TIDMHSBA
RNS Number : 0809S
HSBC Holdings PLC
06 March 2019
Corporate governance report
Page
The Board 152
----
Operation of the Board 152
-------------------------------------- ----
Director and Group Managing Director
biographies 153
-------------------------------------- ----
Board of Directors 157
-------------------------------------- ----
Board committees 158
----
Internal control 165
----
Internal audit 166
----
Going concern and viability 166
----
Share capital and other disclosures 167
----
Employees 172
-------------------------------------- ----
Statement of compliance 174
-------------------------------------- ----
The Board
The Board aims to promote the Group's long-term success, deliver
sustainable value to shareholders and promote a culture of openness
and debate.
Led by the Group Chairman, the Board sets the Group's strategy
and risk appetite. It also approves capital and operating plans for
achieving strategic objectives on the recommendation of
management.
Group Chairman
Mark Tucker was appointed to the Board as an independent
non-executive Director on 1 September 2017 and became non-executive
Group Chairman on 1 October 2017.
Executive Directors
The Group Chief Executive, the Group Chief Financial Officer and
the Group Chief Risk Officer are HSBC employees.
Independent non-executive Directors
The majority of the Board comprises independent non-executive
Directors. Their role is to challenge and scrutinise the
performance of management and to help develop proposals on
strategy. They also review the performance of management in meeting
agreed goals and objectives and monitor the Group's risk
profile.
All of the non-executive Directors are considered to be
independent of HSBC. There are no relationships or circumstances
that are likely to affect any individual non-executive Director's
judgement. To satisfy the Rules Governing the Listing of Securities
on The Stock Exchange of Hong Kong Limited ('HKEx'), all
non-executive Directors have confirmed their independence during
the year. The non-executive Group Chairman was considered to be
independent on appointment.
Board and executive responsibilities
The roles of Group Chairman and Group Chief Executive are
separate, with a clear division of responsibilities between the
running of the Board and executive responsibility for running
HSBC's business.
Jonathan Symonds, who has been Senior Independent Director
('SID') since April 2017, was appointed as Deputy Group Chairman in
August 2018.
The roles of the Group Chairman, Deputy Group Chairman and
Senior Independent Director, and Group Chief Executive are set out
in writing and are available on the website at
www.hsbc.com/our-approach/corporate-governance/board-responsibilities.
Responsibility for the day-to-day management of the business and
implementation of strategy is delegated by the Board to the Group
Chief Executive, who is supported by the Group Management Board
('GMB'), an executive forum which he chairs.
There are special meetings of the GMB that provide oversight of
risk matters, known as the Risk Management Meeting ('RMM'), which
is chaired by the Group Chief Risk Officer. There are also special
meetings of the GMB that provide oversight of financial crime risk,
known as the Financial Crime Risk Management Meeting, which is
chaired by the Group Chief Compliance Officer.
Powers of the Board
The Board is responsible for overseeing the management of HSBC
globally and, in so doing, exercises its powers, subject to any
relevant laws, regulations and HSBC Holdings' Articles of
Association (the 'Articles of Association').
Certain matters are reserved for the Board for its approval.
These include: the review and approval of annual operating plans;
risk appetite; performance targets; credit or market risk limits;
acquisitions; disposals; investments; capital expenditure or
realisation or creation of a new venture that exceed certain
thresholds; specified senior appointments; and any substantial
change in balance sheet management policy.
Operation of the Board
Phillip Ameen, Joachim Faber and John Lipsky retired from the
Board following the conclusion of the 2018 Annual General Meeting.
Their departures led to a reduction in the size of the Board, as
part of its ongoing work to simplify, clarify and strengthen
governance arrangements. The number of Board Committees was also
reduced from seven to five and subsidiary governance was
simplified.
These changes created clearer and stronger lines of authority
and accountability, which enables the Board to devote more time to
priority areas.
The Board regularly reviews reports on performance against
financial and other strategic objectives, key business challenges,
risk, business developments, investor relations and the Group's
relationships with its key stakeholders. During 2018, the Board
reviewed the Group's strategy with the newly-appointed Group Chief
Executive and his management team and approved a number of
strategic priorities targeted for delivery by the end of 2020.
Following their approval, further details were announced to
investors in an update in June 2018. The Board routinely tracks
progress with respect to each strategic priority, together with the
Group Chief Executive and members of his management team.
All of HSBC's activities involve the measurement, evaluation,
acceptance and management of risk or combinations of risks. The
Board, advised by the Group Risk Committee ('GRC') and the
Financial System Vulnerabilities Committee ('FSVC'), promotes a
strong risk governance culture that shapes the Group's approach to
risk. The Board and these committees support the maintenance of a
strong risk management framework.
Under the direction of the Group Chairman, the Group Company
Secretary is responsible for ensuring good information flows within
the Board and its committees and between senior management and
non-executive Directors, as well as facilitating induction and
assisting with professional development of non-executive Directors,
as required.
The Group Chairman meets with the independent non-executive
Directors without the executive Directors in attendance after each
Board meeting and otherwise, as necessary.
The Directors are encouraged to have free and open contact with
management at all levels and full access to all relevant
information. When attending off-site Board meetings and when
travelling for other reasons, non-executive Directors are able to
visit local business operations and meet local management.
Directors may take independent professional advice, if
necessary, at HSBC Holdings' expense.
Board performance evaluation
The Board is committed to regular, independent evaluation of its
own effectiveness and that of its committees. During 2018, the
Board implemented a governance simplification initiative, changing
the size, structure and composition of the Board and its
committees. Given that these changes were relatively recent and
that a period of time is required for their impact to be fully
assessed, the Board agreed that it would be premature to conduct an
evaluation of its effectiveness during 2018. Instead, a review of
the Board's effectiveness, and that of its committees, will be
conducted in 2019 by an independent external service provider and
the results presented to the Board during this year. Details of the
process followed and actions arising from that evaluation will be
included in the Annual Report and Accounts 2019.
Director performance evaluation
The Group Chairman has routinely met with each of the
non-executive Directors during 2018 to discuss individual
performance, Board and committee governance, time commitment and
business priorities.
Executive Directors' individual performance evaluations are
undertaken as part of the performance management process, which
applies for all employees. In respect of the Group Chief Executive,
this review process was led by the Group Chairman and discussed
with the Nomination & Corporate Governance Committee. The Group
Remuneration Committee considers the result of the review by the
Group Chairman of the Group Chief Executive, as well as his
assessments of the performance of the Group Chief Financial Officer
and Group Chief Risk Officer, when determining variable pay each
year, as set out in the Directors' remuneration report contained in
this Annual Report and Accounts.
The Group Chairman's performance is evaluated by the
non-executive Directors, led by the SID.
Non-executive Group Chairman
Mark E Tucker, 61
Non-executive Group
Chairman
Appointed to the Board:
September 2017
Group Chairman since
October 2017
=========================
Chairman of the Nomination & Corporate Governance
Committee
Skills and experience: Mark has extensive experience in the
financial services industry in Asia and the UK. Most recently he
was Group Chief Executive and President of AIA Group Limited
('AIA'). Before joining AIA, Mark was Group Chief Executive of
Prudential plc and the founding Chief Executive of Prudential
Corporation Asia Limited. Mark also previously served as a
non-executive Director of the Court of The Bank of England, as an
independent non-executive Director of the Goldman Sachs Group and
as Group Finance Director of HBOS plc.
Current appointments include: Serves on the Asia Business
Council and the advisory board of the Asia Global Institute. Mark
is also a Director of the Peterson Institute for International
Economics.
Executive Directors
John Flint, 50
Group Chief Executive
Appointed to the Board:
February 2018
=========================
Skills and experience: John joined HSBC in 1989 and helped to
establish and expand the HSBC Global Markets business in Asia. He
has held various roles across the Group, including Group Treasurer;
Deputy Head of Global Markets and Head of Global Markets, Europe,
Middle East and Africa; Chief Executive of HSBC Global Asset
Management; Chief of Staff to the Group Chief Executive and Group
Head of Strategy and Planning. In 2013, John was appointed Group
Managing Director and Chief Executive of Retail Banking and Wealth
Management.
Current appointments include: Chairman of the Group Management
Board and The Hongkong and Shanghai Banking Corporation Limited.
John is a member of the Monetary Authority of Singapore
International Advisory Panel and the International Business Council
of the World Economic Forum. He is also a member of the Climate
Finance Leadership Initiative.
Marc Moses, 61
Group Chief Risk Officer
Appointed to the Board:
January 2014
==========================
Skills and experience: Marc joined HSBC in 2005 as Chief
Financial and Risk Officer for Global Banking and Markets, and in
December 2010 became Group Chief Risk Officer. He has extensive
risk management and financial experience. Marc is a fellow of the
Institute of Chartered Accountants in England and Wales. He was
European Chief Financial Officer at J.P. Morgan Chase & Co.,
and an audit partner at Price Waterhouse.
Ewen Stevenson, 52
Group Chief Financial
Officer
Appointed to the Board:
1 January 2019
=========================
Skills and experience: Ewen has over 25 years of experience in
the banking industry, both as an adviser to major banks and as an
executive. Ewen was most recently executive Director and Chief
Financial Officer at Royal Bank of Scotland Group. Prior to this,
he was at Credit Suisse where his last role was co-Head of the EMEA
Investment Banking Division and co-Head of the Global Financial
Institutions Group.
Independent non-executive Directors
Kathleen Casey, 52
Independent non-executive
Director
Appointed to the Board:
March 2014
===========================
Member of the Group Audit Committee and the Nomination &
Corporate Governance Committee
Skills and experience: Kathleen has extensive financial
regulatory policy experience. She is a former Commissioner of the
US Securities and Exchange Commission, and acted as its principal
representative in multilateral and bilateral regulatory dialogues
with the G-20 Financial Stability Board and the International
Organisation of Securities Commissions. Other former appointments
include Staff Director and Counsel to the United States Senate
Committee on Banking, Housing, and Urban Affairs; Chair of the
Alternative Investment Management Association; and Legislative
Director and Chief of Staff for a US Senator.
Current appointments include: Senior adviser to Patomak Global
Partners, member of the Board of Trustees of the Financial
Accounting Foundation and a number of public and non-profit
bodies.
Laura Cha, GBM, 69
Independent non-executive
Director
Appointed to the Board:
March 2011
===========================
Member of the Financial System Vulnerabilities Committee and the
Nomination & Corporate Governance Committee
Skills and experience: Laura has extensive regulatory and
policy-making experience in the finance and securities sector in
Hong Kong and mainland China. She is the former Vice Chairman of
the International Advisory Council of the China Securities
Regulatory Commission. Other former appointments include
non-executive Director of China Telecom Corporation Limited; Bank
of Communications Co., Ltd; and Tata Consultancy Services Limited.
She also served as Chair of Hong Kong Special Administrative
Region's Financial Services Development Council and Deputy Chair of
the Securities and Futures Commission in Hong Kong.
Current appointments include: Chair of Hong Kong Exchanges and
Clearing Limited and non-executive Deputy Chair of The Hongkong and
Shanghai Banking Corporation Limited. She is also a non-executive
Director of The London Metal Exchange, Unilever PLC and Unilever
N.V.
Henri de Castries, 64
Independent non-executive
Director
Appointed to the Board:
March 2016
===========================
Member of the Group Remuneration Committee and the Nomination
& Corporate Governance Committee
Skills and experience: Henri has more than 25 years'
international experience in the financial services industry. He
joined AXA S.A. in 1989, and then held a number of senior roles,
ultimately as Chairman and Chief Executive Officer of AXA until 1
September 2016.
Current appointments include: Special Adviser to General
Atlantic, Chairman of Institut Montaigne, lead independent Director
of Nestlé S.A. and a non-executive Director of the French National
Foundation for Political Science. Henri is also a member of the
Global Advisory Council at LeapFrog Investments.
Lord Evans of Weardale,
61
Independent non-executive
Director
Appointed to the Board:
August 2013
===========================
Chairman of the Financial System Vulnerabilities Committee and
member of the Nomination & Corporate Governance Committee
Skills and experience: Jonathan has 30 years of experience in
national security policy and operations. He was formerly Director
General of the UK's Security Service (MI5), had oversight of the
Joint Terrorist Analysis Centre and the Centre for the Protection
of National Infrastructure, and attended the National Security
Council.
Current appointments include: Chairman of the UK Committee on
Standards in Public Life and the Advisory Board of Blackdot
Solutions Ltd, non-executive Director of Ark Data Centres, and an
adviser to various cybersecurity and technology companies.
Irene Lee, 65
Independent non-executive
Director
Appointed to the Board:
July 2015
===========================
Member of the Group Remuneration Committee and the Nomination
& Corporate Governance Committee
Skills and experience: Irene has more than 40 years' finance
industry experience, having held senior investment banking and fund
management positions in the UK, the US and Australia, including
positions at Citibank and the Commonwealth Bank of Australia. Other
former appointments include serving as a member of the advisory
council of J.P. Morgan Australia and the Australian Government
Takeovers Panel.
Current appointments include: Executive Chair of Hysan
Development Company Limited and a non-executive Director of The
Hongkong and Shanghai Banking Corporation Limited, Hang Seng Bank
Limited and Cathay Pacific Airways Limited. She is also a member of
the Exchange Fund Advisory Committee of the Hong Kong Monetary
Authority.
Heidi Miller, 65
Independent non-executive
Director
Appointed to the Board:
September 2014
===========================
Member of the Group Risk Committee and the Nomination &
Corporate Governance Committee
Skills and experience: Heidi is a former President of
International at J.P. Morgan Chase & Co., and was responsible
for leading the global expansion and the international business
strategy across its investment bank, asset management, and treasury
and securities services divisions. She was also a non-executive
Director of Merck & Co., Inc. and Progressive Corp.; Executive
Vice President and Chief Financial Officer of Bank One Corporation;
and Executive Vice President and Chief Financial Officer of
Citigroup Inc.
Current appointments include: Chair of HSBC North America
Holdings Inc. and a non-executive Director of First Data
Corporation and General Mills Inc.
David Nish, 58
Independent non-executive
Director
Appointed to the Board:
May 2016
===========================
Member of the Group Audit Committee, the Group Remuneration
Committee and the Nomination & Corporate Governance
Committee
Skills and experience: David served as Chief Executive Officer
of Standard Life plc between 2010 and 2015, having joined as
Finance Director in 2006. Other former appointments include Group
Finance Director of Scottish Power plc; non-executive Director of
the UK Green Investment Bank plc, HDFC Life (India), and London
Stock Exchange Group plc; and partner of Price Waterhouse. He is a
qualified chartered accountant.
Current appointments include: A non-executive Director of
Vodafone Group plc and Zurich Insurance Group.
Jonathan Symonds, CBE,
59
Independent non-executive
Director
Appointed to the Board:
April 2014
Senior Independent Director
since April 2017
Deputy Group Chairman
since August 2018
=============================
Chairman of the Group Audit Committee and member of the Group
Risk Committee and the Nomination & Corporate Governance
Committee
Skills and experience: Jonathan is a former Chief Financial
Officer of Novartis AG and AstraZeneca plc. He was also a partner
and managing director of Goldman Sachs, a partner of KPMG, and a
non-executive Director and Chairman of the Audit Committee of
Diageo plc. He is a fellow of the Institute of Chartered
Accountants in England and Wales.
Current appointments include: Chairman of Proteus Digital Health
Inc. and Genomics England Limited and a non-executive Director of
Rubius Therapeutics, Inc.
Jackson Tai, 68
Independent non-executive
Director
Appointed to the Board:
September 2016
===========================
Chairman of the Group Risk Committee and member of the Group
Audit Committee, Financial System Vulnerabilities Committee and the
Nomination & Corporate Governance Committee
Skills and experience: Jackson Tai is a skilled international
non-executive Director with experience in senior operating and
governance roles across Asia and China, as well as North America
and Europe. Jackson was formerly Vice Chairman and Chief Executive
Officer of DBS Group and DBS Bank Ltd, having served the group as
Chief Financial Officer and then as President and Chief Operating
Officer. He previously worked at J.P. Morgan & Co. Incorporated
as an investment banker in New York, Tokyo and San Francisco. Other
former appointments include non-executive Director of Bank of China
Limited, Singapore Airlines, NYSE Euronext, ING Groep N.V.,
CapitaLand Ltd, SingTel Ltd. and Jones Lang LaSalle Inc. Jackson
also served as Vice Chairman of Islamic Bank of Asia.
Current appointments include: Non-executive Director of Eli
Lilly and Company, Koninklijke Philips N.V., Mastercard
Incorporated and the Canada Pension Plan Investment Board.
Pauline van der Meer
Mohr, 58
Independent non-executive
Director
Appointed to the Board:
September 2015
===========================
Chairman of the Group Remuneration Committee and a member of the
Group Risk Committee and the Nomination & Corporate Governance
Committee
Skills and experience: Pauline has extensive legal and human
resources experience across a number of different sectors, and
contributed to the Dutch Banking Code Monitoring Commission. Former
appointments include President of Erasmus University Rotterdam;
senior executive Vice President and Head of Group Human Resources
at ABN AMRO Bank N.V.; Group Human Resources Director at TNT N.V.;
HR Director, Information Technology, Royal Dutch Shell Group;
Senior Legal Counsel, Shell International; and member of the
supervisory board of ASML Holding N.V.
Current appointments include: Chair of the Dutch Corporate
Governance Code Monitoring Committee, Chair of the supervisory
board of EY Netherlands, Deputy Chair of the supervisory board of
Royal DSM N.V., non-executive Director of Mylan N.V., member of the
Selection and Nomination Committee of the Supreme Court of the
Netherlands and member of the Capital Markets Committee of the
Dutch Authority for the Financial Markets.
Group Company Secretary
Ben Mathews, 51
Group Company Secretary
=========================
Ben joined HSBC in June 2013 and became Group Company Secretary
in July 2013. He is a fellow of the Institute of Chartered
Secretaries and Administrators. Former appointments include Group
Company Secretary of Rio Tinto plc and of BG Group plc.
Group Managing Directors
Elaine Arden, 50
Group Chief Human Resources Officer
=====================================
Elaine joined HSBC in June 2017 as Group Chief Human Resources
Officer. She has previously held senior human resources and
employee relations roles in a number of other financial
institutions. Elaine is a fellow of the Chartered Institute of
Banking in Scotland and a member of the Chartered Institute of
Personnel & Development.
Samir Assaf, 58
Chief Executive Officer, Global
Banking and Markets
=================================
Samir joined HSBC in 1994 and became a Group Managing Director
in 2011. He is Chairman and a non-executive Director of HSBC
France; a Director of HSBC Trinkaus & Burkhardt AG and The
Saudi British Bank. Former appointments include: a Director of HSBC
Bank plc, HSBC Global Asset Management Limited and HSBC Bank Egypt
S.A.E.; and Head of Global Markets for Europe, Middle East and
Africa.
Colin Bell, 51
Group Chief Compliance Officer
================================
Colin Bell joined HSBC in July 2016 and was appointed a Group
Managing Director in March 2017. Colin previously worked at UBS,
where he was Head of Compliance and Operational Risk Control. He
has 10 years of experience in managing risk and financial crime,
following 16 years in the British Army.
Patrick Burke, 57
President and Chief Executive Officer,
HSBC USA
========================================
Patrick joined HSBC in 1989 and became a Group Managing Director
in 2015. He is also an executive Director, President and CEO of
HSBC North America Holdings Inc. and Chairman of HSBC Bank USA,
N.A., HSBC Finance Corporation, HSBC USA Inc. and HSBC Global Asset
Management (USA) Inc.
Pierre Goad, 57
Chief Communications Officer
==============================
Pierre first joined HSBC in 2001. In 2010, he left to join
Zurich Insurance Group as Head of Communications. He rejoined HSBC
in 2011 and became a Group Managing Director in 2015. Former
appointments include: Director of HSBC Bank Canada; Global Co-Head
of Communications; and Head of Corporate Development, Europe,
Middle East and Global Businesses.
Pam Kaur, 55
Group Head of Internal Audit
==============================
Pam joined HSBC and became a Group Managing Director in 2013.
She is a non-executive Director of Centrica plc, a co-opted Council
member of The Institute of Chartered Accountants in England and
Wales, and Chair of the Financial Services Faculty Board. Former
appointments include: Global Head of Group Audit for Deutsche Bank
AG; Chief Financial Officer and Chief Operating Officer of the
Restructuring and Risk Division, Royal Bank of Scotland Group plc;
Group Head of Compliance and AML, Lloyds TSB; and Global Director
of Compliance, Global Consumer Group, Citigroup.
Stuart Levey, 55
Chief Legal Officer
=====================
Stuart joined HSBC and became a Group Managing Director in 2012.
Former appointments include: Under Secretary for Terrorism and
Financial Intelligence in the US Department of the Treasury; senior
fellow for National Security and Financial Integrity at the Council
on Foreign Relations; Principal Associate Deputy Attorney General
at the US Department of Justice; and a partner at Miller, Cassidy,
Larroca & Lewin LLP and at Baker Botts LLP.
