HSBC chiefs in line for 120m pay bonanza
Monday, 26 May 2008

The Sunday Times

John Waples and Nicola Smith

FIVE directors at HSBC could share a £120m jackpot over the next three years in a controversial pay scheme to be debated at a shareholders’ meeting this week.

The payout, a mixture of cash and shares, would be awarded in full only if the directors at Britain’s biggest bank hit tough profit performance targets significantly ahead of what City analysts are forecasting.

The highest paid would be Mike Geoghegan, HSBC’s chief executive. His basic salary is £1m, but under the new scheme he could benefit from a bonus up to four times his salary and a long-term incentive plan (LTIP) that could be equivalent to seven times salary — a potential £12m a year.

If he were to succeed it would make him the third-highest-paid FTSE 100 chief executive. Last year Bart Becht, chief of Reckitt Benckiser, was the highest paid with a £22m package.
HSBC’s chairman, Stephen Green, who was paid a basic salary of £1.25m last year, is not taking part in the bonus scheme, but will benefit from the LTIP.

Douglas Flint, the finance director, will be on the same remuneration scheme as Geoghegan, as will Sandy Flockhart and Vincent Cheng, who have both just joined the board. Flint’s basic salary was £700,000 last year, while Flockhart and Cheng are on about £500,000 each.

HSBC’s sixth executive director, Stuart Gulliver, head of global banking and markets, will be on a different performance package. He is already the bank’s highest-paid executive, earning up to £10m.

The new pay deal is designed to put HSBC, which is ranked as one of the world’s top five banks, on more of a par with its international peers. Britain accounts for only a small percentage of earnings for HSBC, which competes against banks such as Citigroup, Bank of America and Bank of China.

For the total payout to be hit, there would have to be some serious outperformance, something that has not always been achieved. In 2003 and 2004, the LTIPs did not vest. And in 2005 it vested only 50%. If this performance were repeated over the next three years the maximum £120m payout would shrink to under £40m.

HSBC’s remuneration committee, led by Sir Mark Moody-Stuart, has the power to block any payout if it does not feel the directors are acting in the long-term interests of investors.

The bank is expected to hear some dissenting voices at this week’s annual meeting on Friday and a number of investors are expected to abstain from voting. However, all the big investors are aware of the proposal and the bank is confident of winning at least 75% support.

The activist investor Eric Knight, who has built up a stake in the company, will be at the meeting. He is critical of the make-up of the performance package, which is split between total shareholder return, economic profit and earnings per share. He believes the 5.1% annual target for EPS is too low, even though it is higher than many analysts are predicting.

HSBC said: “The aim of the remuneration scheme is to move its executives from being paid below the average of their peers at other global institutions. The bank has never been known to overpay and this will not change.”

The vote comes at a time when the Financial Services Authority believes that remuneration should be taken into account when considering the risks posed by a financial institution.

In Europe, the Dutch are taking the lead in a crackdown on large bonuses and golden handshakes. New laws proposed by finance minister Wouter Bos will require companies to pay a 30% tax on severance packages of €500,000 (£398,000) or more.

In addition, it would raise by 15% the employer’s tax contributions to company pensions for executives who earn €500,000 a year or more. “Excessive and baseless payments for corporate executives” cause a credibility gap, Bos said.

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