBC has achieved a
sustained improvement in performance the
Remuneration Committee will take account of all
relevant factors but in particular the historical
comparison against the comparator group in the
following areas:
1. revenue growth;
2. revenue mix;
3. cost efficiency;
4. credit performance as measured by risk-adjusted
revenues; and
5. cash return on cash invested, dividend
performance and total shareholder return.
Following the three-year performance period,
the conditions applying to awards of Performance
Shares under The HSBC Share Plan will be tested
and vesting will take place shortly afterwards. Shares
released will include additional shares equivalent to
the value of the dividends payable on the vested
shares over the performance period, where permitted
by the laws of the relevant jurisdiction.
If events occur which cause the Remuneration
Committee to consider that a performance condition
has become unfair or impractical, the right is
reserved to the Remuneration Committee, if it
considers it appropriate to do so, to amend, relax or
waive the condition.
Awards will vest in full immediately in cases of
death. In the event of redundancy, retirement on
grounds of injury or ill health, early retirement by
agreement, normal retirement and where a
participant ceases to be employed by HSBC, awards
will normally vest at the end of the vesting period on
a time-apportioned basis to the extent that the
performance conditions have been satisfied. In the
event of a change of control, awards will normally
vest immediately and on a time-apportioned basis to
the extent that the TSR performance condition has
been satisfied. Awards will normally be forfeited if
the participant is dismissed or resigns from HSBC.
In all these circumstances the Committee retains
discretion to ensure fair and reasonable treatment.
Arrangements from 2000-2004
For awards made from 2000 to 2004, vesting was
linked to the attainment of predetermined TSR
targets over a three-year period from date of award
as set out below.
The TSR performance condition for awards of
Performance Shares remained the same from 1999 to
2003. For awards made in 2004, changes were made