Andy Maguire, 52
Group Chief Operating Officer
===============================
Andy joined HSBC in 2014 as Group Chief Operating Officer and
became a Group Managing Director in 2015. He is Chairman of HSBC
Global Services Limited, HSBC Global Services (UK) Limited and HSBC
Group Management Services Limited. He is formerly a Managing
Partner (UK and Ireland) of the Boston Consulting Group.
Paulo Maia, 60
Chief Executive Officer, Latin America
========================================
Paulo joined HSBC in 1993 and became a Group Managing Director
on 1 February 2016. He is Chairman of Grupo Financiero HSBC Mexico
S.A. de C.V., Chairman of HSBC Argentina Holdings S.A. and a
Director of HSBC North America Holdings Inc. Former appointments
include: Chief Executive Officer of HSBC Bank Canada and HSBC Bank
Australia Limited.
Stephen Moss, 52
Group Chief of Staff
======================
Stephen, who has been with HSBC for 27 years, became a Group
Managing Director in 2018. As Chief of Staff to the Group Chief
Executive, Stephen leads Group Strategy and Planning, Group Mergers
and Acquisitions, Global Communications, Global Events, Group
Public Affairs and Group Corporate Sustainability. Stephen is a
Director of the Saudi British Bank, HSBC Middle East Holdings B.V.
and HSBC Global Asset Management Limited. He is a qualified
chartered accountant and member of the Institute of Chartered
Accountants in England and Wales.
Charlie Nunn, 47
Chief Executive Officer, Retail
Banking and Wealth Management
=================================
Charlie joined HSBC in 2011 and became a Group Managing Director
and CEO, Retail Banking and Wealth Management in January 2018.
Charlie was previously Head of Group Retail Banking and Wealth
Management, leading the teams supporting HSBC's Retail and Wealth
businesses globally. Prior to this, he was Group Head of Wealth
Management and before that Global Chief Operating Officer for
Retail Banking and Wealth Management. Charlie has extensive
financial services experience and was formerly a partner at
Accenture and a Senior Partner at McKinsey & Co.
Noel Quinn, 57
Chief Executive Officer, Global
Commercial Banking
=================================
Noel joined HSBC in 1992 when the Group acquired Midland Bank
and became a Group Managing Director on 1 September 2016. Former
appointments include: Head of Specialised and Equity Finance,
Director of Strategy and Development for Commercial Banking, Head
of Commercial Finance Europe, Head of Commercial Banking UK, and
Head of Commercial Banking Asia.
António Simões, 43
Chief Executive Officer, Global
Private Banking
=================================
António joined HSBC in 2007 and became a Group Managing Director
on 1 February 2016. On 1 January 2019, he was appointed Chief
Executive Officer of Global Private Banking. António was previously
Chief Executive Officer of UK and Europe (HSBC Bank plc), and
served as Chief of Staff to the Group Chief Executive Officer and
Group Head of Strategy and Planning. António was also formerly the
Chairman of the Practitioner Panel of the FCA, a partner of
McKinsey & Company, and an associate at Goldman Sachs.
Ian Stuart, 55
Chief Executive Officer, HSBC UK
Bank plc
==================================
Ian joined HSBC in 2014 and became a Group Managing Director of
HSBC Holdings plc on 1 July 2018. In April 2017 he was appointed
Chief Executive Officer of HSBC UK Bank plc. He is a Board member
of the financial services industry association UK Finance. He has
more than 38 years' experience in the banking industry. Before
joining HSBC, Ian led the corporate banking business at Barclays
for six years and held a variety of roles in business banking
during his 22 years at NatWest.
Peter Wong, 67
Deputy Chairman and Chief Executive
Officer,
The Hongkong and Shanghai Banking
Corporation Limited
=====================================
Peter joined HSBC in 2005 and became a Group Managing Director
in 2010. He is Chairman and non-executive Director of HSBC Bank
(China) Company Limited and a non-executive Director of Hang Seng
Bank Limited. He is also non-executive Vice Chairman of Bank of
Communications Co., Limited. Other appointments include Deputy
Chairman of the Hong Kong General Chamber of Commerce; Council
Member of Hong Kong Trade Development Council and a member of its
Belt and Road Committee; and a Member of the Chongqing Mayor's
International Economic Advisory Council.
Board of Directors
Appointment, retirement and re-election of Directors
Appointments to the Board are made on merit, and candidates are
considered against objective criteria, having due regard to the
benefits of the diversity of the Board. A rigorous selection
process is followed in relation to the appointment of Directors and
certain specified senior appointments.
The number of Directors must not be fewer than five nor exceed
25. The Board may at any time appoint any person as a Director,
either to fill a vacancy or as an addition to the existing Board.
The Board may appoint any Director to hold any employment or
executive office, and may revoke or terminate any such
appointment.
Newly appointed Directors retire at the Annual General Meeting
('AGM') following appointment and are eligible for election.
Directors are nominated for annual re-election by shareholders
subject to continued satisfactory performance based upon an
assessment by the Group Chairman and the Nomination & Corporate
Governance Committee.
Non-executive Directors are appointed for an initial three-year
term and, subject to re-election by shareholders at each AGM, are
typically expected to serve two three-year terms. The Board may
invite a Director to serve additional periods. Any term beyond six
years is subject to particularly rigorous review by the Nomination
& Corporate Governance Committee.
The terms and conditions of appointment of non-executive
Directors are set out in a letter of appointment, which includes
the expectations of them and the estimated time required to perform
their role. The current anticipated time commitment, which is
subject to periodic review, is 75 days per year. Non-executive
Directors who chair a Board committee are expected to devote up to
100 days per year to the Group. The Chairman of the GRC is expected
to commit up to 150 days per year reflecting the complexity of the
role and responsibilities of this Committee. All non-executive
Directors have confirmed they can meet this requirement, taking
into account any other commitments they have at the time of
appointment, and, in practice, most devote considerably more
time.
During their term of appointment, non-executive Directors are
expected to consult the Group Chairman or the Group Company
Secretary if they are considering whether to accept or vary any
commitments outside the Group. The agreement of the Group Chairman
is required if any additional or changed commitment might affect
the time that a Director is able to devote to his or her role with
the Group.
Letters setting out the terms of appointment of each
non-executive Director are available for inspection at the
registered office of HSBC Holdings.
Induction
Formal induction programmes are arranged for newly appointed
Directors based on the individual's needs, skills and experience.
Typically, these consist of a series of meetings with other
Directors and senior executives, as well as local site visits to
provide familiarity with the business. Directors also receive
comprehensive guidance from the Group Company Secretary on the
Group's corporate governance framework and associated policies, as
well as their duties as Directors on the Board.
Conflicts of interest, indemnification of Directors and
contracts of significance
The Board has established a policy and a set of procedures
relating to Directors' conflicts of interest. Where conflicts of
interest arise, the Board has the power to authorise them. A review
of those conflicts that have been authorised, and the terms of
those authorisations, is routinely undertaken by the Board.
The Articles of Association contain a qualifying third-party
indemnity provision, which entitles Directors and other Officers to
be indemnified out of the assets of HSBC Holdings against claims
from third parties in respect of certain liabilities. Additionally,
all Directors have the benefit of directors' and officers'
liability insurance.
None of the Directors had, during the year, a material interest,
directly or indirectly, in any contract of significance with any
HSBC company. During the year, all Directors were reminded of their
obligations in respect of transacting in HSBC Group securities and,
save as disclosed on page 168, all Directors have confirmed that
they have complied with their obligations.
Training and development
Following a period of induction, training and development is
provided for each Director with the support of the Group Company
Secretary. Non-executive Directors develop and refresh their skills
and knowledge through periodic interactions and briefings with
senior management of the Group's businesses and functions. During
the year, Directors and the Group Company Secretary undertook
mandatory training on a range of issues, including: anti-money
laundering; anti-bribery and corruption; embedding good conduct;
cybersecurity, and sanctions.
Subsidiary governance
The Group Chairman hosted two governance forums during 2018 for
the Chairs of the Group's principal subsidiaries. Awareness and
discussion sessions were conducted by senior executives and subject
matter experts. These covered capital management, investor demands,
conduct, UK regulatory matters, IT resilience, cybersecurity, data,
and financial crime risk management. Initiatives were agreed on
enhancements to the accountability of the principal subsidiaries
for governance oversight across their respective regions, and the
improvement of information flows between the Group and the
principal subsidiary boards. Additionally, discussions took place
concerning the strategic planning cycle, reducing organisational
complexity, interactions with regulators and board succession
planning.
Jonathan Symonds, Chair of the Group Audit Committee ('GAC'),
and Jackson Tai, Chair of the GRC, hosted regional forums during
2018 with the Chairs of the Group's subsidiary audit and risk
committees.
Shareholder engagement
Communication with shareholders is given high priority by the
Board. Extensive information about HSBC and its activities is
provided to shareholders in its Annual Report and Accounts, the
Strategic Report and the Interim Report as well as on
www.hsbc.com.
To complement these publications, there is regular dialogue with
institutional investors. Enquiries from individuals on matters
relating to their shareholdings and HSBC's business are
welcomed.
Directors are encouraged to develop an understanding of the
views of major shareholders.
As SID, Jonathan Symonds is available to shareholders if they
have concerns that cannot be resolved or for which the normal
channels would be inappropriate. He may be contacted via the Group
Company Secretary at 8 Canada Square, London E14 5HQ.
The AGM and other general meetings
The 2019 AGM will be held at the International Convention
Centre, 8 Centenary Square at 11.00am on Friday, 12 April 2019 and
a live webcast will be available on www.hsbc.com. A recording of
the proceedings will be available on www.hsbc.com shortly after the
conclusion of the AGM. Shareholders are encouraged to attend the
meeting. Shareholders may send enquiries to the Board in writing
via the Group Company Secretary, HSBC Holdings plc, 8 Canada
Square, London E14 5HQ or by sending an email to
shareholderquestions@hsbc.com.
Shareholders may require the Directors to call a general meeting
other than an AGM as provided by the UK Companies Act 2006.
Requests to call a general meeting may be made by members
representing at least 5% of the paid-up capital of HSBC Holdings
that carries the right of voting at its general meetings (excluding
any paid-up capital held as treasury shares). A request must state
the general nature of the business to be dealt with at the meeting
and may include the text of a resolution that may properly be moved
and is intended to be moved at the meeting. A request may be in
hard copy form or in electronic form, and must be authenticated by
the person or persons making it. A request may be made in writing
to HSBC Holdings at its UK address, referred to in the paragraph
above or by sending an email to shareholderquestions@hsbc.com. At
any general meeting convened on such request, no business may be
transacted except that stated by the requisition or proposed by the
Board.
Board committees
During 2018, the Board reduced the number of Board committees
from seven to five. Responsibilities previously delegated to its
Conduct & Values Committee and Philanthropic & Community
Investment Oversight Committee were reassigned to other, more
appropriate governance forums within the Group. Specific
responsibility for cyber-crime and information security risk was
transferred from the FSVC to the GRC. Responsibility for the
development of the firm's culture was assumed by the Group
Chairman. In 2018, the Nomination Committee was also renamed the
Nomination & Corporate Governance Committee, reflecting its
broader corporate governance remit.
The Chairs of each committee report matters of significance to
the Board after each meeting and the minutes of the meetings are
made available to all Board members.
The detailed roles and responsibilities of each committee are
set out in its terms of reference, which can be found on the
website at
www.hsbc.com/our-approach/corporate-governance/board-committees.
Interaction with principal subsidiaries
The Board manages relationships with the regions through
principal subsidiaries. There are close interactions between the
Group Board and the principal subsidiaries and their respective
committees. Minutes are shared and certain appointments to
principal subsidiary boards, as well as other senior roles, are
required to be approved by the Nomination & Corporate
Governance Committee of the Group Board.
As explained in more detail in the reports of the GAC and the
GRC on pages 159 and 161, this interaction is reinforced through
the Audit and Risk Committee Chairs' forums. The Chairs of the
subsidiary audit and risk committees within the respective regions
attend a regional forum to exchange subject matter expertise and to
review and discuss forward-looking risk and audit issues.
Board members are encouraged to, and do, make visits to the
regions and attend principal subsidiary board and board committee
meetings as guests. Similarly, regional Directors are invited
regularly to attend committee meetings at a Group level.
The GAC and GRC make a number of recommendations to the Board in
relation to the preparation of the financial statements, which are
supported by certificates from the principal subsidiaries.
Whistleblowing
The GAC is responsible for reviewing the Group's whistleblowing
procedures. It receives regular updates on relevant concerns raised
under these procedures, together with management actions taken in
response.
Committee effectiveness
The effectiveness of the committees is evaluated as part of the
overall performance evaluation of the Board and through annual
effectiveness reviews at a committee level. In addition, the
committees review the papers and the effectiveness of each meeting
as a standing agenda item to ensure that they continue to be
effective, challenging and well-managed. They also review a rolling
planner of proposed committee business. In 2019, the feedback from
this review process will be taken into account in informing the
results of the Board's effectiveness review being undertaken by an
independent external provider.
Board and Committee attendance in 2018
Nomination Philanthropic
& Financial Conduct & Community
Group Group Group Corporate System & Investment
Audit Risk Remuneration Governance Vulnerabilities Values Oversight
AGM Board* Committee Committee Committee Committee Committee Committee(1) Committee(2)
--------------- ---- ------- ---------- ---------- ------------- ----------- ---------------- ------------- --------------
Number of
meetings
held* 1 9 13 11 8 5 6 2 2
--------------- ---- ------- ---------- ---------- ------------- ----------- ---------------- ------------- --------------
Group Chairman
--------------- ---- ------- ---------- ---------- ------------- ----------- ---------------- ------------- --------------
Mark Tucker 1 9/9 - - - 5/5 - - -
--------------- ---- ------- ---------- ---------- ------------- ----------- ---------------- ------------- --------------
Executive
Directors
--------------- ---- ------- ---------- ---------- ------------- ----------- ---------------- ------------- --------------
John Flint(3) 1 6/6 - - - - - - -
--------------- ---- ------- ---------- ---------- ------------- ----------- ---------------- ------------- --------------
Stuart - 3/3 - - - - - - -
Gulliver
(4)
-------
Iain Mackay
(5) 1 9/9 - - - - - - -
-------
Marc Moses 1 9/9 - - - - - - -
--------------- ---- ------- ---------- ---------- ------------- ----------- ---------------- ------------- --------------
Non-executive
Directors
--------------- ---- ------- ---------- ---------- ------------- ----------- ---------------- ------------- --------------
Phillip Ameen
(6) 1 5/5 5/5 - - - - - -
Kathleen Casey
(7) 1 9/9 13/13 - - 3/3 2/2 - -
Henri de
Castries
(7) 1 9/9 - - 8/8 3/3 - - -
Laura Cha (8,
9) 1 8/9 - - - 5/5 3/4 1/2 2/2
Joachim Faber
(6) 1 5/5 - - - - - - -
Irene Lee (7,
9, 10) 1 8/9 - - 6/6 3/3 - - -
John Lipsky
(6) 1 4/5 - 4/5 2/2 2/2 - - -
Pauline van
der Meer Mohr
(7) 1 9/9 - 6/6 8/8 5/5 - 2/2 -
Heidi Miller
(7) 1 8/9 - 10/11 - 3/3 - - -
David Nish (7,
9) 1 7/9 13/13 - 6/8 3/3 - - -
Jonathan
Symonds
(7, 11) 1 9/9 13/13 6/6 - 5/5 - 2/2 -
Jackson Tai
(7, 12) 1 9/9 1/1 11/11 - 3/3 6/6 - -
--------------- ---- ------- ---------- ---------- ------------- ----------- ---------------- ------------- --------------
Lord Evans of
Weardale (7) 1 9/9 - - - 3/3 6/6 1/2 2/2
--------------- ---- ------- ---------- ---------- ------------- ----------- ---------------- ------------- --------------
*Board meetings in 2018 were held in London, Shanghai and
Seattle. In addition to the Board meetings listed, Chairman's
Committee meetings were also held in 2018.
1 The Conduct & Values Committee was demised in 2018.
2 The Philanthropic & Community Investment Oversight Committee was demised in 2018.
3 Appointed to the Board 21 February 2018.
4 Retired from the Board 20 February 2018.
5 Retired from the Board 31 December 2018.
6 Retired from the Board 20 April 2018.
7 Appointed to the Nomination & Corporate Governance Committee 20 April 2018.
8 Appointed to the Financial System Vulnerabilities Committee 20 April 2018.
9 Unable to attend an ad-hoc meeting of the Board called at short notice.
10 Appointed to the Group Remuneration Committee 20 April 2018.
11 Appointed to the Group Risk Committee 20 April 2018 and as
Deputy Group Chairman 6 August 2018.
12 Appointed to the Group Audit Committee 1 December 2018.
Group Audit Committee
Members
Jonathan Symonds (Chair)
Phillip Ameen (resigned 20 April 2018)
Kathleen Casey
David Nish
Jackson Tai (appointed 1 December 2018)
Role and responsibilities
The GAC has responsibility, delegated to it from the Board, for
overseeing all matters relating to external financial
reporting.
This responsibility encompasses the Annual Report and Accounts,
quarterly reporting, analyst presentations and Pillar 3
disclosures. In discharging their responsibility the GAC
oversees:
-- preparation of financial statements, compliance with
accounting standards and accounting judgements;
-- the effectiveness of internal financial control functions;
-- the independence and performance of Internal Audit;
-- the relationships with external auditors, including their
independence, performance and approval of proposed services outside
of the scope of the Group audit; and
-- whistleblowing (with effect from the conclusion of the 2018 AGM).
Governance
The Group Chief Financial Officer, Group Chief Accounting
Officer, Group Head of Internal Audit, Group Financial Controller
and other members of senior management routinely attend meetings of
the GAC. The external auditor also attended all meetings. The Chair
and other members of the GAC had regular meetings with management
to discuss agenda planning and specific issues as they arose during
the year. Each meeting includes in camera sessions with the
internal and external auditors. The Chair of the GAC, who is also
the Deputy Group Chairman and Senior Independent Director, oversaw
the Group Chief Financial Officer succession process and
selection.
Compliance with regulatory requirements
The Board has confirmed that each member of the GAC is
independent according to SEC criteria, may be regarded as audit
committee financial experts for the purposes of section 407 of the
Sarbanes-Oxley Act, and has recent and relevant financial
experience for the purposes of the UK and Hong Kong Corporate
Governance Codes.
The GAC assesses the adequacy of resources of the accounting and
financial reporting function. It also monitors the legal and
regulatory environment relevant to its responsibilities.
How the Committee discharges its responsibilities
Financial reporting
The GAC reviews HSBC's financial and reporting judgements and
their application to the Group's financial reporting, including
Pillar 3 disclosures. It also reviews presentations to external
analysts, including the key financial metrics relating to HSBC's
strategic actions.
Linkages with principal subsidiary audit committees
During the year the GAC maintained links with the audit
committees of The Hong Kong and Shanghai Banking Corporation
Limited, HSBC North America Holdings Inc., HSBC Bank Canada, HSBC
Bank plc, HSBC UK Bank Plc, HSBC Latin America Holdings (UK)
Limited, HSBC Bank Middle East Limited and HSBC Private Banking
Holdings (Suisse) SA.
In 2018, the GAC and GRC hosted three joint regional forums with
the Chairs of subsidiaries' audit and risk committees, together
with senior management from the relevant subsidiaries. The purpose
of these forums was to discuss mutual priorities; improvement and
remediation programmes; risk profiles and forward-looking issues.
They also provided an opportunity to deliver targeted training and
conduct a review of committee effectiveness. These meetings are
supplemented throughout the year by formal and informal
communication between the committee chairs and GAC members.
Appointments to the audit committees of the principal
subsidiaries are reviewed by the GAC. The GAC Chair meets with
proposed new Chairs of the principal subsidiary audit
committees.
Internal controls
The GAC assesses the effectiveness of the internal control
system for financial reporting and any developments affecting it in
support of the Board's assessment of internal control over
financial reporting in accordance with section 404 of the
Sarbanes-Oxley Act. The GAC has received confirmation that
executive management has taken or is taking the necessary actions
to remedy any failings or weaknesses identified through the
operation of the Group's framework of controls. Further detail of
how the Board reviews the effectiveness of key aspects of internal
control can be found on page 164.
External audit
The GAC reviews the external auditor's approach, strategy for
the annual audit and its findings. In 2018, the Committee reviewed
auditor independence, audit quality and the use of technology and
analytics. GAC members routinely met audit partners in key parts of
the world and were involved in auditor conferences. Principal
matters discussed with PwC are set out in their report on page
209.
The GAC is also involved in audit partner rotation and
succession for the Group and its principal subsidiaries.
A policy is in place and monitored by the GAC on hiring
employees or former employees of the external auditor, including in
relation to any breaches of the policy.
