LTIPing point

17 April 2011 By George Hay Follow @gfhay

A new bonus scheme for the UK bank’s top 50 executives gives them shares after five years which they cannot sell until retirement. This should promote stability rather than breakneck growth. Though details of the plan will need scrutiny, it looks a model for others to follow.

This content is for Subscribers only

Context News

HSBC executives will have smaller overall bonuses and be made to wait longer for them under executive remuneration reforms unveiled by the bank on April 15.

Annual bonuses will be capped at three times the salary of senior directors, while payouts under longterm incentive plans (LTIPs) will be limited to six times salary. That compares to four times and seven times under current schemes.

Directors will have to wait five years until they receive shares awarded under LTIP schemes. During that time, the bank can claw back some or all of the shares if strategic decisions made by the director in question go bad. HSBC's most recent LTIP, awarded in 2008, had a threeyear vesting period.

When they receive the awards, the directors must hold the shares either until they retire or leave HSBC.

The new LTIP will be 60 percent based on financial targets (return on equity, cost efficiency ratio, capital strength and dividends) and 40 percent based on nonfinancial targets (strategy execution, brand equity, compliance and reputation, and people). This compares with the previous LTIP, which was based on total shareholder return, economic profit and earnings per share growth.

The reforms will apply to the remuneration of around 50 executive directors, group managing directors and group general managers.

Shareholders will vote on the new scheme at HSBC's annual general meeting on May 27. Standard Life, a leading shareholder, praised the proposals and said they demonstrated the bank's commitment to incentivise prudential and profitable growth.

Email a friend

Please complete the form below.

Required fields *