HSBC 2007 Annual Report Download - page 328

HSBC HOLDINGS PLC
Directors’ Remuneration Report (continued)
Executive Directors > Performance conditions / TSR
326
The percentage of the conditional award
vesting will depend upon the absolute growth
in EPS achieved over the three years (‘the
performance period’). 30 per cent of the conditional
shares will vest if the incremental EPS over the
performance period is 24 per cent or more of EPS
in the base year. The percentage of shares vesting
will rise on a straight line proportionate basis to
100 per cent if HSBC’s incremental EPS over the
performance period is 52 per cent or more of EPS
in the base year. In the interests of clarity, this has
been set out in graphical form in the chart below.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0% 10% 20% 30% 40% 50% 60%
Proportion of EPS Award Vesting
Total Incremental EPS Delivered
24% 52%
For the EPS element of the award, the base
measure shall be EPS for the financial year
preceding that in which the award is made (‘the
base year’). Absolute growth in EPS will then be
compared with the base year over three consecutive
financial years commencing with the year in which
the award is made. Incremental EPS will be
calculated by expressing as a percentage of the EPS
of the base year the difference each year of the
three-year performance period between the EPS of
that year and the EPS of the base year. These
percentages will then be aggregated to arrive at the
total incremental EPS for the performance period.
As illustrated in the table below, an incremental
EPS of 51 per cent over three years would equate to
a compound annual growth rate of 8 per cent.
Percentage difference between:
Year 1 EPS
and Base Year
EPS +
Year 2 EPS
and Base Year
EPS +
Year 3 EPS
and Base year
EPS =
Total
incremental
EPS for the
performance
period
8% 17% 26% 51%
Illustration of incremental EPS of 51 per cent over three
years.
If EPS in any of the Years 1, 2 or 3 is below
the base year, then the percentage difference
between that particular year and the base year is
negative.
For this purpose, EPS means the profit
attributable to the Shareholders (expressed in US
dollars), excluding goodwill amortisation, divided
by the weighted average number of Ordinary
Shares in issue and held outside the Group during
the year in question. In the event that the published
EPS for the base year is restated during the
performance period to adjust for changes in
accounting standards, that restated EPS will be
used for the purposes of the EPS performance
condition.
In addition, awards will not vest unless the
Remuneration Committee is satisfied that HSBC
Holdings’ financial performance has shown a
sustained improvement in the period since the
award date. In determining whether HSBC
Holdings has achieved a sustained improvement in
performance the Remuneration Committee will
take account of all relevant factors but in particular
comparisons against the comparator group in areas
such as revenue growth and mix, cost efficiency,
credit performance, cash return on cash invested,
dividend performance and TSR.
If events occur which cause the Remuneration
Committee to consider that a performance
condition has become unfair or impractical in either
direction, the right is reserved to the Remuneration
Committee, if it considers it appropriate to do so, to
amend, relax or waive the condition.
Awards will vest in full immediately in cases
of death. In the event of redundancy, retirement on
grounds of injury or ill health, early retirement by
agreement, normal retirement and where a
participant ceases to be employed by HSBC due to
a company ceasing to be part of HSBC, awards will
normally vest at the end of the vesting period on a
time-apportioned basis to the extent that the TSR
and EPS 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 for cause or resigns from HSBC. In all
these circumstances the Committee retains
discretion to ensure fair and reasonable treatment.
Arrangements from 2002 to 2004
Between 2002 and 2004, awards of Performance
Shares were made under the HSBC Holdings
Restricted Share Plan 2000. Vesting was based
on HSBC’s relative TSR performance over a
three-year period from the date of the award,
with full vesting of awards and transfer of shares
to participants being no earlier than the fifth
anniversary of the date of award.
The initial performance period was three
years from the date of award. Prior to 2004,
awards were subject to re-testing on the fourth