The GAC regularly meets privately with the external auditor. The
GAC Chair maintains regular contact with the audit partner
throughout the year.
All non-audit services provided by the external auditor are
pre-approved by the GAC in accordance with the auditor independence
policy to ensure that services do not create a conflict. Details of
the significant engagements for non-audit services are contained in
Note 7.
2018 2017
Auditors' remuneration $m $m
Total fees payable 119.50 129.70
Fees for non-audit
services 32.90 44.90
------------------------ ------ ------
A further breakdown of the fees paid to the auditors for each of
the last three financial years can be found in Note 7 on the
Financial Statements.
During the year, the GAC assessed the effectiveness of PwC as
the Group's external auditor, using a questionnaire that focuses on
the overall audit process, its effectiveness and the quality of
output. The GAC also assessed any potential threats to independence
that were self-identified or reported by PwC. The GAC considered
PwC to be independent and PwC, in accordance with professional
ethical standards, provided the GAC with written confirmation of
its independence for the duration of 2018.
The GAC has therefore recommended to the Board that PwC be
reappointed as auditor. Resolutions concerning the reappointment of
PwC and their audit fee for 2019 will be proposed to shareholders
at the 2019 AGM.
Internal Audit
The GAC approves Internal Audit's annual plan, resource and
budget, and reviews the performance and effectiveness of the Group
Head of Internal Audit. The Group Head of Internal Audit reports to
the Chair of the GAC and administratively to the Group Chief
Executive. The Committee meets regularly with the Group Head of
Internal Audit without other management present. Committee members
also meet with critical audit teams around the world. In 2018, the
GAC additionally considered audit quality and the use of technology
and analytics. The GAC concluded that the Internal Audit function
remained effective. The GAC also reviewed succession planning in
the Internal Audit function.
Principal activities and significant issues considered during
2018
Internal control framework
The GAC continued to monitor the progress being made to upgrade
entity level controls. During 2018, the GAC undertook a series of
deep dives to monitor the remediation of identified control
deficiencies, noting that good progress was made during the year.
The GAC continued to monitor the remediation of controls over
access management in IT. Where critical entity level controls
overlapped with the activities of the GRC, joint sessions were
held.
IFRS 9 implementation
Throughout 2018, the GAC received detailed presentations and
updates from management on the Group's readiness for the
implementation of IFRS 9. Particular emphasis was given in 2018 to
the forward-looking projections, required for IFRS 9 and its
relationship to regulatory stress testing. Detailed discussions
were held in situations where impairment risk could not be easily
modelled, for example, the significant uncertainty regarding the
economic outlook for the UK, and US-China trade in conjunction with
the relevant subsidiary audit committee.
Bank of Communications Co., Limited ('BoCom')
The GAC received regular updates on the assumptions underpinning
the valuation of BoCom. It monitored indicators
of impairment, both macro-economic and BoCom specific, and
reviewed the results of the impairment assessments carried out by
management. Much of this work was carried out in conjunction with
The Hongkong and Shanghai Banking Corporation audit committee.
Resolution planning
The Group is required to have in place a recovery plan that sets
out recovery options to be initiated in the event of the Group
coming under severe financial stress. During 2018, the GAC received
updates on the structure of the Group recovery plan. The GAC
considered the Group recovery plan and its integration with the
Group's risk management framework.
Establishment of the ring-fenced bank
During 2018, the GAC considered the accounting judgements in
relation to the creation of HSBC UK, the ring-fenced bank, and the
creation of the internal service companies that supplies services
to banks.
Ibor
The GAC received presentations on the risks relating to Ibors
discontinuation.
Whistleblowing
The GAC reviewed the independence, autonomy and effectiveness of
the firm's policies and procedures on whistleblowing, including the
procedures for the protection of staff who raise concerns of
detrimental treatment.
Significant accounting judgements considered during 2018 included:
Expected credit The GAC considered loan impairment allowances for personal
loss ('ECL') and wholesale lending. Particular judgements included the
impairment effect of UK economic uncertainty and the risk of escalation
of trade wars between the US and China on the measurement
of ECL impairment. The GAC also considered disclosures relating
to ECL in the year-end accounts.
----------------------- -------------------------------------------------------------------
Bank of Communications During the year, the GAC considered the regular impairment
Co., Limited reviews of HSBC's investment in BoCom. The GAC review included
('BoCom') the sensitivity of the result of the impairment review to
impairment estimates and assumptions of projected future cash flows,
testing regulatory capital assumptions and the model's sensitivity
to long-term assumptions including the continued appropriateness
of the discount rate.
----------------------- -------------------------------------------------------------------
Appropriateness The GAC received reports from management on the recognition
of provisioning and amounts of provisions, as well as the existence of contingent
for legal liabilities for legal proceedings and regulatory matters.
proceedings Specific matters addressed included accounting judgements
and regulatory in relation to provisions and contingent liabilities arising
matters out of: (a) investigations by regulators and competition
and law enforcement authorities around the world into trading
on the foreign exchange markets; (b) investigations of HSBC's
Swiss Private Bank by a number of tax administration, regulatory
and law enforcement authorities; and (c) investigations
into historical sales of US mortgage securitisations by
The United States Attorney for the District of Colorado
for potential violations of The Financial Industry Reform,
Recovery and Enforcement Act of 1989, 12 U.S.C. -- 1833a,
which was settled during the year.
----------------------- -------------------------------------------------------------------
Interest rate The GAC considered the accounting implications of benchmark
benchmark interest rate replacement for hedge accounting relationships
replacement as at 31 December 2018, and longer-term broader accounting
implications for financial instruments. The GAC considered
management's judgement that no change to hedge accounting
is appropriate as at 31 December 2018, and that this position
will be kept under review in the context of future market
developments in the transition of interest rate benchmarks
to new risk-free rates.
-------------------------------------------------------------------
Quarterly The GAC considered key judgements in relation to quarterly
and annual and annual reporting. It reviewed draft presentations to
reporting external analysts and key financial metrics included in
HSBC's strategic actions.
-------------------------------------------------------------------
Valuation The GAC considered the key valuation metrics and judgements
of financial involved in the determination of the fair value of financial
instruments instruments. The GAC considered the valuation control framework,
valuation metrics, significant year-end judgements and emerging
valuation topics.
-------------------------------------------------------------------
Viability In accordance with the provisions contained in the UK Corporate
statement Governance Code, the Directors carried out a robust assessment
of the principal risks for the Group and parent company.
The GAC considered the Directors' judgement in concluding
that the Group and parent company will be able to continue
in operation and meet liabilities as they fall due, and
that it is appropriate that the viability statement covers
a period of three years.
-------------------------------------------------------------------
Tax-related The GAC considered the recoverability of deferred tax assets,
judgements in particular in the US. The GAC also considered management's
judgements relating to the tax indemnity agreed to by HSBC
as part of the sale of operations in Brazil in 2016. This
includes consideration of the key inputs and assumptions
used to estimate any obligation under the indemnity.
----------------------- -------------------------------------------------------------------
UK customer The GAC considered the provisions for redress for mis-selling
remediation of payment protection insurance ('PPI') policies in the
UK and the associated redress on PPI commissions earned
under certain criteria, including management's judgements
regarding the effect of the time-bar for claims ending August
2019. In addition, the GAC monitored progress on the remediation
of operational processes and associated customer redress.
Defined benefit The GAC considered the UK defined benefit pension scheme
pension accounting accounting where, after the Court of Appeal ruling on 26
October 2018 against Lloyds Banking Group in respect of
guaranteed minimum pension equalisation, HSBC has recognised
past service costs through the income statement.
----------------------- -------------------------------------------------------------------
IFRS 16 'Leases' The GAC considered the estimated impact of adoption of IFRS
16 'Leases', which applies from 1 January 2019, and the
related disclosures.
----------------------- -------------------------------------------------------------------
Adjusted profit Throughout the year, the GAC considered management's non-GAAP
measures measures for adjusted profits. They have also reviewed a
revised policy for such measures as it was aligned to the
Group's strategy.
----------------------- -------------------------------------------------------------------
Group Risk Committee
Members
Jackson Tai (Chair)
John Lipsky (resigned 20 April 2018)
Heidi Miller
Pauline van der Meer Mohr (appointed 20 April 2018)
Jonathan Symonds (appointed 20 April 2018)
Independent Adviser
Andrew France (appointed 1 July 2018)
The Independent Adviser supports the Committee's work and has
deep experience working with governments and private companies
across the world to keep information, technology and critical
national infrastructures safe.
Role and responsibilities
The GRC has non-executive responsibility for the oversight of
enterprise risk management, risk governance and internal control
systems (other than internal financial controls overseen by the
GAC). In its holistic view of risk, the GRC is supported by the
FSVC, which is the Board committee responsible for overseeing risks
relating to financial crime, anti-bribery and corruption. The FSVC
reports second order risks to the GRC. Appropriate linkages and
information flows between these committees are further enhanced by
cross-membership and close engagement of the
members and the committee attendees. In April 2018, the GRC
assumed responsibility for the oversight of cyber-crime risk and
information security risk from the FSVC and people risk and
employee conduct from the Conduct & Values Committee.
Governance
In carrying out its responsibilities, the GRC is closely
supported by the Group Chief Risk Officer, Group Chief Financial
Officer, Group Head of Internal Audit, Group Financial Controller,
Global Head of Compliance and Global Head of Risk Strategy, all of
whom regularly attend GRC meetings to contribute their subject
matter expertise and insight. They together with the first line
business, functional and regional leaders, second line risk
stewards and third line internal auditors, facilitate Committee
members' review and challenge of current and forward-looking risk
issues.
The GRC works closely with the GAC to ensure there are no gaps,
that any areas of significant overlap are appropriately addressed
and to improve inter-committee communication. The Chairs of both
these committees engage on the agendas of each other's committee
meetings. Furthermore, the Chair of the GAC is a member of the GRC
and the Chair of the GRC is a member of the GAC. This further
enhances the linkages, coordination and the flows of information
between the GRC and GAC.
The GRC programmes its meeting agenda and capitalises on the
overseas location of the Holdings Board (and GRC) meetings, as well
as the GRC Chair's annual visits to principal subsidiary risk
committees to proactively encourage in person participation of
principal subsidiary risk committee Chairs in GRC meetings,
reviews, stress testing and capital and liquidity management
sessions throughout the year.
The GRC Chair and the GRC members regularly meet with the Group
Chief Risk Officer, the Group Head of Internal Audit and external
auditors without management present.
How the Committee discharges its responsibilities
At each meeting, the GRC reviews the Group risk profile report,
which identifies the key issues and common themes arising from the
Group's enterprise risk reports. This report includes a synthesised
view of the Group's risk appetite statement ('RAS'), top and
emerging risks, and the Group risk map. It clearly sets out which
Board committee has accountability for the monitoring and oversight
of each risk, and identifies any areas where management is required
to assess vulnerabilities via stress testing.
Page 69 provides further information on the top and emerging
risks, the risk map and the risk appetite for the Group. The GRC
receives presentations on a range of topics, including stress
testing and briefings on developments in its principal markets. In
addition, the GRC requests reports and updates from management on
risk-related issues for in-depth consideration and receives regular
reports on matters discussed at the Risk Management Meeting of the
Group Management Board.
The GRC reviews any revisions to the Group RAS biannually and
any proposed changes are recommended to the Board. It reviews
management's assessment of risk and provides scrutiny of
management's proposed mitigating actions.
The GRC programmes forward-looking and thematic agendas, which
are supported by input from all three lines of defence within the
global businesses and regions. The Committee also conducts deep
dives on the risk implications of strategic matters, risks specific
to regions, significant projects and key topical risks that are
identified during the GRC's deliberations and discussion. By
proactively including Chairs of principal subsidiary risk
committees to participate in GRC meetings and thematic reviews,
scheduling regional updates in the GRC agenda, conducting holistic
deep dives and sharing GRC learnings and insight with subsidiaries,
the GRC has further enhanced its connectivity, linkages and two-way
flow of information with the principal subsidiary risk committees,
and among the risk committees themselves.
Any new appointments to the risk committees of the principal
subsidiaries are also reviewed by the GRC. The GRC Chair also meets
with any proposed new Chair of the principal subsidiary risk
committees.
During 2018, the GRC provided informed review and challenge to
the Group's regulatory submissions relating to capital management
and liquidity adequacy assessments. It proactively reviewed
progress of the Group's liquidity risk management improvement plan.
It continued to maintain oversight of the Group's regulatory and
internal stress testing programmes with specific review and
challenge of the design, key assumptions and outcomes of the
principal tests conducted.
The GRC exercised its governance oversight for people risk and
employee conduct through reviews, including with the Group Chief
Human Resources Officer and Group business heads and at the audit
and risk committee chairs forums, that the right behaviours are
being promoted to support fair customer outcomes and to protect the
integrity of markets. The GRC continued to oversee and challenge
the effective delivery of the Global Markets conduct enhancement
programme, and considered the emerging opportunities, ethical
issues and risks as digital capabilities evolve. Internal Audit's
independent assessments on conduct were reported regularly with
specific themes highlighted from audit activity.
The GRC has overseen progress with delivering against the
remediation plan addressing the allegations set out in the 2018 FX
DPA with the US Department of Justice and the 2017 Consent Order
with the Federal Reserve Board.
The GRC reviewed HSBC's progress towards improving the Group's
cybersecurity and the actions being taken to mitigate exposure to
cyber-risk. It also conducted a review and challenge to the Group's
continued progress in improving its operational resilience to
presumed disruptions, especially in its key infrastructure
functions and prioritised business services.
Principal activities and significant issues considered during 2018
The Group RAS Following its biannual reviews, the GRC did not recommend
and monitoring any material changes to the overall level of risk appetite
of the Group in 2018. The GRC expanded its focus through the introduction
risk profile of new risk appetite metrics for model risk and systems
against the and data integrity risk, related to the Group's most critical
RAS models and IT services.
--------------------- -----------------------------------------------------------------
Capital and The GRC has fully engaged with management in evaluating
liquidity and challenging the Group's liquidity and funding risk
appetite and the effectiveness of the liquidity and funding
risk framework. The GRC continued to review the Group's
approach to capital planning to ensure it is comprehensive,
rigorous and forward looking. The GRC reviewed and challenged
both the Group individual liquidity adequacy assessment
process and internal capital adequacy assessment process.
The GRC also encouraged a strengthening of the principal
subsidiary risk committee's review and challenge of their
respective capital and liquidity programmes.
--------------------- -----------------------------------------------------------------
Stress testing The GRC conducted a comprehensive review and challenge
of the scenarios and approach to the PRA stress test and
reviewed the results of the annual cyclical scenario. The
GRC continued to review and oversee the regulatory and
internal global stress testing programmes throughout the
year.
--------------------- -----------------------------------------------------------------
Execution risk Regular reports were received from the Group Chief Operating
Officer, who updated the GRC on the progress and status
of the Group's highest-priority change and transformation
programmes and mitigating measures being introduced to
manage the identified risks appropriately.
--------------------- -----------------------------------------------------------------
Internal control The GRC reviewed the Group's risk management framework
and risk management and system of internal control (other than internal financial
controls covered by the GAC) and the developments affecting
them over the course of 2018, as part of the Board's assessment
of internal control. The GRC has reviewed and challenged
the effectiveness of non-financial risk management with
particular focus on data management, information and cyber
risk, people risk and conduct, model risk management, IT
and operational resilience and third-party risk management.
--------------------- -----------------------------------------------------------------
Deep dive reviews The GRC conducted in-depth reviews of risk governance and
implications relating to the Group's approach to credit
risk appetite, data management and strategy, model risk
management, information and cybersecurity, non-financial
risk management, liquidity and capital management, people
risk and employee conduct, and IT and operational resilience.
--------------------- -----------------------------------------------------------------
Connectivity The GRC continued to enhance the connectivity and flow
between the of information both to and from the subsidiary risk committees
GRC and subsidiary during 2018. There has been ongoing active participation
risk committees by the principal subsidiary risk committee Chairs at GRC
meetings. In addition, the GRC Chair attended principal
subsidiary risk committee meetings in Asia, UK, Europe,
US, Latin America, Canada and the Middle East. In 2018,
the GRC and GAC jointly strengthened its previously annual
audit and risk committee chairs' conference into three
intensive regional audit and risk workshops and meetings
for subsidiary committee leadership in Asia Pacific, Europe
and the Middle East and the Americas.
--------------------- -----------------------------------------------------------------
Financial System Vulnerabilities
Committee
Members
Lord Evans of Weardale (Chair)
Kathleen Casey (resigned 20 April 2018)
Jackson Tai
Laura Cha (appointed 20 April 2018)
Nick Fishwick, CMG (non-Director member)
Dave Hartnett, CB (non-Director member)
Lord Hogan-Howe (non-Director member)
David Irvine, AO (non-Director member)
Clovis Meath Baker, GMG (non-Director member) (resigned 16 April
2018)
Nehchal Sandhu (non-Director member) (resigned 16 April
2018)
John Raine, CMG (non-Director member)
The Honourable Juan Zarate (non-Director member)
The six non-Director members support the Committee's work and
among them have extensive experience in geopolitical risk,
financial crime risk, international security and law enforcement
matters.
Role and responsibilities
The Committee has non-executive responsibility for the oversight
of matters related to financial crime and system abuse, in
particular anti-money laundering, sanctions, terrorist financing,
proliferation financing, anti-bribery and corruption. It is also
responsible for monitoring, reviewing and advising the Board on the
effectiveness of the policies and procedures established by
management to ensure that HSBC meets its obligations to regulatory
and law enforcement agencies.
Principal activities and significant issues considered during
2018
Financial crime
The Committee monitored the Group's progress on the
implementation of its Global Standards programme and considered the
effectiveness of the Group's financial crime risk controls.
Anti-bribery and corruption
The Committee reviewed the activities underway to address key
bribery and corruption risks and management's progress with the
implementation of a more robust anti-bribery and corruption
compliance framework.
Engaging with the Skilled Person
The Committee was responsible for liaising with the Skilled
Person to ensure his recommendations were acted on.
Group Remuneration Committee
Members
Pauline van der Meer Mohr (Chair)
Henri de Castries
John Lipsky (resigned 20 April 2018)
David Nish
Irene Lee (appointed 20 April 2018)
Role and responsibilities
The Committee is responsible for setting the overarching
principles, parameters and governance framework of the Group's
remuneration policy, and the remuneration of executive Directors
and other senior Group employees. The Committee regularly reviews
the Group's remuneration policy in the context of consistent and
effective risk management, and the regulatory requirements of
multiple jurisdictions. No Directors are involved in deciding their
own remuneration.
A full report on the role and activities of the Committee is set
out on pages 172 to 202.
Nomination & Corporate Governance
Committee
Members
Mark Tucker (Chairman)
Laura Cha
John Lipsky (resigned 20 April 2018)
Pauline van der Meer Mohr
Jonathan Symonds
Kathleen Casey (appointed 20 April 2018)
Henri de Castries (appointed 20 April 2018)
Lord Evans of Weardale (appointed 20 April 2018)
Irene Lee (appointed 20 April 2018)
Heidi Miller (appointed 20 April 2018)
David Nish (appointed 20 April 2018)
Jackson Tai (appointed 20 April 2018)
Role and responsibilities
The Committee leads the Board appointment process, agrees the
criteria for any appointments and engages independent external
search consultants, as required. At the conclusion of this process,
the Committee will nominate potential candidates for appointment to
the Board. In discharging its responsibilities, the Committee
regularly reviews the Board's structure, size and composition,
including skills, knowledge, independence and diversity represented
on the Board so as to ensure it is aligned with the Group's
strategic priorities. The Committee determines the membership of
Board committees and reviews appointments to the boards of a number
of the Group's most significant operating subsidiaries.
The Committee is also responsible for overseeing succession
planning for the top 20 roles across the Group and the succession
pool for those roles, including progress against the development
plans for individuals identified within that pool.
As a result of an expansion of its scope of activities during
2018, the Committee now oversees the Group's corporate governance
framework, providing recommendations to the Board to ensure the
framework remains robust and reflects best practice.
Principal activities and significant issues considered during
2018
Succession planning
In 2018, the Committee led the process for the succession of the
Group Chief Financial Officer. This involved consideration of both
internal and external candidates, based on objective criteria and
taking into account the benefits of diversity, including gender. An
independent external consultant was engaged to advise and support
the Committee in its search. Following an initial interview
process, a sub-committee was appointed, comprising the Group
Chairman, the Deputy Group Chairman and Senior Independent
Director, the Group Chief Executive and the Group Chief Human
Resources Officer, with responsibility for determining a shortlist
of preferred candidates. The Committee discussed the shortlist and
made its recommendation to the Board. On 25 June 2018, the Board
announced that Ewen Stevenson was to succeed Iain Mackay as Group
Chief Financial Officer with effect from
1 January 2019.
Corporate governance
During the year, the remit of the Committee was expanded to
include a responsibility to oversee and monitor the Group's
corporate governance framework. The Committee's recommendations are
made to the Board, where required, to ensure the framework is
consistent with best corporate governance standards and practices
while remaining appropriate to the size, complexity and strategy of
the Group. The Committee is also responsible for monitoring
compliance with applicable corporate governance codes and
recommending disclosures on corporate governance to the Board for
approval, including the statement on corporate governance, which
appears in the Annual Report and Accounts 2018, on pages 152 and
171.
