HSBC 2008 Annual Report Download - page 323

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321
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.
Illustration of incremental EPS of 51 per cent over
three years.
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%
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
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 performance conditions have been
satisfied. Awards will normally be forfeited if the
participant is dismissed for cause or resigns from
HSBC. In all 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.
Only one set of awards (the 2003 award) was
outstanding at the start of 2008. At the second and
final re-test of this award the performance targets
were not met and therefore the award lapsed.
Funding
The dilution limits set out in the HSBC share plans
comply with the Association of British Insurers
guidelines. The Company’s policy to date is to fund
long-term incentive awards of Performance Shares
and Restricted Shares under the HSBC Share Plan
through employee benefit trusts which undertake
market purchases of HSBC Holdings’ shares.