HSBC 2006 Annual Report Download - page 284

HSBC HOLDINGS PLC
Directors’ Remuneration Report (continued)
Executive Directors
282
underlying shares. As the comparator group
includes companies listed on overseas markets,
a common currency is used to ensure that TSR
is measured on a consistent basis; and
• the earnings per ordinary share award (‘EPS
award’): the other half of the Performance Share
award will be based upon the absolute growth in
EPS achieved by HSBC Holdings. For this
purpose, EPS means the profit attributable to the
shareholders (expressed in US dollars), divided
by the weighted average number of ordinary
shares in issue and held outside the Group
during the year in question.
The TSR award is based on HSBC’s ranking
against a comparator group of 28 major banks. The
comparator group will generally comprise the largest
banks in the world measured in terms of market
capitalisation, but also having regard to the
geographic spread and the nature of the activities of
each bank. The Remuneration Committee will use
these criteria in selecting any replacements to the
comparator group that may be necessary during the
performance period, for example because a bank
ceases to exist or to be quoted or if its relevance to
HSBC as a comparator significantly diminishes.
The TSR comparator group during 2006 and
also at 5 March 2007 comprises 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., Crédit Agricole S.A., Credit Suisse
Group, Deutsche Bank AG, HBOS plc, JPMorgan
Chase & Co., 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, Société Générale,
Standard Chartered PLC, UBS AG, UniCredito
Italiano S.p.A., US Bancorp, Wachovia Corporation,
Wells Fargo & Company and Westpac Banking
Corporation.
The extent to which the TSR award will vest
will be determined on a sliding scale based on HSBC
Holdings’ relative TSR ranking against the
comparator group.
For TSR performance in line with the bank
ranked 14th, only 30 per cent of the conditional TSR
award will vest; if HSBC’s performance is in line
with or above the bank ranked 7th in the ranked list
all of the TSR award shares will vest.
Vesting between the 14th and 7th ranked banks
will be based on HSBC’s position against the ranked
list. In simple terms, the percentage vesting will start
at 30 per cent and will rise in 10 per cent increments
for each position that HSBC achieves higher than the
14th bank in the ranked list until full vesting is
achieved for TSR performance equal to or greater
than the 7th bank in the ranked list.
Where HSBC’s performance falls between these
incremental steps, account will be taken of HSBC’s
TSR performance 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 will 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 will be
calculated by expressing as a percentage of the EPS
of the base year the difference each year of the three-
year performance period between the EPS of that
year and the EPS of the base year (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.