Diversity
In 2018, the Board's diversity and inclusion policy was updated
to ensure that HSBC and its various stakeholders continue to
benefit from a Board that includes Directors from a range of
different backgrounds and whose ethnicity, experience, age,
geographical provenance and gender more closely reflect the
diversity of our customers and the communities that we serve. The
Board diversity policy is available at
www.hsbc.com/our-approach/corporate-governance/board-responsibilities.
In the implementation of its policy, the Board has committed
itself to meeting the diversity targets recommended by the Hampton-
Alexander Review and Parker Review, most notably that the Board
should have 33% female share of representation by 2020 and a
minimum of one Board Director from an ethnic minority background by
2021. The Committee will monitor these targets and report
performance on a periodic basis in the Annual Report and
Accounts.
At the date of publication 36% of the Board of Directors were
female and three were from an ethnic minority background.
Chairman's Committee
The Chairman's Committee acts on behalf of the Board between
scheduled Board meetings to facilitate ad hoc and other business
requiring Board approval. It meets when necessary, with the
required number of attendees determined by the nature of the
proposed business to be discussed, as set out in its terms of
reference.
Internal control
The Board is responsible for maintaining and reviewing the
effectiveness of risk management and internal control systems, and
for determining the aggregate level and types of risks the Group is
willing to take in achieving its strategic objectives.
To meet this requirement and to discharge its obligations under
the FCA Handbook and the PRA Handbook, procedures have been
designed for safeguarding assets against unauthorised use or
disposal; for maintaining proper accounting records; and for
ensuring the reliability and usefulness of financial information
used within the business or for publication.
These procedures provide reasonable assurance against material
mis-statement, errors, losses or fraud. They are designed to
provide effective internal control within the Group and accord with
the Financial Reporting Council's guidance for directors issued in
2014, internal control and related financial and business
reporting. The procedures have been in place throughout the year
and up to 19 February 2019, the date of approval of this Annual
Report and Accounts 2018.
The key risk management and internal control procedures include
the following:
-- Adherence to the Group's Global Standards Manual: The Group's
Global Standards Manual ('GSM') outlines the core principles within
which the Group must operate wherever we conduct business. The GSM
overlays all other policies and procedures throughout the Group.
The requirements of the GSM are mandatory, apply to and must be
observed by all businesses within the Group, regardless of the
nature or location of their activities. In 2019, the GSM will be
replaced by a set of Global Principles.
-- Delegation of authority within limits set by the Board:
Subject to certain matters reserved for the Board, the Group Chief
Executive has been delegated authority limits and powers within
which to manage the day-to-day affairs of the Group, including the
right to sub-delegate those limits and powers. Each relevant Group
Managing Director or executive Director has delegated authority
within which to manage the day-to-day affairs of the business or
function for which he or she is accountable. Delegation of
authority from the Board requires those individuals to maintain a
clear and appropriate apportionment of significant responsibilities
and to oversee the establishment and maintenance of systems of
control that are appropriate to their business or function.
Authorities to enter into credit and market risk exposures are
delegated with limits to line management of Group companies. The
concurrence of the appropriate global function is required,
however, to credit proposals with specified higher risk
characteristics. Credit and market risks are measured and reported
at subsidiary company level and aggregated for risk concentration
analysis on a Group-wide basis.
-- Risk identification and monitoring: Systems and procedures
are in place to identify, assess, control and monitor the material
risk types facing HSBC as set out in the enterprise-wide risk
framework. The Group's risk measurement and reporting systems are
designed to help ensure that material risks are captured with all
the attributes necessary to support well-founded decisions, that
those attributes are accurately assessed and that information is
delivered in a timely manner for those risks to be successfully
managed and mitigated.
-- Changes in market conditions/practices: Processes are in
place to identify new risks arising from changes in market
conditions/practices or customer behaviours, which could expose the
Group to heightened risk of loss or reputational damage. The Group
employs a top and emerging risks framework, which contains an
aggregate of all current and forward-looking risks and enables it
to take action that either prevents them materialising or limits
their impact.
-- Responsibility for risk management: All employees are
responsible for identifying and managing risk within the scope of
their role as part of the three lines of defence model, which is an
activity-based model to delineate management accountabilities and
responsibilities for risk management and the control environment.
The second line of defence sets the policy and guidelines for
managing specific risk areas, provides advice and guidance in
relation to the risk, and challenges the first line of defence (the
risk owners) on effective risk management.
-- Strategic plans: Strategic plans are prepared for global
businesses, global functions and geographical regions within the
framework of the Group's overall strategy. Annual operating plans,
informed by detailed analysis of risk appetite describing the types
and quantum of risk that the Group is prepared to take in executing
its strategy, are prepared and adopted by all major Group operating
companies and set out the key business initiatives and the likely
financial effects of those initiatives.
-- Subsidiary certifications to the GRC: The risk committees of
principal subsidiary companies provide half-year confirmations to
the GRC. These confirm that the committees have challenged
management on the quality of the information provided, reviewed the
actions proposed by management to address any emerging issues or
trends indicating material divergence from the Group's risk
appetite and that the risk management and internal control systems
in place are operating effectively.
The effectiveness of the Group's system of risk management and
internal control is reviewed regularly by the Board, the GRC and
the GAC.
In 2018, the acceleration of operational resilience and
investment in technology controls were particular areas of focus
for HSBC. The Group continued to embed the operational risk
management framework and invest in the non-financial risk
infrastructure. Work also continued to enhance the risk appetite
framework for non-financial risks and improve the consistency of
adoption of the end-to-end risk and control assessment process.
While there remains more to do, progress has been made to
strengthen HSBC's control environment and it will continue to be a
priority in 2019.
The GRC and the GAC have received confirmation that executive
management has taken or is taking the necessary actions to remedy
any failings or weaknesses identified through the operation of the
Group's framework of controls.
Internal control over financial reporting
HSBC is required to comply with section 404 of the US
Sarbanes-Oxley Act of 2002 and assess the effectiveness of internal
control over financial reporting as at 31 December 2018. In 2014,
the GAC endorsed the adoption of the COSO 2013 framework for the
monitoring of risk management and internal control systems to
satisfy the requirements of section 404 of the Sarbanes-Oxley Act
of 2002.
The key risk management and internal control procedures over
financial reporting include the following:
-- Entity level controls: The primary mechanism through which
comfort over risk management and internal control systems is
achieved, is through assessments of the effectiveness of entity
level controls ('ELC'), and the reporting of risk and control
issues on a regular basis through the various risk management and
risk governance forums. ELCs are internal controls that have a
pervasive influence over the entity as a whole. They include
controls related to the control environment, for example the
Company's values and ethics, the promotion of effective risk
management and the overarching governance exercised by the Board
and its non-executive committees. The design and operational
effectiveness of ELCs are assessed annually as part of the
assessment of the effectiveness of internal controls over financial
reporting. If issues are significant to the Group they are
escalated to the GAC (for financial reporting issues) and/or GRC
(for all other risk types).
-- Operational risk management framework: Key process level
controls that mitigate the risk of financial misstatement are
recorded in the Operational Risk system and monitored in accordance
with the ORMF. Further details on the framework can be found on
page 73.
-- Disclosure Committee: Chaired by the Group Company Secretary,
this Committee supports the discharge of the Group's obligations
under relevant legislation and regulation including the UK and Hong
Kong listing rules, the Market Abuse Regulation and US Securities
and Exchange Commission rules. In so doing, the Committee is
empowered to determine whether a new event or circumstance should
be disclosed, including the form and timing of such disclosure, and
review all material disclosures made or to be made by the Group.
The membership of the Disclosure Committee includes the Group Chief
Financial Officer, Group Chief Risk Officer, Chief Legal Officer,
Group Chief Accounting Officer, Chief Communications Officer,
Global Head of Investor Relations, Group Chief of Staff and Group
Financial Controller. The Company's brokers and its external legal
counsel also attend as required. The integrity of disclosures is
underpinned by structures and processes within the Global Finance
and Global Risk functions that support rigorous analytical review
of financial reporting and the maintenance of proper accounting
records. As required by the Sarbanes-Oxley Act, the Group Chief
Executive and the Group Chief Financial Officer have certified that
the Group's disclosure controls and procedures were effective as of
the end of the period covered by this annual report.
-- Financial reporting: The Group's financial reporting process
is controlled using documented accounting policies and reporting
formats, supported by detailed instructions and guidance on
reporting requirements, issued to all reporting entities within the
Group in advance of each reporting period end. The submission of
financial information from each reporting entity is supported by a
certification by the responsible financial officer and analytical
review procedures at reporting entity and Group levels.
-- Subsidiary certifications to the GAC: The audit committees of
principal subsidiary companies provide half-yearly confirmations to
the GAC regarding whether their financial statements have been
prepared in accordance with Group policies. They also present
fairly the state of affairs of the relevant principal subsidiary
and are prepared on a going concern basis.
The annual review of the effectiveness of the Group's system of
risk management and internal control over financial reporting was
conducted with reference to the COSO 2013 framework. Based on the
assessment performed, the Directors concluded that for the year
ended 31 December 2018, the Group's internal control over financial
reporting was effective.
PwC has audited the effectiveness of HSBC's internal control
over financial reporting and has given an unqualified opinion.
Internal audit
The Global Internal Audit function, which is centrally
controlled, provides independent and objective assurance of the
design and operating effectiveness of the Group's framework of risk
management, control and governance processes, focusing on the areas
of greatest risk. As mentioned previously, the Group Head of
Internal Audit reports to the Chairman of the GAC and frequent
meetings are held between them during the year. Executive
management is responsible for ensuring that issues raised by the
Global Internal Audit function are addressed within an appropriate
and agreed timetable. Confirmation to this effect must be provided
to Global Internal Audit.
Going concern and viability
The Directors considered it appropriate to prepare the financial
statements on a going concern basis.
Under the UK Corporate Governance Code, the Directors must also
provide a viability statement. They must state whether the Group
will be able to continue in operation and meet its liabilities,
taking into account its current position and the principal risks it
faces. They must also specify the period covered by, and the
appropriateness of, this statement.
The Directors have specified a period of three years to 31
December 2021. They are satisfied that a forward-looking assessment
of the Group for this period is sufficient to enable a reasonable
statement of viability. In addition, this period is covered by the
Group's stress testing programmes, and its internal projections for
profitability, key capital ratios and leverage ratios.
Notwithstanding this, our stress testing programmes also cover
scenarios out to five years and our assessment of risks are beyond
three years where appropriate.
Based upon their assessment, the Directors have a reasonable
expectation that the Group will be able to continue in operation
and meet liabilities as they fall due over the next three
years.
In making their going concern and viability assessments, the
Directors have considered a wide range of detailed information
relating to present and potential conditions, including projections
for profitability, cash flows, capital requirements and capital
resources.
The Directors carried out a robust assessment of each risk
facing the Group to determine the principal risks to its long-term
viability, including those that would threaten its solvency and
liquidity. They determined that the principal risks are the Group's
top and emerging risks, as set out on pages 69 to 72.
The Directors assessed that all of the top and emerging risks
identified are considered to be material and, therefore,
appropriate to be classified as the principal risks to be
considered in the assessment of viability. They also appraised the
impact that these principal risks could have on the Group's risk
profile, taking account of mitigating actions planned or taken for
each, and compared this with the Group's risk appetite as approved
by the Board. At 31 December 2018, there were four heightened top
and emerging risks: economic outlook and capital flows,
geopolitical risk, cyber-threat and unauthorised access to systems,
and data management.
In carrying out their assessment of the principal risks, the
Directors considered a wide range of information including:
-- details of the Group's business and operating models, and strategy;
-- details of the Group's approach to managing risk and allocating capital;
-- a summary of the Group's financial performance, and its
capital position and annual operating plan;
-- enterprise risk reports, including the Group's risk appetite
profile (see page 69), top and emerging risks (see page 69) and
risk map (see page 76);
-- reports and updates regarding regulatory and internal stress
testing exercises (see page 76). In 2018, the published Bank of
England ('BoE') stress test results for HSBC showed that capital
ratios after taking account of CRD IV restrictions and strategic
management actions exceeded the BoE's requirements. The results for
HSBC assumed no dividend payments in the first two years of the
severe stress projection period;
-- reports and updates from management on risk-related issues
selected for in-depth consideration;
-- reports and updates on the Group's compliance-related
initiatives in its Global Markets business as required under the
January 2018 deferred prosecution agreement with the US Department
of Justice;
-- reports and updates on regulatory developments; and
-- legal reports.
Share capital and other disclosures
Share buy-back programme
On 9 May 2018, HSBC Holdings commenced a share buy-back to
purchase its ordinary shares of $0.50 each up to a maximum
consideration of $2.0bn. This programme concluded on 16 August
2018, after the purchase and cancellation of 210,466,091 ordinary
shares. The purpose of the buy-back programme was to reduce HSBC's
number of outstanding ordinary shares.
The nominal value of shares purchased during 2018 was
$105,233,046 and the aggregate consideration paid by HSBC was
GBP1,512,898,101.
The table that follows outlines details of the shares purchased
on a monthly basis during 2018. The total number of shares
purchased during the year was 210,466,091, representing 1.03% of
the shares in issue and 1.05% of the shares in issue, excluding
treasury shares.
Highest Lowest Average
price price price
Number paid per paid per paid per Aggregate
of shares share share share price paid
Month GBP GBP GBP GBP
------------------------ ----------- --------- --------- --------- -------------
Share buy-back of 2018
May-18 43,843,281 7.4990 7.1340 7.3027 320,172,904
Jun-18 65,164,512 7.3910 7.0030 7.2110 469,898,070
Jul-18 65,467,508 7.3600 6.9360 7.1134 465,698,679
Aug-18 35,990,790 7.2790 6.9860 7.1443 257,128,448
210,466,091 1,512,898,101
------------------------ ----------- --------- --------- --------- -------------
Dividends
Dividends for 2018
First, second and third interim dividends for 2018, each of
$0.10 per ordinary share, were paid on 5 July 2018,
27 September 2018 and 21 November 2018, respectively. Note 9 on
the Financial Statements gives more information on the dividends
declared in 2018. On 19 February 2019, the Directors declared a
fourth interim dividend for 2018 of $0.21 per ordinary share in
lieu of a final dividend, which will be payable on 8 April 2019 in
cash in US dollars, or in sterling or Hong Kong dollars at exchange
rates to be determined on 25 March 2019, with a scrip dividend
alternative. As the fourth interim dividend for 2018 was declared
after 31 December 2018, it has not been included in the balance
sheet of HSBC as a liability. The reserves available for
distribution at 31 December 2018 were $30.7bn.
A quarterly dividend of $15.50 per 6.20% non-cumulative US
dollar preference share, Series A ('Series A dollar preference
share'), (equivalent to a dividend of $0.3875 per Series A American
Depositary Share ('ADS'), each of which represents one-fortieth of
a Series A dollar preference share), and GBP0.01 per Series A
sterling preference share was paid on 15 March, 15 June, 15
September and 15 December 2018.
Dividends for 2019
Quarterly dividends of $15.50 per Series A dollar preference
share (equivalent to a dividend of $0.3875 per Series A ADS, each
of which represents one-fortieth of a Series A dollar preference
share) and GBP0.01 per Series A sterling preference share were
declared on 6 February 2019 for payment on 15 March 2019.
Share capital
Issued share capital
The nominal value of HSBC Holdings' issued share capital paid up
at 31 December 2018 was $10,180,420,748 divided into 20,360,841,496
ordinary shares of $0.50 each, 1,450,000 non-cumulative preference
shares of $0.01 each and one non-cumulative preference share of
GBP0.01, representing approximately 99.9999%, 0.0001%, and 0%
respectively of the nominal value of HSBC Holdings' total issued
share capital paid up at
31 December 2018.
Rights, obligations and restrictions attaching to shares
The rights and obligations attaching to each class of ordinary
and non-cumulative preference shares in our share capital are set
out in full in our Articles of Association. The Articles of
Association may be amended by special resolution of the
shareholders and can be found on our website at
www.hsbc.com/about-hsbc/corporate-governance/board-responsibilities.
Ordinary shares
HSBC Holdings has one class of ordinary share, which carries no
right to fixed income. There are no voting restrictions on the
issued ordinary shares, all of which are fully paid. On a show of
hands, each member present has the right to one vote at general
meetings. On a poll, each member present or voting by proxy is
entitled to one vote for every $0.50 nominal value of share capital
held. There are no specific restrictions on transfers of ordinary
shares, which are governed by the general provisions of the
Articles of Association and prevailing legislation.
At the 2018 AGM, shareholders gave authority to the Directors to
offer a scrip dividend alternative on any dividend (including
interim dividends) declared up to the conclusion of the AGM in
2019.
Information on the policy adopted by the Board for paying
interim dividends on the ordinary shares may be found on page 310,
under the heading 'Shareholder information'.
Dividend waivers
HSBC Holdings employee benefit trusts, which holds shares in
HSBC Holdings in connection with the operation of its share plans,
have lodged standing instructions to waive dividends on shares held
by them that have not been allocated to employees. The total amount
of dividends waived during 2018 was $3.4m.
Preference shares
The preference shares, which have preferential rights to income
and capital, do not, in general, confer a right to attend and vote
at general meetings.
There are three classes of preference shares in the share
capital of HSBC Holdings: 6.20% non-cumulative US dollar preference
shares, Series A of $0.01 each ('dollar preference shares');
non-cumulative preference shares of GBP0.01 each ('sterling
preference shares'); and non-cumulative preference shares of
EUR0.01 ('euro preference shares'). The dollar preference shares in
issue are Series A dollar preference shares and the sterling
preference share in issue is a Series A sterling preference share.
There are no euro preference shares in issue.
Information on dividends declared for 2018 and 2019 may be found
on page 249, under the heading 'Dividends' and in Note 9 on the
Financial Statements.
Further details of the rights and obligations attaching to the
HSBC Holdings' issued share capital may be found in Note 32 on the
Financial Statements.
Share capital changes in 2018
The following events occurred during the year in relation to the
ordinary share capital of HSBC Holdings:
Scrip dividends
HSBC Holdings Aggregate
ordinary shares nominal Market value per
issued value share
----------
on number $ $ GBP
Issued in lieu of
6 Apr
Fourth interim dividend for 2017 2018 39,256,458 19,628,229 10.0177 7.2184
---------
5 Jul
First interim dividend for 2018 2018 21,593,550 10,796,775 9.8461 7.3734
---------- ---------
27 Sep
Second interim dividend for 2018 2018 20,239,883 10,119,942 8.9716 6.9574
----------
21 Nov
Third interim dividend for 2018 2018 85,760,978 42,880,489 8.2430 6.2718
---------------------------------- -------- ---------- ---------- --------- -------
All-employee share plans
Exercise price
Aggregate
nominal
Number value from to
$
---------
HSBC Holdings savings-related
share option plans
---------- ---------- --- --------- --------
HSBC ordinary shares issued in
GBP 23,219,600 11,609,800 GBP 4.0472 5.9640
HSBC ordinary shares issued in
HK$ 20,631 10,316 HK$ 55.4701 -
HSBC ordinary shares issued in
$ 11,064 5,532 $ 7.1456 -
HSBC ordinary shares issued in
EUR 8,486 4,243 EUR 5.3532 -
--------- ------
Options over HSBC ordinary shares
lapsed 4,845,695 2,422,848
Options over HSBC ordinary shares
granted in response to approximately
17,528 applications from HSBC
employees in the UK on 21 Sep
2018 20,501,336
---------------------------------------
HSBC International Employee Share
Purchase Plan 810,042 405,021 GBP 6.2400 7.9300
--------------------------------------- ---------- ---------- --- --------- ------
HSBC share plans
Market value
per share
HSBC Holdings
ordinary Aggregate
shares nominal
issued value from to
$ GBP GBP
Vesting of awards under the HSBC Share
Plan and HSBC Share Plan 2011 59,670,637 29,835,319 6.3380 7.3280
---------------------------------------- ------------- ---------- ------- -------
Compliance with Hong Kong Listing Rule 13.25A(2)
HSBC Holdings has been granted a waiver from strict compliance
with Rule 13.25A(2) of the Rules Governing the Listing of
Securities on the Stock Exchange of Hong Kong.
Under this waiver, HSBC's obligation to file a Next Day Return
following the issue of new shares, pursuant to the vesting of share
awards granted under its share plans to persons who are not
Directors, would only be triggered where it falls within one of the
circumstances set out under Rule 13.25A(3).
