HSBC 2009 Annual Report Download - page 342

HSBC HOLDINGS PLC
Directors’ Remuneration Report (continued)
Executive Director remuneration > Performance Shares
340
measures and their percentage weighting referred to
above.
TSR award
TSR is measured against a comparator group
comprising the largest global banks in the world as
well as other banks against which HSBC competes
for business at a regional and/or local level. These
companies are:
Banco Bradesco Fortis
Banco Itau ICBC
Banco Santander JP Morgan Chase
Bank of America Lloyds Banking Group
Bank of China National Australia Bank
Barclays Royal Bank of Canada
BBVA Royal Bank of Scotland
BNP Paribas Société Générale
Citigroup Standard Chartered
Credit Suisse Group UBS
DBS Group UniCredito Italiano
Deutsche Bank Wells Fargo
During 2008, HBOS and Wachovia merged with
other banks in the comparator group and in 2009 the
remainder of the banking activities of Fortis were
acquired by BNP Paribas, an existing member of
the comparator group. For awards made in 2008,
performance from the point of acquisition will track
that of the acquirer. This approach retains the free
float market capitalisation (‘FFMC’) weighting of
the combined entities. The Committee determined
that the comparator group remains large enough to
be statistically valid and as such it was not necessary
to introduce any replacement banks.
To reflect the fact that the range of market
capitalisations within the comparator group is very
wide, a FFMC weighted method is used to calculate
TSR performance. Under this approach, HSBC’s
out-performance of the comparator group will be
calculated by dividing the total FFMC of all of the
companies that HSBC has outperformed in terms of
TSR by the total FFMC of all of the companies in
the comparator group.
The extent to which the TSR award will vest
will be determined as follows:
If HSBC’s TSR outperforms
companies comprising
Proportion of TSR Award
vesting1
75 per cent of the total FFMC 100%
50 per cent of the total FFMC 20%
< 50 per cent of the total FFMC nil
1 Vesting will occur in a straight line between 20 per cent and
100 per cent where HSBC’s performance falls between these
incremental steps.
Economic profit award
Economic profit (‘EP’) is calculated as the average
annual difference between return on invested capital
and the Group’s benchmark cost of capital and is
expressed as a percentage. EP is a key measure of
shareholder value creation as it rewards management
progressively to the extent that the return on the
capital invested in HSBC by its shareholders is in
excess of a threshold return, which itself exceeds the
Group’s benchmark cost of capital.
For the awards made in 2008 the benchmark
cost of capital was 10 per cent. Return on invested
capital is based on the profit attributable to
shareholders as defined on page 19. The extent to
which the EP award will vest will be determined as
follows:
Average annual EP over
three years
Proportion of EP Award
vesting1
8 per cent or above 100%
< 3 per cent nil
1 Vesting will occur in a straight line between 0 per cent and
100 per cent where HSBC’s performance falls between these
incremental steps.
Earnings per share award
Growth in EPS is measured on a point to point basis,
by comparing EPS in the third financial year of the
performance period with EPS in the financial year
preceding that in which the award is made. This
approach is aimed at simplifying the use of EPS as
a performance measure and takes into account
feedback received during consultation with
institutional shareholders in 2007/2008.
EPS growth in Year 3 over
the base EPS
Proportion of EPS
award vesting1
28 per cent or above 100%
16 per cent 20%
< 16 per cent nil
1 Vesting will occur in a straight line between 20% and 100%
where HSBC’s performance falls between these incremental
steps.
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 amend, relax or
waive the condition.
Awards will vest in full and immediately in
cases of death. In the event of redundancy,
retirement on grounds of injury or ill health and
where a participant ceases to be employed by HSBC
due to a company ceasing to be part of HSBC,