HSBC 2011 Annual Report Download - page 268

HSBC HOLDINGS PLC
Directors’ Remuneration Report (continued)
Executive Directors’ remuneration > Emoluments / Funding / TSR / Pensions / Changes / Guidelines
266
Delivery HSBC Performance Shares
Policy • Face value up to a maximum of seven times
fixed pay.
• Vesting of awards based on three
independent performance measures; TSR
(40%), economic profit (40%), growth in
EPS (20%).
• Performance conditions measured over a
three year period.
Timing • Last award made in 2008 and shares under
the plan were released in March 2011.
Performance Shares plan replaced by the
GPSP.
Description of performance conditions
The performance measures for the long-term
incentive awards of Performance Shares under
the HSBC Share Plan were as follows.
The vesting of awards was based on three
independent performance measures and an
overriding ‘sustained improvement’ judgement
by the Committee. The three Group measures were
relative TSR (40% of the award); economic profit
(‘EP’) (40%); and growth in EPS (20%).
These measures provided a basis on which to
measure our relative and absolute performance
over the long term. They take into account an
external measure of value creation, a measure of the
extent to which the return on capital invested in
HSBC is in excess of a benchmark return and a
direct measure of the profits generated for
shareholders.
Awards did not vest unless the Committee was
satisfied that our financial performance had shown a
sustained improvement in the period since the award
date. In determining whether we had achieved
such sustained improvement the Committee
took account of all relevant factors, in particular,
comparisons against the TSR comparator group
in areas such as revenue growth and mix, cost
efficiency, credit performance, cash return on cash
invested, dividends and TSR.
The performance measures and the targets
described below applied to the last awards made in
2008 which vested and were released in April 2011.
Total shareholder return award
TSR was measured against a comparator group
comprising the largest global banks in the world as
well as other banks against which we compete for
business at a regional and/or local level. These
companies were:
TSR comparator group
AGEAS ICBC
Banco Bradesco Itau Unibanco
Banco Santander JPMorgan 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
To reflect the fact that the range of market
capitalisations within the comparator group is very
wide, a free float market capitalisation (‘FFMC’)
weighted method was used to calculate TSR
performance. Under this approach, our out-
performance of the comparator group was calculated
by dividing the total FFMC of all of the companies
that we had 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 vested was determined as follows:
If HSBC’s TSR outperforms
companies comprising
Proportion of TSR
award vesting1
75% of the total FFMC 100%
50% of the total FFMC 20%
< 50% of the total FFMC nil
1 Vesting occurred in a straight line between 20% and 100%
where our performance fell between these incremental steps.
Economic profit award
EP was calculated as the average annual difference
between return on invested capital and our
benchmark cost of capital and was expressed as a
percentage.
For the awards made in 2008 the benchmark
cost of capital was 10%. Return on invested capital
is based on the profit attributable to shareholders.
The extent to which the EP award vested was
determined as follows:
Average annual EP over
three years
Proportion of EP
award vesting1
8% or above 100%
< 3% nil
1 Vesting occurred in a straight line between 0% and 100%
where our performance fell between these incremental steps.
Earnings per share award
Growth in EPS was 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 was made.