Authorities to allot and to purchase shares and
pre-emption rights
At the AGM in 2018, shareholders renewed the general authority
for the Directors to allot new shares up to 13,330,736,120 ordinary
shares, 15,000,000 non-cumulative preference shares of GBP0.01
each, 15,000,000 non-cumulative preference shares of $0.01 each and
15,000,000 non-cumulative preference shares of EUR0.01 each.
Shareholders also renewed the authority for the Directors to make
market purchases of up to 1,999,610,418 ordinary shares. The
Directors exercised this authority during the year and purchased
210,466,091 ordinary shares.
In addition, shareholders gave authority for the Directors to
grant rights to subscribe for, or to convert any security into, no
more than 3,999,220,836 ordinary shares in relation to any issue by
HSBC Holdings or any member of the Group of contingent convertible
securities that automatically convert into or are exchanged for
ordinary shares in HSBC Holdings in prescribed circumstances.
Further details about the issue of contingent convertible
securities may be found in Note 32 on the Financial Statements.
Other than as disclosed in the tables above headed 'Share
capital changes in 2018', the Directors did not allot any shares
during 2018.
Debt securities
In 2018, following its capital plan, HSBC Holdings issued the
equivalent of $25.6bn of debt securities in the public capital
markets in a range of currencies and maturities, including $6bn of
contingent convertible and $19.6bn of senior securities to ensure
it meets the current and proposed regulatory rules, including those
relating to the availability of adequate total loss-absorbing
capacity. For additional information on capital instruments and
bail-inable debt, refer to Notes 28 and 32 on pages 277 and
286.
Treasury shares
In accordance with the terms of a waiver granted by the Hong
Kong Stock Exchange on 19 December 2005, HSBC Holdings will comply
with the applicable law and regulation in the UK in relation to the
holding of any shares in treasury and with the conditions of the
waiver in connection with any shares it may hold in treasury.
Pursuant to Chapter 6 of the UK Companies Act 2006, 325,273,407
ordinary shares are currently held in treasury. This was the
maximum number of shares held at any time during 2018; representing
1.60% of the shares in issue as at 31 December 2018. The nominal
value of shares held in treasury is $162,636,704.
Notifiable interests in share capital
At 31 December 2018, HSBC Holdings had received the following
notification of major holdings of voting rights pursuant to the
requirements of Rule 5 of the Disclosure, Guidance and Transparency
Rules:
-- BlackRock, Inc. gave notice on 15 February 2019 that on
14 February 2019 it had the following: an indirect interest in
HSBC Holdings ordinary shares of 996,000,424; qualifying financial
instruments with 240,796,561 voting rights that may be acquired if
the instruments are exercised or converted; and financial
instruments with a similar economic effect to qualifying financial
instruments which refer to 9,275,682 voting rights, representing
4.97%, 1.20% and 0.04%, respectively, of the total voting rights at
that date.
At 31 December 2018, according to the register maintained by
HSBC Holdings pursuant to section 336 of the Securities and Futures
Ordinance of Hong Kong:
-- BlackRock, Inc. gave notice on 17 October 2018 that on
12 October 2018 it had the following interests in HSBC Holdings
ordinary shares: a long position of 1,335,245,703 shares and a
short position of 6,355,666 shares, representing 6.59% and 0.03%,
respectively, of the ordinary shares in issue at that date.
-- Ping An Asset Management Co., Ltd. gave notice on
2 November 2018 that on 1 November 2018 it had a long position
of 1,418,925,452 in HSBC Holdings ordinary shares, representing
7.01% of the ordinary shares in issue at that date.
-- The Bank of New York Mellon Corporation gave notice on
18 September 2018 that on 14 September 2018 it had the following
interests in HSBC Holdings ordinary shares: a long position of
1,123,775,445 shares and a short position of 812,085,965 shares,
representing 5.55% and 4.01% respectively, of the ordinary shares
in issue at that date. The notification includes the shares held in
custody under the HSBC Holdings plc American Depository Receipt
Programme.
Sufficiency of float
In compliance with the Rules Governing the Listing of Securities
on The Stock Exchange of Hong Kong Limited, at least 25% of the
total issued share capital has been held by the public at all times
during 2018 and up to the date of this report.
Dealings in HSBC Holdings listed securities
HSBC Group has policies and procedures that, except where
permitted by statute and regulation, prohibit specified
transactions in respect of its securities listed on The Stock
Exchange of Hong Kong Limited. Except for dealings as
intermediaries or as trustees by subsidiaries of HSBC Holdings,
neither HSBC Holdings nor any of its subsidiaries has purchased,
sold or redeemed any of its securities listed on The Stock Exchange
of Hong Kong Limited during the year ended 31 December 2018.
Directors' interests
Pursuant to the requirements of the UK Listing Rules and
according to the register of Directors' interests maintained by
HSBC Holdings pursuant to section 352 of the Securities and Futures
Ordinance of Hong Kong, the Directors of HSBC Holdings at 31
December 2018 had certain interests, all beneficial unless
otherwise stated, in the shares or debentures of HSBC Holdings and
its associated corporations. Save as stated in the following table,
no further interests were held by Directors, and no Directors or
their connected persons were awarded or exercised any right to
subscribe for any shares or debentures in any HSBC corporation
during the year.
No Directors held any short position as defined in the
Securities and Futures Ordinance of Hong Kong in the shares or
debentures of HSBC Holdings and its associated corporations.
Directors' interests - shares and debentures
At 31 Dec 2018
-------------------
At 1 Jan
2018, or Child Jointly
date of under with
appointment, Beneficial 18 another Total
Footnotes if later owner or spouse person Trustee interests
-------------------- ---------- ------------------- ---------- ---------- -------- ------- ------------
HSBC Holdings
ordinary shares
Kathleen Casey 1 9,125 9,635 9,635
---------- ----------
Laura Cha 5 18,200 10,200 10,200
---------- ----------
Henri de Castries 17,116 18,064 18,064
---------- ----------
Lord Evans of
Weardale 12,892 12,892 12,892
---------- ----------
John Flint
(appointed on 2,
21 February 2018) 4 533,118 822,252 5,439 827,691
---------- -------- ----------
Irene Lee 10,588 11,172 11,172
------------------- ---------- ---------- -------- ------- ----------
Iain Mackay (ceased
employment
on 31 December
2018) 2 442,118 718,532 718,532
------------------- ---------- ---------- -------- ------- ----------
Heidi Miller 1 4,200 4,420 4,420
---------- ----------
Marc Moses 2 1,207,068 1,533,039 1,533,039
---------- ---------- ----------
David Nish 50,000 50,000 50,000
------------------- ---------- ---------- -------- ------- ----------
Jonathan Symonds 42,821 38,823 4,998 43,821
------------------- ---------- ---------- -------- ------- ----------
1,
Jackson Tai 3 44,825 22,970 11,430 21,675 56,075
------------------- ---------- ---------- -------- ------- ----------
Mark Tucker 276,000 288,381 288,381
------------------- ---------- ---------- -------- ------- ----------
Pauline van der
Meer Mohr 15,000 15,000 15,000
-------------------- ---------- ------------------- ---------- ---------- -------- ------- ----------
1 Kathleen Casey has an interest in 1,927, Heidi Miller has an
interest in 884 and Jackson Tai has an interest in 11,215 listed
ADS, which are categorised as equity derivatives under Part XV of
the Securities and Futures Ordinance of Hong Kong. Each ADS
represents five HSBC Holdings ordinary shares.
2 Executive Directors' other interests in HSBC Holdings ordinary
shares arising from the HSBC Holdings savings-related share option
plans and the HSBC Share Plan 2011 are set out in the Scheme
interests in the Directors' remuneration report on page 172. At 31
December 2018, the aggregate interests under the Securities and
Futures Ordinance of Hong Kong in HSBC Holdings ordinary shares,
including interests arising through employee share plans and the
interests above were: John Flint -1,408,565; Iain Mackay -
2,513,553; and Marc Moses - 3,321,777. Each Director's total
interests represents less than 0.02% of the shares in issue and
0.02% of the shares in issue excluding treasury shares.
3 Jackson Tai has a non-beneficial interest in 11,430 shares of which he is custodian.
4 On 8 January 2019, John Flint reported to HSBC that, as part
of a discretionary portfolio structure whereby investment decisions
are made entirely by the investment manager, he and his spouse had
jointly acquired 4,836 shares on 6 June 2018 and 603 shares on 30
August 2018. Prior clearance was not obtained as required pursuant
to the standards set out in the Hong Kong Model Code for Securities
Transactions by Directors of Listed Issuers. Arrangements have now
been put in place to prevent further transactions in HSBC Group
securities within the portfolio structure.
5 Laura Cha advised HSBC Holdings plc on 20 January 2019 that
her spouse had sold 8,000 shares on 23 August 2018.
There have been no changes in the shares or debentures of the
Directors from 31 December 2018 to the date of this report.
Listing Rule 9.8.4
The information to be disclosed in the Annual Report and
Accounts pursuant to UK Listing Rule 9.8.4 is contained within the
Corporate Governance Report.
Political donations
HSBC does not make any political donations or incur political
expenditure within the ordinary meaning of those words. We have no
intention of altering this policy. However, the definitions of
political donations, political parties, political organisations and
political expenditure used in the UK Companies Act 2006 (the 'Act')
are very wide. As a result, they may cover routine activities that
form part of the normal business activities of the Group and are an
accepted part of engaging with stakeholders. To ensure that neither
the Company nor any of its subsidiaries inadvertently breaches the
Act, authority is sought from shareholders at the Annual General
Meeting to make political donations.
HSBC provides administrative support to two political action
committees ('PACs') in the US funded by voluntary political
contributions by eligible employees. We do not control the PACs,
and all decisions regarding the amounts and recipients of
contributions are directed by the respective steering committee of
each PAC, which are comprised of eligible employees. The PACs
recorded combined political donations of $179,200 during 2018
(2017: $131,300).
Employees
At 31 December 2018, HSBC had a total workforce of 235,000 full-
and part-time employees compared with 229,000 at the end of 2017
and 241,000 at the end of 2016. Our main centres of employment were
the UK with approximately 39,000 employees, India 38,000, Hong Kong
31,000, mainland China 26,000, Mexico 15,000, the US 10,000 and
France 7,000.
People at HSBC span many cultures, communities and continents.
We want to build trust-based relationships with our people, where
they feel empowered in their roles and inspired to grow. We help
our leaders to set the tone by listening, not just talking, and
valuing the behaviours that get a job done as much as the
outcome.
Employee relations
We consult with and, where appropriate, negotiate with employee
representative bodies. It is our policy to maintain well-developed
communications and consultation programmes with all employee
representative bodies. There have been no material disruptions to
our operations from labour disputes during the past five years.
Diversity and inclusion
We are committed to a thriving environment where people are
valued, respected and supported to fulfil their potential. By
building upon the extraordinary range of ideas, backgrounds, styles
and perspectives of our employees, we can drive better outcomes for
our stakeholders, including customers, communities, suppliers and
shareholders.
We focus on enhancing the diversity of our workforce so that it
is more reflective of the communities in which we operate and the
customers we serve.
We expect our people to treat each other with dignity and
respect, creating an inclusive culture to support equal
opportunities. We do not tolerate discrimination, bullying,
harassment and victimisation on any grounds. We encourage our
employees to build positive and lasting relationships among the
variety of people with whom they interact.
Diversity and inclusion is championed by our Group Chief
Executive and his executive team and is governed by the Group
People Committee.
More information about our diversity and inclusion activity and
our UK Gender Pay Gap Report is available at
www.hsbc.com/our-approach/measuring-our-impact.
Gender diversity statistics
Male Female
*Combined executive committee and direct reports includes HSBC's
executive
Directors, Group Managing Directors and their direct reports
(excluding
administrative staff) plus the Group Company Secretary.
**Senior leadership refers to employees performing roles
classified as 0, 1, 2 or 3 in
our global career band structure.
Employment of people with a disability
We believe in providing equal opportunities for all
employees.
The employment of people with a disability is included in this
commitment. The recruitment, training, career development and
promotion of people with a disability are based on the aptitudes
and abilities of the individual. Should employees become disabled
during their employment with us, efforts are made to continue their
employment and, if necessary, appropriate training and reasonable
equipment and facilities are provided.
Employee development
The opportunity to develop is one of the most important factors
affecting how people feel about HSBC. We celebrated the first
anniversary of our home of learning, HSBC University, in November
2018. HSBC University strengthens how we learn and lead, through
new programmes, resources and premises. We have launched HSBC
University regional hubs at our offices in Dubai and in the new
HSBC UK Headquarters in Birmingham, providing opportunities for our
colleagues, clients and community groups to come together to learn,
develop and connect.
We have expanded our management and leadership development with
new programmes, including 'Leading with Impact', for senior
leaders, and 'Leading Myself', for individual contributors. We have
further developed our 'Essentials' programme to support people
managers strengthen their coaching and hiring skills. Across the
organisation our employees have completed 6.2 million hours of
formal learning, which equates to 2.8 days of learning per
employee.
Health and safety
The Group is committed to providing a healthy and safe working
environment for our employees, contractors, customers and visitors
on HSBC premises, and where impacted by our operations. We aim to
be compliant with all applicable health and safety legal
requirements, and to ensure that best practice health and safety
management standards are implemented and maintained across the HSBC
Group.
Everyone at HSBC has a responsibility for helping to create a
healthy and safe working environment. Employees are expected to
take ownership of their safety, and are encouraged and empowered to
report any concerns.
Chief Operating Officers have overall responsibility for
ensuring that the correct policies, procedures and safeguards are
put into practice. This includes making sure that everyone in HSBC
has access to appropriate information, instruction, training and
supervision.
Putting our commitment into practice, in 2018 we delivered a
health and safety education and information training programme to
every one of our employees. We also carried out a range of
programmes to help us understand and effectively manage the risks
we face and improve the buildings in which we operate:
-- We developed and implemented a health and safety continuous
improvement programme, focusing on education, engineering and
enforcement/reward.
-- We developed and implemented an improved health and safety
training and awareness programme for all employees globally. This
was to ensure roles and responsibilities were clear and understood;
and processes for identifying and reporting hazards and incidents
were clearly defined and communicated.
-- We implemented, through our global facilities management
service provider, an electronic permit-to-work system to provide
effective controls for all high-risk work that is undertaken.
-- We developed and implemented a global earthquake risk
management programme to ensure all HSBC properties in earthquake
zones were risk assessed and controls implemented to manage the
risk.
-- We ensured all our properties had been assessed for fire and
asbestos risk, with over 40,000 individual actions taken to improve
standards.
Employee health and safety
Footnotes 2018 2017 2016
Number of workplace
fatalities 1 1 2 1
------------------------ ---------- ---- ----
Number of major
injuries to employees 2 27 33 44
All injury rate
per 100,000 employees 184 209 246
------------------------ ---------- ---- ---- ----
1 Contractor fatality relating to use of work equipment.
2 Fractures, dislocation, concussion.
Remuneration policy
The quality and commitment of our employees is fundamental to
our success and, accordingly, the Board aims to attract, retain and
motivate the very best people. As trust and relationships are vital
in our business, our goal is to recruit those who are committed to
making a long-term career with the Group.
HSBC's reward strategy supports this objective through balancing
both short-term and sustainable performance. Our remuneration
strategy is designed to reward competitively the achievement of
long-term sustainable performance and attract and motivate the very
best people who are committed to maintaining a long-term career
with the Group while performing their role in the long-term
interests of our stakeholders.
In order to ensure alignment between remuneration and our
business strategy, individual remuneration is determined through
assessment of performance delivered against both annual and
long-term objectives summarised in performance scorecards, and
adherence to the HSBC Values of being 'open, connected and
dependable' and acting with 'courageous integrity'. Altogether,
performance is judged, not only on what is achieved over the short
and long term, but also on how it is achieved, as the latter
contributes to the sustainability of the Group.
The financial and non-financial measures incorporated in the
annual and long-term scorecards are carefully considered to ensure
alignment with the long-term strategy of the Group.
Further information on the Group's approach to remuneration is
given on page 172.
Employee share plans
Share options and discretionary awards of shares granted under
HSBC share plans align the interests of employees with the creation
of shareholder value. The following table sets out the particulars
of outstanding options, including those held by employees working
under employment contracts that are regarded as 'continuous
contracts' for the purposes of the Hong Kong Employment Ordinance.
The options were granted at nil consideration. No options have been
granted to substantial shareholders and suppliers of goods or
services, nor in excess of the individual limit for each share
plan. No options were cancelled by HSBC during the year.
A summary for each plan of the total number of the options which
were granted, exercised or lapsed during 2018 is shown in the
following table. Further details required to be disclosed pursuant
to Chapter 17 of the Rules Governing the Listing of Securities on
The Stock Exchange of Hong Kong Limited are available on our
website at
https://www.hsbc.com/our-approach/corporate-governance/remuneration
and on the website of The Stock Exchange of Hong Kong Limited at
www.hkex.com.hk, or can be obtained upon request from the Group
Company Secretary,
8 Canada Square, London E14 5HQ.
Particulars of options held by Directors of HSBC Holdings are
set out on
page 191.
Note 6 on the Financial Statements gives details of share-based
payments, including discretionary awards of shares granted under
HSBC share plans.
All-employee share plans
HSBC operates all-employee share option plans under which
options are granted over HSBC ordinary shares. Subject to leaver
provisions, options are normally exercisable after three or five
years. During 2018, options were granted by reference to the
average market value of HSBC Holdings ordinary shares on the five
business days immediately preceding the invitation date, then
applying a discount of 20%. The mid-market closing price for HSBC
Holdings ordinary shares quoted on the London Stock Exchange which,
as derived from the Daily Official List on 20 September 2018, the
day before the options were granted was GBP6.6570.
The UK HSBC Holdings Savings-Related Share Option Plan will
expire on 23 May 2025 (at which time the plan may be extended with
approval from Shareholders) unless the Directors resolve to
terminate the plans at an earlier date. There have been no further
grants under the HSBC Holdings Savings-Related Share Option Plan:
International.
The HSBC International Employee Share Purchase Plan was
introduced in 2013 and now includes employees based in 27
jurisdictions.
HSBC Holdings Share Option Plans
HSBC Holdings ordinary shares
Dates of
awards Exercise price Exercisable At Granted Exercised Lapsed At
1 Jan during during during 31 Dec
from to from to from to Footnotes 2018 year year year 2018
------ ------ ------- ------ ------ ------ ---------- ---------- ---------- ---------- --------- ------------
Savings-Related Share Option Plan 1
---------- ---------- ---------- ---------- --------- ------------
(GBP) (GBP)
------ ------ ------ ------
24 21
Apr Sep 1 Aug 30 Apr 23,194,305
2012 2018 4.0472 5.9640 2017 2024 64,566,103 20,501,336 [--] 4,807,621 57,065,513
------ ------ ------ ------ ------ ---------- ---------- ---------- --------- ----------
Savings-Related Share Option Plan:
International 2
---------- ---------- --------- ------------
(GBP) (GBP)
------ ------ ------ ------
24
Apr 1 Aug 31 Jan
2012 _ 4.4621 _ 2017 2018 38,829 _ 25,295 13,534 _
------ ------ ------ ------ ------ ---------- ---------- ---------- --------- ------------
($) ($) _
------ ------ ------ ------
24
Apr 1 Aug 31 Jan
2012 _ 7.1456 _ 2017 2018 17,873 _ 11,064 6,809 _
------ ------ ------ ------ ------ ---------- ---------- ---------- --------- ------------
(EUR) (EUR)
------ ------ ------ ------
24
Apr 1 Aug 31 Jan
2012 _ 5.3532 _ 2017 2018 10,539 _ 8,486 2,053 _
------ ------ ------ ------ ------ ---------- ---------- ---------- --------- ------------
(HK$) (HK$)
------ ------ ------ ------
24
Apr 1 Aug 31 Jan
2012 _ 55.4701 _ 2017 2018 36,309 _ 20,631 15,678 _
------ ------ ------- ------ ------ ------ ---------- ---------- ---------- ---------- --------- ------------
1 The weighted average closing price of the shares immediately
before the dates on which options were exercised was GBP6.5220.
2 The weighted average closing price of the shares immediately
before the dates on which options were exercised was GBP7.7119.
Statement of compliance
The statement of corporate governance practices set out on pages
152 to 213 and the information referred to therein constitutes the
Corporate governance report of HSBC Holdings. The websites referred
to do not form part of this Report.
