HSBC 2012 Annual Report Download - page 355

353
Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
not necessary to continue to increase the variable
pay pool, thereby limiting the risk of inappropriate
behaviour to drive financial performance.
In addition, our funding methodology considers
the relationship between capital, dividends and
variable pay to ensure that the distribution of post-
tax profits between these three elements is
considered appropriate (see page 349 for the 2012
and the 2011 split). It is deemed fundamental to the
Group that a majority of post-tax profit should be
allocated to capital and to shareholders, particularly
when a strong performance is delivered.
Finally, the commercial requirement to remain
competitive in the market and overall affordability
are considered.
Clawback
In order to reward genuine performance and not
failure, individual awards are made on the basis
of a risk-adjusted view of both financial and non-
financial performance. However, if the assessment
of performance subsequently proves to be inaccurate
or incorrect, then unvested deferred awards made
since 2010 can be clawed back by the Committee.
Individual awards
Individual awards are based on the achievement of
both financial and non-financial objectives. These
objectives, which are aligned with the Group’s
strategy, are detailed in participants’ annual
performance scorecards and the collective long-term
performance scorecard of participants in the GPSP.
Performance is then measured and reviewed against
the objectives on a regular basis.
Overall performance under both scorecards
is judged on outcomes but, most importantly,
adherence to HSBC Values as described on
page 347 is a prerequisite before any individual
can be considered for any variable pay. In other
words, adherence with the values acts as a gating
item. These values are key to the running of a sound,
sustainable bank. Specifically, our most senior
employees had a separate values rating for 2012
which directly influenced their overall performance
rating and, accordingly, their variable pay.
In addition, the Global Risk and Compliance
functions carry out annual reviews for senior
executives and risk-takers (defined as HSBC Code
Staff). These reviews determine whether there are
any instances of non-compliance with Risk and
Compliance procedures and expected behaviour.
Instances of non-compliance are escalated to senior
management for consideration in variable pay
decisions, clawback and ongoing employment.
Group-wide thematic reviews of risk are
also carried out to determine if there are any
transgressions which could affect the amount of
current year variable pay or any instances where
clawback of previously awarded variable pay is
required. Risk and Compliance input is a critical
part of the assessment process in determining the
performance of HSBC Code Staff (which includes
the executive Directors) and in ensuring that their
individual remuneration has been appropriately
assessed with regard to risk.
We require a proportion of variable pay awards
above certain thresholds to be deferred into awards
of HSBC shares. This is to ensure that the Group’s
interests and those of its employees are aligned
with those of the Group’s shareholders, that the
Group’s approach to risk management supports the
interests of all stakeholders and that remuneration is
consistent with effective risk management.
In considering individual awards, a comparison
of the pay and employment conditions of our
employees, Directors and senior executives is
considered by the Committee.