Relevant corporate governance codes,
role profiles and policies
UK Corporate Governance www.frc.org.uk
Code
Hong Kong Corporate www.hkex.com.hk
Governance Code
(set out in Appendix
14 to the Rules
Governing the Listing
of Securities on
the Stock Exchange
of Hong Kong Limited)
Descriptions of www.hsbc.com/our-approach/corporate-governance/board-responsibilities
the roles and responsibilities
of the:
* Group Chairman
* Group Chief Executive
* Deputy Group Chairman and Senior Independent Director
* Board
Board and senior www.hsbc.com/who-we-are/leadership
management
Roles and responsibilities www.hsbc.com/our-approach/corporate-governance/board-committees
of the Board's
committees
Board's policies www.hsbc.com/our-approach/corporate-governance/board-responsibilities
on:
- Diversity and
inclusion
- Shareholder communication
- Human rights
* Remuneration practices and governance
------------------------------------------------------------ ----------------------------------------------------------------------------------
Global Internal https://www.hsbc.com/our-approach/corporate-governance/corporate-governance-codes
Audit Charter /internal-control
------------------------------------------------------------ ----------------------------------------------------------------------------------
HSBC is subject to corporate governance requirements in both the
UK and Hong Kong. During 2018, and with the following exceptions,
HSBC applied the principles and complied with the applicable
provisions of the UK Corporate Governance Code, and also the
requirements of the Hong Kong Corporate Governance Code.
Under the UK Corporate Governance Code, the Board is required to
undertake an annual evaluation of its own performance and that of
its committees. For the reasons described on page 152, this
evaluation did not take place in 2018.
Under the Hong Kong Code, the audit committee should be
responsible for the oversight of all risk management and internal
control systems. HSBC's Group Risk Committee is responsible for
oversight of internal control, other than internal control over
financial reporting, and risk management systems. This is permitted
under the UK Corporate Governance Code.
The Company has codified obligations for transactions in HSBC
Group securities in accordance with the requirements of the Market
Abuse Regulation and the rules governing the listing of securities
on HKEx, save that the HKEx has granted waivers from strict
compliance with the rules that take into account accepted practices
in the UK, particularly in respect of employee share plans. During
the year, all Directors were reminded of their obligations in
respect of transacting in HSBC Group securities and, except as
disclosed on page 168, all Directors have confirmed that they have
complied with their obligations.
On behalf of the Board
Mark E Tucker
Group Chairman
HSBC Holdings plc
Registered number 617987
19 February 2019
Directors' remuneration report
Page
Annual statement from the Group
Remuneration Committee Chair 175
----
Directors' remuneration policy 178
----
Annual report on remuneration 188
----
Additional remuneration disclosures 204
------------------------------------- ----
Pillar 3 remuneration disclosures 205
------------------------------------- ----
All disclosures in the Directors' remuneration report are
unaudited unless otherwise stated.
Disclosures marked as audited should be considered audited in
the context of financial statements taken as a whole.
Annual statement from the Group
Remuneration Committee Chair
Dear Shareholder,
I am delighted to present our 2018 Directors' remuneration
report. I have set out below a summary of our 2018 performance, and
the key decisions made during the year.
Our current remuneration policy entered its third and final year
in 2018. Therefore, we will be seeking shareholders' approval for
our proposed Directors' remuneration policy for the following three
years at the 2019 Annual General Meeting ('AGM').
Our current policy and the implementation of the policy received
strong support with more than 96% of the votes cast in favour of
the policy and its implementation for 2016 and 2017. Therefore, we
intend to make only minor changes to simplify our policy and ensure
alignment of executive remuneration with our strategic priorities
in line with shareholder feedback. I have explained the key changes
in this statement and the remuneration policy section provides
further details.
Performance achieved during 2018
During 2018, we announced our strategic priorities to return
HSBC to growth and create value for our shareholders. We aim to do
this by increasing returns from the Group's areas of strength,
particularly in Asia and across our network, turning around
low-return businesses of high strategic importance, particularly
the US, investing to build a bank for the future with the customer
at its centre, and making it easier for our employees to do their
jobs.
Our 2018 results demonstrate that our strategy is working.
Reported profit before tax was $19.9bn, up 16% from $17.2bn in
2017. On an adjusted basis, profit before tax was $21.7bn, up 3%
from $21.1bn in 2017.
Reported revenue rose by 5% to $53.8bn. On an adjusted basis,
revenue rose by 4% to $53.9bn, reflecting revenue growth in all of
our global businesses. Progress is being made on growing our Asian
franchise and international client revenue. We missed our target to
achieve positive adjusted jaws, as growth in adjusted operating
expenses exceeded our adjusted revenue growth.
Our return on tangible equity ('RoTE') improved to 8.6% in 2018
from 6.8% in 2017, demonstrating our commitment to generating value
for shareholders.
Details of performance against each of the strategic priorities
are set out on page 13 of the Strategic Report. The scorecards of
our executive Directors include measures that are aligned to the
delivery of these strategic priorities, as set out on page 186.
The Group announced a dividend of $0.51 per ordinary share and
in 2018, we returned a total of $2bn to shareholders through share
buy-backs. We remain a well-funded business with a strong capital
base and a diversified balance sheet. We received the 'World's Best
Bank for Transaction Services', 'World's Best Bank for Corporates'
and the 'World's Best Bank for public-sector clients' awards at the
2018 Euromoney Awards for Excellence, a significant endorsement of
our investment in innovation and digital solutions, and making
transaction banking simpler, better and faster.
Group variable pay pool and risk adjustments
The Group Remuneration Committee reviewed and agreed the Group
variable pay pool, taking into account performance against
financial and non-financial metrics set out in the Group risk
appetite statement and targets set out in our annual operating
plan.
Based on this assessment, the Committee considered that a total
variable pay pool for 2018 of $3,473m was appropriate. This
represents a 5.1% increase on the 2017 variable pay pool reflecting
the improvement in financial performance during 2018.
In setting the pool, the Committee used its discretion to
apply:
-- a reduction of $208m for the fines, penalties and cost of
customer redress faced by the Group; and
-- a reduction of $793m for:
- negative adjusted jaws achieved during 2018;
- certain financial and non-financial risk metrics, where
performance was outside our risk appetite;
- conduct assessments and continued work required to address conduct issues; and
- counter-cyclical adjustments to recognise the positive impact
that interest rate increases have had on the financial performances
of Retail Banking and Wealth Management, and Commercial
Banking.
At HSBC we assess individual performance based on what is
achieved but also how it is achieved, as we believe the latter
contributes to the long-term sustainability of the business. We
reward employees who exemplify our values through:
-- the use of behaviour and performance ratings for all
employees, which directly influence pay outcomes;
-- variable pay adjustments:
- during 2018, we made positive adjustments to variable pay
awards totalling $13.4m for individuals who have exhibited
exemplary conduct and who went the extra mile to courageously do
the right thing; and
- we reduced variable pay awards to certain individuals by $3.7m
in aggregate to reflect individual conduct and behaviours; and
-- our global recognition programme, where our employees can
recognise peers and reward positive behaviours in a real-time,
visible way.
Fixed pay for executive Directors
We are proposing to increase the base salary of our executive
Directors by 3.3%, which is in line with the average base salary
increase made for our UK employees. This is the first base salary
increase we will have made for any executive Directors since
2011.
Executive Directors' 2018 variable pay awards
The 2018 annual incentive scorecard outcome was 76% for John
Flint, 73% for Iain Mackay and 89% for Marc Moses, reflecting the
performance of the Group and performance achieved against their
individual scorecards. Details of the annual incentive scorecard
outcome are provided on page 186.
For John Flint and Marc Moses, the Committee determined to grant
50% of the annual incentive in shares subject to a one-year
retention period and the remaining 50% in cash. This is in line
with the structure applied for other employees and permissible
under the remuneration rules of the UK's Prudential Regulation
Authority ('PRA'). The Committee noted that more than 80% of John
Flint's and Marc Moses' combined variable pay and fixed pay
allowance for 2018 will continue to be delivered in shares that
will be released over a period of eight years, ensuring long-term
alignment with share price performance and shareholder
experience.
Stuart Gulliver stepped down as Group Chief Executive on
20 February 2018. As set out in our 2017 Directors' remuneration
report, Stuart Gulliver was eligible to be considered for a 2018
annual incentive award based on the 2018 annual incentive scorecard
outcome, pro-rated for time spent by him in the Group Chief
Executive role. Based on this approach, Stuart Gulliver's annual
incentive award has been determined to be GBP282,000 (see details
on page 186).
John Flint and Marc Moses will be awarded a long-term incentive
('LTI') award in respect of 2018 performance. In granting these
awards, the Committee took into consideration the good progress
made during 2018 towards achieving our strategic priorities. These
awards will also be subject to a three-year forward-looking
performance period ending on 31 December 2021. We have simplified
our LTI scorecard through the use of fewer measures with a higher
weighting attached to financial measures. Details of the
performance measures are set out on page 189.
Executive Director changes
Iain Mackay stepped down as Group Finance Director on
31 December 2018. He received payment in lieu of his salary,
fixed pay allowance and cash in lieu of pension for the period from
1 January 2019 to 13 January 2019. In accordance with our approved
remuneration policy and contractual terms agreed, Iain Mackay has
been designated as a good leaver in respect of his unvested awards
that were granted between 2014 and 2018, and was eligible to be
considered for an annual incentive award in respect of 2018 as set
out on page 186.
Ewen Stevenson was appointed as an executive Director and Group
Chief Financial Officer of the Company on 1 January 2019, having
joined the Group on 1 December 2018 as Group Chief Financial
Officer designate.
For the 2018 performance year, Ewen Stevenson will receive an
award in lieu of any variable pay award he would have otherwise
received from The Royal Bank of Scotland Group plc ('RBS'). This
will be based on his maximum opportunity of GBP1.6m under RBS's
policy and the outcome of the 2018 scorecard, as disclosed in its
2018 annual report and accounts.
In 2019, Ewen Stevenson will be granted share awards to replace
unvested RBS awards, which were forfeited as a result of him
joining HSBC. The awards granted will, in general, match the
performance, vesting and retention periods attached to the awards
forfeited, and will be subject to any performance adjustments that
would otherwise have been applied by RBS. Further details can be
found on page 190.
New remuneration policy
As the term of the current remuneration policy for Directors
comes to an end at the 2019 AGM, the Committee is seeking
shareholder approval for a new policy.
The Committee undertook an extensive review of the policy based
on the following key principles:
-- the policy should be simple and transparent;
-- there should be a strong alignment between rewards and the
interest of our stakeholders, including shareholders, customers and
employees;
-- the policy should maintain a focus on long-term performance;
-- the total compensation package should be competitive to
ensure we can retain and attract talent; and
-- the structure should meet the expectations of investors and our regulators.
As part of the review, the Committee considered alternatives to
our current policy, including the use of restricted share awards or
a single incentive scorecard. The Committee was of the view that
while these alternative structures had some merits, on balance, our
current policy approach provided a more suitable and appropriate
framework that was aligned with our key principles.
The Committee also considered that our current policy structure
was broadly in line with the structure used by our global peers and
other listed peers on the FTSE 100 of a similar size and had
received strong support from our shareholders. Therefore, the
Committee is proposing only minor changes to the policy being put
forward to shareholders for approval, including:
-- simplifying our LTI scorecard through the use of fewer
measures and a substantial proportion of the scorecard weighted
towards value creation financial measures, such as RoTE to reflect
feedback received from our shareholders. Assigning a substantial
proportion of the overall scorecard weighting to a value creation
measure such as RoTE will incentivise executive Directors to
improve financial performance and generate a return that delivers
value for our shareholders; and
-- increasing the fees for non-executive Directors to reflect
the increase in time that they are required to commit to their
roles, as the Board supports HSBC through its ambitious agenda of
governance reform, growth and organisational development in an
environment of increasing regulatory, political and organisational
complexity. Details of the change in fees and our rationale for
changes are set out on page 182.
Within the context of the review, the Committee was also mindful
of the changes within the UK Corporate Governance Code (the
'Code'), namely:
-- Pension provision: The current executive Director
remuneration policy allows for 30% of salary to be paid in lieu of
a pension entitlement (reduced from 50% of salary paid under our
previous policy in operation before 2016). This is equivalent to
16% of salary after UK income tax and national insurance
deductions, which aligns with the maximum contribution rate (as a
percentage of salary) that HSBC makes for employees who are defined
contribution members of the HSBC Bank (UK) Pension Scheme. For the
majority of such employees, HSBC makes a contribution of 9% of
salary (10% on the first GBP21,200 of salary) and, where the
employee also makes a contribution to the plan, an additional
matching contribution of up to 7% of salary. As the current cash in
lieu of pension allowance of our executive Directors is in line
with pension contributions available to the majority of our UK
workforce, we have not proposed any change. The Committee will
continue to monitor the cash in lieu of pension to ensure this
remains aligned with the benefit available for the majority of the
workforce.
-- Post-employment shareholding policy: Under our remuneration
policy, executive Directors will realise their pay over a period of
up to eight years which is not accelerated on departure. We believe
this achieves the objective of ensuring ongoing alignment of
executive Directors' interests with shareholder experience
post-cessation of their employment. Further details are available
on page 175.
-- Time horizons for awards: During the policy review, we also
reviewed the combined vesting and retention period for our LTI
awards, and are comfortable that they meet the five-year holding
period as the weighted average holding period for each award is six
years from the date of grant.
We also discussed the approach we will use under the current
policy and the new policy for making any salary increases for
executive Directors and delivering our annual incentive award with
a number of our large shareholders and institutional shareholder
bodies. We informed them that our approach going forwards will
involve:
-- considering salary increases for executive Directors,
provided they are in line with increases made for our employees and
within the limits approved by shareholders; and
-- paying a portion of the annual incentive awards of our
executive Directors in cash, as permitted by our current and new
policy. Currently the executive Directors receive their annual
incentive awards entirely in shares subject to a retention period.
Under this approach, executives will be eligible to receive a
portion, not more than 50% of the total annual incentive awards, in
cash. This is to bring the variable pay structure of our executive
Directors in line with the structure used for our employees and
that used by our international peers, while meeting the
requirements of the remuneration rules of the PRA. Even with this
change, more than 80% of the executive Directors' combined variable
pay and fixed pay allowance for each year will be delivered in
shares and released over a period of eight years.
They have been supportive of the proposed changes and the
simplification of the LTI scorecard was well received. In light of
the feedback received from shareholders, we have included an
environmental, social and governance ('ESG') measure in the LTI
scorecard.
Employee remuneration
During 2018, we introduced a simpler and more transparent
framework for determining variable pay awards for our junior
employees in global functions and HSBC Operations, Services and
Technology, based on feedback we received from our employees. The
new framework provides a clear and transparent link between
performance and behaviour ratings, and the variable pay awards.
The Code issued by the Financial Reporting Council, effective
from 1 January 2019, requires remuneration committees to review
workforce remuneration to ensure these policies are aligned with
our culture and executive Director remuneration. The Committee has
been undertaking these reviews as part of the oversight role it
performs in respect of the Group's remuneration policy. The
framework for this review, was developed after taking into account
the industry reforms introduced since the financial crisis,
expectations of regulators for the financial service sector and the
prescribed responsibility assigned under the PRA's Senior Managers
Regime.
Under the PRA's Senior Managers Regime, I have been assigned, as
the Chair of the Committee, the responsibility for setting the
Group's remuneration policy for all employees. In carrying out this
responsibility, the Committee regularly reviews the effectiveness
of the remuneration policy for all employees, through feedback
received from employee survey results and the information and
updates we receive on employee remuneration matters throughout the
year. The Committee also reviews the year-end pay review outcomes
for the wider group of employees to ensure the outcomes are in line
with our remuneration principles. The results of such reviews also
inform the decisions the Committee makes on executive remuneration
matters. We will include details of the review undertaken by the
Committee during 2019 in the next year's report in line with the
requirements of the Code.
An overview of our remuneration principles and the wider
employee remuneration policy is set out on page 199.
Diversity and inclusion
Our definition of diversity is broader than inherent
characteristics and includes other differences that make
individuals unique. Our pay strategy is designed to attract and
motivate the very best people, regardless of gender, ethnicity,
age, disability or any other factor unrelated to performance or
experience.
We also encourage diversity of thought from our leaders and our
people so we can deliver on our purpose.
Our reported UK gender pay gap is driven by the gender profile
of our businesses and functions. There are fewer women in senior
leadership roles, meaning that we have more men earning higher
salaries. There is a gender imbalance in our more junior roles and
a higher proportion of female employees working part-time hours.
Collectively, this means that we have a gender pay gap in the
UK.
We are committed to improving our gender balance and are taking
a number of specific steps, which we expect will positively impact
our gender pay gap in the UK over time, including:
-- driving better gender balance at all levels in the organisation;
-- developing female talent to strengthen the leadership pipeline; and
-- supporting families, flexible working; and
-- retaining female talent.
We are confident in our approach to pay, and if we identify any
pay differences that cannot be explained, we make appropriate
adjustments.
Pay ratio of Group Chief Executive and UK employees
We have disclosed the ratio between the remuneration of our
Group Chief Executive and UK employees on page 194.
Additional fee for the Chair of the Group Risk Committee
('GRC')
The Committee noted that there has been an increase in the
demands and expectations of the role of the GRC Chair, including
from regulators and the expanding remit of the GRC also being
involved in improving connectivity between the GRC and our
regulated subsidiaries. In total, Jackson Tai currently devotes
around 150 days per year to the Group. Taking these circumstances
into consideration, the Committee exercised its discretion to
increase the GRC Chair fee from GBP60,000 to GBP120,000 per annum
with effect from 1 December 2018. Further details are provided on
page 182.
Our annual report on remuneration
The next section provides an overview of our remuneration policy
for executive Directors, for which we are seeking shareholder
approval.
In the annual report section, we provide details of remuneration
decisions made for executive Directors in 2018 for which we will
seek shareholder approval with an advisory vote at the 2019 AGM. In
the additional remuneration disclosure section of this report, we
provide additional remuneration-related disclosures, including an
overview of the policy that applies to our employees.
As Chair of the Committee, I hope you will support our
remuneration policy and the 2018 annual report on remuneration.
Pauline van der Meer Mohr
Chair
Group Remuneration Committee
19 February 2019
Directors' remuneration policy
In the following tables we have set out our remuneration policy
for our executive Directors and non-executive Directors. We will
seek shareholders' approval at the AGM on 12 April 2019, and if
approved, the policy is intended to apply immediately for three
years to the end of the AGM in 2022.
Remuneration policy - key principles
HSBC is one of the world's largest banking and financial
services organisations. We are a global company serving more than
39 million customers in both established and emerging markets. Our
aim is to attract, retain and motivate the very best people in a
competitive environment, and our remuneration strategy is designed
to reward the achievement of long-term sustainable performance. The
key guiding principles that form the basis of our review of the
remuneration policy for Directors are as follows:
Key guiding principles
The policy should:
* The policy should be simple and the outcomes from the * align the interests of Directors with the interests
application of the policy should be transparent. of shareholders and other stakeholders; and
* maintain a focus on long-term performance and reward
achievement of our strategic priorities.
------------------------------------------------------------ -----------------------------------------------------------
* Total compensation under the policy should be * The policy should meet the regulatory requirements
competitive and provide us the ability to attract and and also be aligned with investor expectations.
retain talent.
------------------------------------------------------------ -----------------------------------------------------------
Key changes to our policy for executive Directors
From our discussions with investors on the implementation of our
current policy, it was clear there is a considerable desire for
companies to simplify remuneration structures and for the total
remuneration outcome to be transparent and aligned to shareholder
experience.
Equally, our current policy and its implementation have received
strong support from investors. We are therefore proposing to
continue with our current remuneration policy structure for
executive Directors, but with a simplified approach for assessing
performance for variable pay awards.
No changes have been made to fixed pay components and benefits
for our executive Directors. We are also not proposing any increase
in the variable pay opportunity as a percentage of salary.
Key changes to the policy are:
-- Using simpler scorecards: Our LTI awards will have fewer
performance measures and will be aligned with the financial targets
set out in our strategic priorities. The financial measures will
carry a significant weighting in the scorecard, with capital and
risk and compliance measures being used as an underpin. The
objective of this approach is to create a strong alignment between
the LTI awards that pay out and the value generated for our
shareholders as measured by financial metrics such as RoTE. The
targets for the financial metrics used in the LTI scorecard will
result in 50% of the total awards vesting if the performance
achieved over a three-year performance period is in line with
expectations at the start of the performance period. The awards
will only vest at 100% if a stretch performance target has been
achieved over the performance period.
-- Delivering annual incentive awards in cash and shares: Up to
a maximum of 50% of any annual incentive award will be paid in
cash. The balance will be paid in shares subject to a one-year
retention period. This is to bring the variable pay structure of
our executive Directors in line with the structure used for our
employees and that used by our international peers, while meeting
the requirements of the remuneration rules of the PRA. We believe
there will continue to be a strong alignment between the interest
of our executive Directors and shareholders, as the LTI awards will
be granted entirely over shares and deferred over a period of seven
years with a one-year retention period applied to each tranche on
vesting. In addition, the fixed pay allowance ('FPA') will continue
to be delivered entirely in shares, subject to a five-year
retention period, and released equally over a five-year period.
Therefore, more than 80% of the combined variable pay and FPA will
continue to be delivered in shares and released over a period of
eight years.
As part of the policy review, the Committee also considered a
number of alternative structures, including the use of
restricted
stock awards or a single incentive scorecard. The Committee
concluded that while these alternative pay structures had some
merits, our proposed policy presented an appropriate framework that
was aligned to our guiding principles.
As part of our review, we also considered whether a
post-employment shareholding policy should be introduced. For this
purpose, the Committee took into consideration the following
features of our policy:
-- Shares delivered to executive Directors as part of the FPA
have a five-year retention period, which continues to apply
following a departure of an executive Director.
-- Shares delivered as part of an annual incentive award are
subject to a one-year retention period, which continues to apply
following a departure of an executive Director.
-- LTI awards have a seven-year vesting period with a one-year
post-vesting retention period, which is not accelerated on
departure. Therefore, when an executive Director ceases employment
as a good leaver under our policy, any LTI awards granted will
continue to be released over a period of up to eight years, subject
to the outcome of performance conditions.
Executive Directors have a five-year period to meet the
shareholding requirement under our policy. On cessation of
employment as a good leaver after this period, they will hold
shares not subject to further performance conditions equivalent in
value to more than 400% of salary, assuming they receive a target
payout of 50% for LTI awards. These shares will be released over a
period of up to eight years.
We believe our existing policy structure achieves the objective
of ensuring there is ongoing alignment of executive Directors'
interests with shareholder experience post-cessation of their
employment.
We also considered whether the combined vesting and retention
period for our LTI awards meets the five-year holding period
(aggregate of vesting and retention period) that is expected by
investors. We believe the seven-year vesting period and the
one-year post-vesting retention period applied to shares granted
under the LTI aligns with investor expectations as the share awards
will be released over a period of eight years with a
weighted-average holding period of six years.
Shareholder views
The proposed policy was discussed with a number of our large
shareholders and proxy advisory bodies. They have been supportive
of the policy and the simplification of our approach was well
received.
The engagement with shareholders and proxy advisory bodies has
been valuable, and our aim is to continue this dialogue as we
implement the proposed policy over the following years.
Directors' remuneration policy
The following tables set out our remuneration policy for
executive Directors.
Remuneration policy - executive Directors
Fixed pay
Base salary To attract and retain key talent by being market competitive
and rewarding ongoing contribution to role.
-------------------- -------------------------------------------------------------------
Operation Base salary reflects the individual's role, experience
and responsibility.
Base salaries are benchmarked on an annual basis against
relevant comparator groups and may be reviewed more frequently
at the discretion of the Committee. The Committee reviews
and approves changes, taking into consideration local
requirements, employee increases and market competitiveness.
Maximum opportunity Other than in exceptional circumstances, the base salary
for the current executive Directors will not increase
by more than 15% above the level at the start of the policy
period, as set out on page 197, in total for the duration
of this policy.
-------------------- -------------------------------------------------------------------
Fixed pay allowance To deliver a level of fixed pay required to reflect the
('FPA') role, skills and experience of the Directors and to maintain
a competitive total remuneration package for retention
of key talent.
-------------------- -------------------------------------------------------------------
Operation Fixed pay allowances ('FPAs') are non-pensionable and
will be granted in four instalments of immediately vested
shares per year, or at any other frequency that the Committee
deems appropriate.
On vesting, shares equivalent to the net number of shares
delivered (after those sold to cover any income tax and
social security) will be subject to a retention period
and released annually on a pro-rata basis over five years,
starting from the March immediately following the end
of the financial year in respect of which the shares are
granted.
Dividends will be paid on the vested shares held during
the retention period.
The Committee retains the discretion to amend the retention
period and/or pay the FPA in cash if required to do so
to meet any regulatory requirements.
Maximum opportunity FPAs are determined based on the role, skills and responsibility
of each individual and taking into account market competitiveness
of the total remuneration opportunity and other elements
of remuneration set in this policy.
Other than in exceptional circumstances, the FPA for the
duration of this policy will be capped at 150% of base
salary levels at the start of this policy.
-------------------- -------------------------------------------------------------------
Cash in lieu To attract and retain key talent by being market competitive.
of pension
-------------------------------------------------------------------
Operation Directors receive a cash allowance in lieu of a pension
entitlement.
Maximum opportunity 30% of base salary. This is equivalent to 16% of salary
after income tax and social security and aligned with
the aggregate of contributions that HSBC can make to the
defined contribution plan for the majority of our UK employees
(currently employer contribution of 10% on the first GBP21,200
of salary, 9% on salary above GBP21,200 and additional
matching contribution of up to 7%). The Committee retains
the discretion to reduce the maximum opportunity to ensure
it remains aligned with the pension contribution percentage
available for the majority of the UK workforce.
-------------------- -------------------------------------------------------------------
Benefits and all employee share plans
Benefits To provide benefits in accordance with local market practice.
-------------------- ----------------------------------------------------------------
Operation Benefits take account of local market practice and include,
but are not restricted to:
* all taxable benefits (gross value before payment of
tax) including provision of medical insurance,
accommodation, car, club membership, independent
legal advice in relation to a matter arising out of
the performance of employment duties for HSBC, tax
return assistance or preparation and travel
assistance (including any associated tax due, where
applicable); and
* non-taxable benefits including the provision of
health assessment, life assurance and other insurance
coverage.
The Group Chief Executive is also eligible to be provided
with accommodation and car benefit in Hong Kong. Any tax
and/or social security due on this benefit will be paid
by HSBC.
Additional benefits may also be provided when an executive
is relocated or spends a substantial proportion of his/her
time in more than one jurisdiction for business needs
or in such other circumstances as the Committee may determine
in its discretion. Such benefits could include, but are
not restricted to, airfare, accommodation, shipment, storage,
utilities, and any tax and social security that may be
due in respect of such benefits.
Maximum opportunity The maximum opportunity is determined by the nature of
the benefit provided. The benefit amount will be disclosed
in the single figure of remuneration table for the relevant
year.
All employee To promote share ownership by all employees.
share plans
-------------------- ----------------------------------------------------------------
Operation Executive Directors are entitled to participate in all
employee share plans, such as the HSBC Sharesave, on the
same basis as all other employees.
Under the Sharesave, executive Directors can make monthly
savings over a period of three or five years towards the
grant of an option over HSBC shares. The option price
can be at a discount, currently up to 20%, on the share
price at the time that the option is granted.
Maximum opportunity The maximum number of options is determined by the maximum
savings limit set by HM Revenue and Customs. This is currently
GBP500 per month.
-------------------- ----------------------------------------------------------------
Variable pay
Adhering to the HSBC Values is a prerequisite to be considered for
any variable pay. Executive Directors receive a performance and behaviour
rating that is considered by the Committee in determining the variable
pay awards.
Annual incentive To drive and reward performance against annual financial
and non-financial objectives that are consistent with the
strategy and align to shareholder interests.
-------------------------------------------------------------------
Operation Awards are discretionary and can be delivered in any combination
of cash and shares under the HSBC Share Plan 2011 ('HSBC
Share Plan'). Shares will not represent less than 50% of
any award and are normally immediately vested.
On vesting, shares equivalent to the net number of shares
that vested (after those sold to cover any income tax and
social security payable) must be held for a retention period
up to one year, or such other period as required by regulators.
The awards will be subject to clawback (i.e. repayment
or recoupment of paid/vested awards) on or after vesting
for a period of seven years from the date of award. This
may be extended to 10 years in the event of an ongoing
internal/regulatory investigation at the end of the seven-year
period. Details of the clawback provision are set out in
the following section on LTI awards.
The Committee retains the discretion to:
* apply a longer retention period;
* increase the proportion of the award to be delivered
in shares; and
* defer the vesting of a portion of the awards, which
will be subject to malus (i.e. reduction and/or
cancellation of unvested awards) provisions during
any applicable deferral period.
Any deferred shares may be entitled to dividend equivalents
during the vesting period, which will be paid on vesting.
Where awards do not receive dividend equivalents during
the vesting period (to meet regulatory requirements), the
number of shares to be awarded will be determined using
a share price discounted for the expected dividend yield.
Any deferred cash award may be entitled to notional return
during the deferral period as determined by the Committee.
Maximum opportunity The maximum opportunity for the annual incentive award,
in respect of a financial year, is up to 215% of base salary.
Performance Performance is measured against an annual scorecard, based
metrics on targets set for financial and non-financial measures.
The scorecards vary by individual.
Measures with financial targets will generally have a weighting
of 60% for the Group Chief Executive, 50% for the Group
Chief Financial Officer and 25% for the Group Chief Risk
Officer.
The Committee will assess performance against the targets
set to determine the level of achievement. The overall
payout of the annual incentive could be between 0% (for
below threshold performance) and 100% of the maximum.
At threshold level of performance set in the scorecard
for each measure, 25% of the award opportunity for that
measure will pay out, whereas 100% of the award opportunity
will pay out for achieving maximum performance set in the
scorecard. Payout will be determined on a straight-line
basis between threshold and maximum performance. The Committee
can reduce (to zero if appropriate) the annual incentive
payout based on the outcome of the performance measures,
if it considers that the payout determined does not appropriately
reflect the overall position and performance of the Company
during the performance period.
The Committee has the discretion to:
* change the overall weighting of the measures with
financial targets and non-financial measures;
* vary the measures and their respective weightings
within each category. The specific performance
measures will be disclosed in the 'annual report on
remuneration' for the relevant year; and
* make adjustments to performance targets to reflect
significant one-off items or exceptional events that
occur during the measurement period. Full and clear
disclosure of any such adjustments will be made
within the annual report on remuneration at the end
of the performance year, subject to commercial
confidentiality.
-------------------- -------------------------------------------------------------------
Long-term incentives To incentivise sustainable long-term performance and alignment
('LTI') with shareholder interests.
--------------------------------------------------------------------
Operation Awards are discretionary and are granted if the Committee
considers that there has been satisfactory performance
over the prior year. The awards are granted as rights to
receive shares under the HSBC Share Plan, subject to a
forward-looking three-year performance period from the
start of the financial year in which the awards are granted.
At the end of the performance period, the performance outcome
will be used to assess the percentage of the awards that
will vest. These shares will then normally vest in five
equal instalments, with the first vesting on or around
the third anniversary of the grant date and the last instalment
vesting on or around the seventh anniversary of the grant
date, in accordance with the PRA remuneration rules.
On each vesting, shares equivalent to the net number of
shares that vested (after those sold to cover any income
tax and social security payable) must be held for a retention
period up to one year or such other period as required
by regulators.
Awards are subject to malus provisions prior to vesting.
The awards will also be subject to clawback on or after
vesting for a period of seven years from the date of award.
This may be extended to 10 years in the event of an ongoing
internal/regulatory investigation at the end of the seven-year
period. Details of the malus and clawback provisions are
set out in the bottom section of this table.
Awards may be entitled to dividend equivalents during the
vesting period, which will be paid on vesting. Where awards
do not receive dividend equivalents during the vesting
period (to meet regulatory requirements), the number of
shares to be awarded will be determined using a share price
discounted for the expected dividend yield.
The Committee may adjust or amend awards in accordance
with the rules of the HSBC Share Plan.
Maximum opportunity The maximum opportunity for the LTI award, in respect of
a financial year, is up to 320% of base salary.
Performance The Committee will take into consideration prior performance
metrics when assessing the value of the LTI grant. Forward-looking
performance is measured against a long-term scorecard.
Financial measures will generally have a weighting of 60%
or more.
The Committee will assess performance against the targets
set to determine the level of achievement and the overall
payout level could be between 0% (for below threshold performance)
and 100% of the maximum.
At threshold level of performance set in the scorecard
for each measure, 25% of the award opportunity for that
measure will vest. Up to 50% will vest for achieving the
target level of performance set for each measure, while
100% of the award will vest for achieving the maximum level
of performance set for each measure. Where performance
achieved is between the threshold, target and maximum level
of performance set in the scorecard, the number of awards
that will vest will be determined on a straight-line basis.
The Committee can reduce (to zero if appropriate) the LTI
payout based on the outcome of the performance measures,
if it considers that the payout determined does not appropriately
reflect the overall position and performance of the Company
during the performance period.
The scorecard outcome may also be subject to a risk and
compliance and/or a capital underpin under which the Committee
will have the discretion to adjust down the overall scorecard
outcome, taking into account performance against those
factors. Performance targets will normally be set annually
for each three-year cycle. The Committee has the discretion
to:
* change the overall weighting of the financial and
non-financial measures;
* vary the measures and their respective weightings
within each category. The specific performance
measures will be disclosed in the 'annual report on
remuneration' for the relevant year;
* vary the underpin measures; and
* make adjustments to performance targets, measures,
weighting and/or outcomes in exceptional
circumstances. This may be to reflect significant
one-off items that occur during the measurement
period and/or if events happen that cause it to
determine that original targets or conditions are no
longer appropriate and that amendment is required so
that the targets or conditions achieve their original
purpose. Revised targets/measures will be, in the
opinion of the Committee, no less difficult to
satisfy than the original conditions. Full and clear
disclosure of any such adjustments will be made
within the 'annual report on remuneration', subject
to commercial confidentiality.
Malus and clawback The Committee has the discretion to operate malus and clawback
(applicable provisions.
to both annual Malus can be applied to unvested awards in circumstances
incentive and including:
long-term incentive) * detrimental conduct, including conduct that brings
the business into disrepute;
* past performance being materially worse than
originally reported;
* restatement, correction or amendment of any financial
statements; and
* improper or inadequate risk management.
Clawback can be applied to vested or paid awards for a
period of seven years from the grant date. This may be
extended to 10 years in the event of ongoing internal/regulatory
investigation at the end of the seven-year period. Clawback
may be applied in circumstances including:
* participation in, or responsibility for, conduct that
results in significant losses;
* failing to meet appropriate standards and propriety;
* reasonable evidence of misconduct or material error
that would justify, or would have justified, summary
termination of a contract of employment;
* a material failure of risk management suffered by
HSBC or a business unit in the context of Group risk
management standards, policies and procedures; and
* any other circumstances required by local regulatory
obligations to which any member of the HSBC Group or
its subsidiary is subject.
---------------------- --------------------------------------------------------------------
Other
Shareholding To ensure appropriate alignment with the interest of our
guidelines shareholders.
-------------------- -----------------------------------------------------------------
Operation Executive Directors are expected to satisfy the following
shareholding requirement as a percentage of base salary
within five years from the date of their appointment:
* Group Chief Executive: 400%
* Group Chief Financial Officer: 300%
* Group Chief Risk Officer: 300%
HSBC operates an anti-hedging policy under which individuals
are not permitted to enter into any personal hedging strategies
in relation to HSBC shares subject to a vesting and/or
retention period.
Maximum opportunity Not applicable.
-------------------- -----------------------------------------------------------------
Provisions of previous policy that will continue to apply
---------------------------------------------------------------------------------------
2013-2015 Group Performance Share Plan ('GPSP'), LTI awards, deferred
cash and share awards.
Operation Vesting of outstanding deferred cash and share-based awards
granted in prior years will continue to form part of the
remuneration policy until vesting.
The awards normally vest over a period of up to seven
years from the date of grant. On vesting, shares equivalent
to the net number of shares that vested (after those sold
to cover income tax and social security payable) will
be subject to the applicable retention period set out
at the time of the award.
The awards will also be entitled to dividend equivalents
and notional returns (for deferred cash awards), in accordance
with their terms as set at the time of grant of the awards.
Maximum opportunity The maximum opportunity is based on the award levels determined
in the relevant prior year and as disclosed in the relevant
Directors' remuneration report.
Performance The vesting of these awards is subject to a service condition
metrics and performance conditions as set out in the terms of
the awards at the time of grant.
-------------------- -----------------------------------------------------------------
The Committee reserves the right to make any remuneration
payments and payments for loss of office, notwithstanding that they
are not in line with the policy set out above, where the terms of
the payment were agreed:
-- before the policy set out above or any previous policy came into effect;
-- at a time where a previous policy, approved by shareholders,
was in place provided the payment is in line with the terms of that
policy; or
-- at a time when the relevant individual was not a Director of
the Company and the payment was not in consideration for the
individual becoming a Director of the Company.
In addition to the specific discretions expressly set out in the
policy, the incentive plans include a number of operational
discretions available to the Committee, including:
-- the right to grant awards in the form of conditional share
awards or options (including nil-cost options);
-- the right to amend a performance condition in accordance with
its terms, or if anything happens that causes the Committee to
consider it appropriate to do so;
-- the right to settle the award in cash, based on the relevant
share price, or shares as appropriate; and
-- the right to adjust the award on a variation of share capital
or other corporate event that affects the current or future value
of the award, or alternatively, the right to vest the award early
in such circumstances.
Choice of performance measures and targets
The performance measures selected for the annual incentive and
LTI awards will be set on an annual basis by the Committee, taking
into account the Group's strategic priorities and any feedback
received from our shareholders. The following table sets out the
performance measures we currently consider for inclusion in our
scorecards. The Committee retains the discretion to choose other
measures that are considered to be appropriate for achieving our
strategic priorities and meeting any regulatory expectation.
The targets for the performance measures will be set taking into
account a number of factors, including the targets set in our
annual operating plan, our strategic priorities, the economic
environment, market conditions and expectations, and risk
appetite.
Performance measures
Financial Measures are
measures * Profit before tax * RoTE selected to
incentivise
the
* Return on tangible equity ('RoTE') * Total shareholder return achievement
of our
financial
* Revenue growth to exceed growth in operating expenses * Underpin to maintain a minimum CET1 ratio targets as set
('positive jaws') out in our
strategic
priorities and
* Revenue growth annual
operating
plan.
* Tier 1/common equity tier 1 ('CET1') metrics
Strategic Measures are
measures * Increase returns from areas of strength * Improve environment, social and governanc selected to
e scores support the
delivery of
* Turn around low return businesses our strategic
* Improve employer advocacy priorities.
* Improve customer service
* Strengthen external relationships
* Succession planning and diversity
----------- ------------------------------------------------------------ ------------------------------------------------ ---------------
Risk and Underpin linked Measures are
compliance * Achieve sustained delivery of global conduct outcomes to risk and chosen to
measures and effective financial crime risk management compliance ensure
and/or performance a high level
underpin of
* Effectively manage material operational risks in accountability
support of strategic priorities of risk and
conduct, to
promote an
* Comply with 2018 FX DPA, the three-year deferred effective
prosecution agreement with the US Department of risk
Justice ('DoJ'), regarding fraudulent conduct in management
connection with two particular transactions in 2010 environment
and 2011. and to embed
a robust
governance
system.
----------- ------------------------------------------------------------ ------------------------------------------------ ---------------
Remuneration arrangement for Group employees
Our wider employee remuneration policy is driven by the Group
reward strategy, which the Committee reviewed to ensure it
continues to support HSBC's overall employment proposition to
attract, retain and motivate the best people, who are aligned to
HSBC's values and committed to maintaining a long-term career
within the Group. Full details of our remuneration policy for
employees are disclosed on page 199.
The Committee considers the following factors in designing the
remuneration policy and determining the remuneration of executive
Directors:
-- Results of employee surveys on the effectiveness of our
remuneration framework: This informs the Committee's decisions on
remuneration of executive Directors.
-- Group employees' base salary increases: The base salary
increases for executive Directors take into consideration base
salary increases of employees, taking into account relevant market
conditions.
-- Group employees' pension plans design and contribution
levels: The net value of the cash in lieu of pension allowance for
executive Directors will not exceed the maximum contribution (as a
percentage of salary) that can be made for the majority of UK
employees.
-- Annual incentive eligibility and quantum for Group employees:
All employees are eligible to be considered for an annual incentive
award based on their performance and behavioural ratings. The
variable pay for all employees, including executive Directors, is
funded from a Group variable pay pool that is determined by
reference to Group performance. Employees who receive an annual
incentive above a certain level have a portion of their award
deferred over a period of three to seven years.
-- LTI awards: This is generally considered for senior
management within the Group, given their proximity and ability to
influence long-term performance.
Approach to recruitment remuneration - executive Directors
On the recruitment or appointment of a new executive Director,
the Committee would adhere to the following principles:
-- Remuneration packages should be in line with the approved policy for executive Directors.
-- Remuneration packages must meet any applicable local regulatory requirements.
-- Where necessary, compensation may be provided in respect of
forfeiture of awards from an existing employer (buy-out
awards).
Outlined in the following table are all components that would be
considered for inclusion in the remuneration package of a new
executive Director and, for each, the approach that would be
adopted.
In the case of an internal appointment, any existing commitments
will be honoured and any variable element awarded in respect of the
prior role may be allowed to be paid out according to its existing
terms.
Components of remuneration package of a new executive Director
Fixed pay The base salary and FPA will reflect the individual's role,
experience and responsibility, and will be set in the context
of market practice.
The pension will be determined in line with policy as set out
in the remuneration policy table and equivalent contributions
(as a percentage of salary) made for the majority of UK employees
at the time of recruitment. The Committee reserves the right
to offer a pension level that may be lower than the current
maximum level permitted under the policy.
Benefits Benefits to be provided will be dependent on circumstances
while in line with Group policy and the remuneration policy
table, including the global mobility policy (where applicable)
and local regulations.
Variable New joiners will be eligible to be considered for variable
pay awards pay awards consisting of an annual incentive and/or LTI award
(or any combination of variable pay).
For the year in which the individual commences providing services
as an executive Director, the Committee retains the discretion
to determine the proportion of variable pay to be deferred,
the deferral and retention period, whether any performance
conditions should be applied, and the period over which such
performance should be assessed. In exercising this discretion,
the Committee will take into account the circumstances in which
the individual is appointed (for example, if it is promotion
of an internal candidate or an external appointment), expectation
of shareholders and any regulatory requirements.
Total variable pay awarded for the year of joining HSBC will
be limited to 535% of base salary. This limit excludes buy-out
awards and is in line with the aggregate maximum variable pay
opportunity set out in the remuneration policy table.
Guaranteed bonuses are only permitted by exception and must
be limited to the first year of service, subject to the Group
deferral policy and performance requirements.
Buy-out A buy-out may be offered if the individual holds any outstanding
unvested awards that are forfeited on resignation from the
previous employer.
The Group buy-out policy is in line with the PRA remuneration
rules, which state that both the terms and amount of any replacement
awards will not be more generous than the award forfeited on
departure from the former employer.
A buy-out award is delivered as HSBC deferred shares with vesting
and retention periods to match the terms of forfeited awards
with the previous employer as closely as possible, subject
to proof of forfeiture and other relevant documentation. Where
the vesting time is fewer than 90 days, cash or deferred cash
may be awarded for administrative purposes.
Where appropriate, the Committee retains the discretion to
utilise the provisions provided in the Listing Rules for the
purpose of making buy-out awards.
------------ ----------------------------------------------------------------------
Policy on payments for loss of office - executive Directors
The following table sets out the basis on which payments on loss
of office may be made. Other than as set out in the table, there
are no further obligations that could give rise to remuneration
payments or payments for loss of office:
Payments on loss of office
Fixed pay and benefits Executive Directors may be entitled to payments in lieu
of:
* notice, which may consist of base salary, FPA,
pension entitlements and other contractual benefits,
or an amount in lieu of; and/or
* accrued but untaken holiday entitlement.
Payments may be made in instalments or a lump sum, and
may be subject to mitigation, and subject to applicable
tax and social security deductions.
Annual incentive In exceptional circumstances, as determined by the Committee,
and an executive Director may be eligible for the grant
LTI of annual and/or long-term incentives under the HSBC
Share Plan based on the time worked in the performance
year and on the individual's contribution.
Unvested awards All unvested awards will be forfeited when an executive
Director ceases employment voluntarily and is not deemed
a good leaver. An executive Director may be considered
a good leaver, under the HSBC Share Plan, if their employment
ceases in specified circumstances which includes:
* ill heath, injury or disability, as established to
the satisfaction of the Committee;
* retirement with the agreement and approval of the
Committee;
* the employee's employer ceasing to be a member of the
Group;
* redundancy with the agreement and approval of the
Committee; or
* any other reason at the discretion of the Committee.
If an executive Director is considered a good leaver,
unvested awards will normally continue to vest in line
with the applicable vesting dates, subject to performance
conditions, the share plan rules, and malus and clawback
provisions.
In the event of death, unvested awards will vest and
will be released to the executive Director's estate
as soon as practicable.
In respect of outstanding unvested awards, the Committee
may determine that good leaver status is contingent
upon the Committee being satisfied that the executive
has no current or future intention at the date of leaving
HSBC of being employed by any competitor financial services
firm. The Committee determines the list of competitor
firms from time to time, and the length of time for
which this restriction applies. If the Committee becomes
aware of any evidence to the contrary before vesting,
the award will lapse.
Post-departure Executive Directors can be provided certain benefits
benefits for up to a maximum of seven years from date of departure
for those who depart under good leaver provisions under
the HSBC Share Plan, in accordance with the terms of
the policy. Benefits may include, but are not limited
to, medical coverage, tax return preparation assistance
and legal expenses.
The Committee also has the discretion to extend the
post-departure benefit of medical coverage to former
executive Directors, up to a maximum of seven years
from their date of departure.
Other Where an executive Director has been relocated as part
of their employment, the Committee retains the discretion
to pay the repatriation costs. This may include, but
is not restricted to, airfare, accommodation, shipment,
storage, utilities, and any tax and social security
that may be due in respect of such benefits.
Except in the case of gross misconduct or resignation,
an executive Director may also receive retirement gifts.
----------------------- ---------------------------------------------------------------
Legal claims The Committee retains the discretion to make payments
(including professional and outplacement fees) to mitigate
against legal claims, subject to any such payments being
made in accordance with the terms of an appropriate
settlement agreement waiving all claims against the
Group.
Change of control In the event of a change of control, outstanding awards
will be treated in line with the provisions set out
in the respective plan rules.
----------------------- ---------------------------------------------------------------
Other directorships
Executive Directors may accept appointments as non-executive
Directors of companies that are not part of HSBC if so authorised
by either the Board or the Nomination & Corporate Governance
Committee.
When considering a request to accept a non-executive
appointment, the Board or the Nomination & Corporate Governance
Committee will take into account, among other things, the expected
time commitment associated with the proposed appointment. The time
commitment for external appointments is also routinely reviewed to
ensure that they will not compromise the Directors' commitment to
HSBC.
Any remuneration receivable in respect of an external
appointment of an executive Director is normally paid to the Group
unless otherwise approved by the Nomination & Corporate
Governance Committee or the Board.
Remuneration scenarios
The following charts show how the total value of remuneration
(excluding benefits) and its composition would vary under different
performance scenarios for executive Directors under the proposed
policy, which will be effective from the date of the 2019 AGM,
subject to shareholders' approval.
The charts set out:
-- the minimum level of remuneration receivable under the policy for each performance year;
-- the remuneration level for achieving target level of
performance (which assumes 50% of maximum variable pay opportunity
is realised); and
-- the maximum level of remuneration (which assumes 100% of the
variable pay opportunity is realised), as well as the maximum value
assuming a 50% increase in share price for LTI awards.
The charts have been prepared using 2019 salaries and,
therefore, the annual incentive and LTI opportunities have been
computed as percentages of 2019 salaries.
Group Chief Executive (GBP000)
Group Chief Financial Officer / Group Chief Risk Officer (GBP000)
Remuneration policy - non-executive
Directors
The Nomination & Corporate Governance Committee has reviewed
and revised the time commitments required for all non-executive
Directors as the Board supports HSBC through its ambitious agenda
of governance reform, growth and organisational development in an
environment of increasing regulatory, political and organisational
complexity.
In 2018, the Board appointed Jonathan Symonds to the role of
Deputy Group Chairman, following his retirement as non-executive
Chairman of HSBC Bank plc. In this role, Jonathan formally
deputises for the Group Chairman, takes a leadership role in
relation to external high level regulatory and political
relationships,
and leads the Board in relation to specific projects. He
performs this new role in addition to his existing roles as Senior
Independent Director and Chair of the GAC. The fee for the Deputy
Group Chairman reflects Jonathan's experience and the additional
time he devotes to the Group in relation to this important
role.
Additionally, as set out on page 172, the demands and
expectations of the GRC Chair have increased significantly, leading
to the Group Remuneration Committee approving an increase to
Jackson Tai's fee for this position in 2018.
The following table sets out the framework that will be used to
determine the fees for non-executive Directors during the term of
this policy.
Fees The policy for non-executive Directors The Board will
To reflect the is to pay: review the amount
time commitment * base fees; of each component
and responsibilities of fees periodically
of a non-executive to assess whether,
Director of * further fees for additional Board duties, including individually and
HSBC Holdings. but not limited to chairmanship, membership of a in aggregate, they
committee, or acting as the Senior Independent remain competitive
Director and/or Deputy Chairman; and and appropriate
in light of changes
in roles, responsibilities
* travel allowances. and/or time commitment
of the non-executive
Directors, and
Fees are paid in cash. The Board retains to ensure that
the discretion to pay in shares rather individuals of
than cash where appropriate. the appropriate
The non-executive Group Chairman will calibre are retained
be paid a fixed annual fee for all Board or appointed.
responsibilities based on their experience Other than in exceptional
and the time commitments expected for circumstances,
the role, together with such other benefits during the term
as the Group Remuneration Committee may of this policy,
in its absolute discretion determine. fees will not increase
A newly appointed non-executive Director by more than 20%
would be paid in line with the policy above the 2019
on a time-apportioned basis in the first levels.
year as necessary. No sign-on payments Travel allowances
are offered to non-executive Directors. are set at an appropriate
The Board (excluding the non-executive level, taking into
Directors) has discretion to approve changes account the time
to the fees. The Board may also introduce requirement for
any new component of fees for non-executive non-executive Directors
Directors, subject to the principles, to travel to overseas
parameters and other requirements set meetings.
out in this remuneration policy. Any new fees, allowance
Certain non-executive Directors may be or component part
entitled to receive fees for their services (for example, for
as directors of subsidiary companies of a new committee)
HSBC Holdings plc. Such additional remuneration would be set and
is determined by the Board of Directors then subject to
of each relevant subsidiary within a framework a maximum of 20%
set by the Committee. increase for the
duration of the
policy.
Expenses Any taxable or other expenses incurred Not applicable
in performing their role are reimbursed,
as well as any related tax cost on such
reimbursement.
----------------------------
Shareholding Non-executive Directors, individually Not applicable
guidelines or with their connected persons, are expected
To ensure appropriate to satisfy a shareholding guideline of
alignment with 15,000 shares within five years from their
the interests appointment.
of our shareholders. The Committee reviews compliance with
the guidelines annually. The Committee
has full discretion in determining any
consequences in cases of non-compliance.
----------------------- ----------------------------------------------------------- ----------------------------
The following table sets out the fees payable in 2019, subject
to shareholder approval of the Directors' remuneration policy at
the AGM.
2019 fees
Position GBP
Non-executive Group Chairman 1,500,000
Non-executive Director (base fee) 127,000
Deputy Group Chairman and Senior Independent Director 375,000
---------------------------------------------------------------- ---------
Senior Independent Director -
------------------------------------------------------- ---------
Group Risk Committee Chair 150,000
---------
Member 40,000
--------------------------------------------------------------- ---------
Group Audit, Group Remuneration and Financial System
Vulnerabilities Committee Chair 75,000
-------
Member 40,000
Nomination & Corporate Governance Committee Chair -
------------------------------------------------------- ------- ---------
Member 33,000
--------------------------------------------------------------- ---------
Travel allowances are also currently provided. The Committee
intends to review such travel allowances during 2019, in light of
the increased travel expectations for non-executive Directors to
attend Board meetings. Details on any changes will be set out in
the Annual Report and Accounts 2019.
Policy on payments on loss of office - non-executive
Directors
Other than as set out above, there are no obligations in the
non-executive Directors' letters of appointment that could give
rise to remuneration payments or payments for loss of office.
Non-executive Directors are entitled to notice under their letter
of appointment.
Service contracts
Executive Directors
The length of service and notice periods of executive Directors
are set at the discretion of the Committee, taking into account
market practice, governance considerations, and the skills and
experience of the particular candidate at that time.
Notice period
Contract date (Director
(rolling) and HSBC)
------------------- ------------- -------------
John Flint(1) 21 February
2018 12 months
10 February
Stuart Gulliver(2) 2011 12 months
------------------- ------------- -------------
1 December
Ewen Stevenson(3) 2018 12 months
------------------- ------------- -------------
4 February
Iain Mackay(4) 2011 12 months
------------------- ------------- -------------
Marc Moses 27 Nov 2014 12 months
------------------- ------------- -------------
1 John Flint was appointed as Group Chief Executive with effect from 21 February 2018.
2 Stuart Gulliver stepped down from the Board on 20 February
2018 and retired from the Group on 11 October 2018.
3 Ewen Stevenson was appointed as executive Director and Group
Chief Financial Officer of the Company on 1 January 2019, having
joined the Group on 1 December 2018.
4 Iain Mackay stepped down as executive Director and Group
Finance Director on 31 December 2018.
Service agreements for each executive Director are available for
inspection at HSBC Holdings' registered office. Consistent with the
best interests of the Group, the Committee will seek to minimise
termination payments. Directors may be eligible for a payment in
relation to statutory rights.
The Directors' biographies are set out on pages 153 to 155, and
include those directorships provided for under Capital Requirement
Directive IV ('CRD IV').
Non-executive Directors
Non-executive Directors are appointed for fixed terms not
exceeding three years, which may be renewed subject to their
re-election by shareholders at AGMs. Non-executive Directors do not
have service contracts, but are bound by letters of appointment
issued for and on behalf of HSBC Holdings, which are available for
inspection at HSBC Holdings' registered office. There are no
obligations in the non-executive Directors' letters of appointment
that could give rise to remuneration payments or payments for loss
of office.
Non-executive Directors' current terms of appointment will
expire as follows:
2019 AGM 2020 AGM 2021 AGM
Henri de Castries Kathleen Casey Mark Tucker
Irene Lee Laura Cha Heidi Miller
Pauline van der Meer Mohr David Nish
Jonathan Symonds
Jackson Tai
Lord Evans of Weardale
========================== ======================= =============
Annual report on remuneration
Remuneration Committee
Details of the roles, responsibilities and membership of the
Committee are set out on page 163. During 2018, members of the
Committee included Pauline van der Meer Mohr (Committee Chair),
John Lipsky (until 20 April 2018), David Nish, Irene Lee (appointed
on 20 April 2018) and Henri de Castries.
Activities
The Committee met six times during 2018. The following is a
summary of the Committee's key activities during 2018. A copy of
the Committee's terms of reference can be found on our website at
www.hsbc.com/about-hsbc/corporate-governance/board-committees.
Details of the Committee's key activities
* Approved Directors' remuneration report * Approved 2017/2018 performance year pay review
matters
* Considered executive Director remuneration policy
matters, including key principles for remuneration * Reviewed remuneration policy effectiveness
policy review, Directors' remuneration policy design
alternatives and structure
* Received updates on notable events and regulatory and
corporate governance matters
* Consulted with key shareholders and proxy advisory
bodies on executive Director remuneration matters,
including policy design and structure * Reviewed and approved 2018 Material Risk Taker
('MRT') identification approach, outcomes of MRT
review and remuneration matters for MRTs
* Reviewed and approved executive Director remuneration
matters
* Approved 2018 regulatory submissions
* Reviewed and approved executive Directors' scorecards
and pay proposals * Reviewed attrition data and plans to address area of
concerns
------------------------------------------------------------ ------------------------------------------------------------
Advisers
The Committee received input and advice from different advisers
on specific topics during 2018. Deloitte LLP ('Deloitte') was
appointed by the Committee in 2015 as an objective, independent
adviser to support the Committee on specific remuneration matters
for executive Directors. The Committee made the appointment in 2015
after considering invited proposals from a number of consultancy
firms. In 2018, the Committee agreed to extend Deloitte's
appointment for a further period of one year. Deloitte provided
benchmarking data on remuneration policy matters and independent
advice to the Committee. The Committee may request ad-hoc
assistance from Deloitte.
The Committee also received advice from Willis Towers Watson on
market data and remuneration trends for senior management.
Deloitte also provided tax compliance and other advisory
services to the Group. Willis Towers Watson also provides
benchmarking data and services related to benefits administration
for our Group employees. To ensure the advice from Deloitte and
Willis Towers Watson was objective, the Committee required the
advice to be independent and distinct from any internal review and
analysis on remuneration policy matters. The Committee was
satisfied the advice provided by Deloitte and Willis Towers Watson
was objective and independent in 2018. Deloitte is a founding
member of the Remuneration Consultants Group and voluntarily
operates under the code of conduct in relation to executive
remuneration consulting in the UK.
For 2018, total fees of GBP155,750 and GBP59,400 were incurred
in relation to remuneration advice provided by Deloitte and Willis
Towers Watson, respectively. This was based on pre-agreed fees and
a time-and-materials basis.
During the year, John Flint, the Group Chief Executive, provided
regular briefings to the Committee. In addition, the Committee
engaged with and received updates from the following employees:
-- Iain Mackay, Group Finance Director;
-- Marc Moses, Group Chief Risk Officer;
-- Stuart Levey, Chief Legal Officer;
-- Charlie Nunn, Chief Executive Officer, Retail Banking and Wealth Management;
-- Elaine Arden, Group Chief Human Resources Officer;
-- Alexander Lowen, Group Head of Performance and Reward;
-- Colin Bell, Group Chief Compliance Officer;
-- Pam Kaur, Group Head of Internal Audit;
-- Ralph Nash, Global Head of Financial Crime Compliance and
Group Money Laundering Reporting Officer;
-- Ruth Horgan, Global Head of Regulatory Compliance; and
-- Ben Mathews, Group Company Secretary.
The Committee also received feedback and input from the Group
Risk Committee and the Financial System Vulnerabilities Committee
('FSVC') on risk, conduct and compliance-related matters relevant
to remuneration. No executive Directors are involved in deciding
their own remuneration.
Single figure of remuneration
(Audited)
The following table shows the single figure total remuneration
of each executive Director for 2018, together with comparative
figures
for 2017.
Single figure of remuneration
Cash
Fixed in lieu
Base pay of Annual AML DPA Taxable Non-taxable Notional
salary allowance pension incentive award(1) LTI(2) Sub-total benefits benefits returns Total
(GBP000) (GBP000) (GBP000) (GBP000) (GBP000) (GBP000) (GBP000) (GBP000) (GBP000) (GBP000) (GBP000)
------------- ------ -------- --------- -------- --------- -------- -------- --------- -------- ----------- -------- ----------
John
Flint(3) 2018 1,028 1,459 308 1,665 - - 4,460 40 28 54 4,582
-------------
2017 - - - - - - - - - - -
------------- -------- --------- -------- --------- -------- -------- --------- -------- ----------- -------- --------
Stuart
Gulliver(4,
6) 2018 171 241 51 282 1,530 - 2,275 65 6 41 2,387
-------------
2017 1,250 1,700 375 2,127 - - 5,452 500 71 63 6,086
-------- --------- -------- --------- -------- -------- --------- -------- ----------- -------- --------
Iain
Mackay(5,
6) 2018 700 950 210 1,088 1,057 - 4,005 80 44 33 4,162
-------------
2017 700 950 210 1,334 - - 3,194 64 37 42 3,337
-------- --------- -------- --------- -------- -------- --------- -------- ----------- -------- --------
Marc Moses 2018 700 950 210 1,324 695 - 3,879 13 38 33 3,963
-------------
2017 700 950 210 1,358 - - 3,218 16 38 42 3,314
-------------------- -------- --------- -------- --------- -------- -------- --------- -------- ----------- -------- --------
1 60% of the 2012 annual incentive for Stuart Gulliver and Iain
Mackay disclosed in the 2012 Directors' remuneration report was
deferred for five years. The vesting of these awards was subject to
a service condition and satisfactory completion of the five-year
deferred prosecution agreement ('AML DPA') with the US Department
of Justice ('DoJ'). The AML DPA condition was satisfied in March
2018 and the awards were released to the executive Directors. For
Marc Moses, the value of the award attributable to services
provided as an executive Director between 1 January 2014 and the
vesting date has been included in the table.
2 The first LTI award was made in February 2017, with a
performance period ending in 2019. Vesting of the first LTI award
will be included in the single figure table for the financial year
ending on 31 December 2019.
3 John Flint succeeded Stuart Gulliver as Group Chief Executive
with effect from 21 February 2018 and his remuneration in the
single figure table of remuneration is in respect of services
provided as an executive Director. For services rendered between 1
January 2018 and 20 February 2018, he received a salary of
GBP97,139, fixed pay allowance of GBP130,236, cash in lieu of
pension of GBP28,000 and an annual incentive award of
GBP271,000.
4 Stuart Gulliver stepped down from the Board on 20 February
2018 and retired from the Group on 11 October 2018. His
remuneration in the single figure table of remuneration is in
respect of services provided as an executive Director. Further
details can be found on page 190.
5 Iain Mackay stepped down as executive Director and Group
Finance Director on 31 December 2018.
6 To meet regulatory deferral requirements for 2018, 60% of the
annual incentive award of Stuart Gulliver and Iain Mackay will be
deferred in awards linked to HSBC's shares and will vest in five
equal instalments between the third and seventh anniversary of the
grant date. On vesting the awards will be subject to a one-year
retention period. The deferred awards are subject to the executive
Director maintaining a good leaver status during the deferral
period.
Illustration of release profile
The following chart provides an illustrative release profile for
executive Directors.
Illustration of release profile
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 u
Fixed
pay
allowance
---------- ----
u u u u u
* Released in five equal annual instalments starting
from March 2019.
---------- ------------------------------------------------------------ ----- -------- --- ---- --- ----- ----- ----- ----- ----- ----- ----- ----
Annual Perform-ance
incentive period Shares
----------
u u u u
Clawback
u
* Paid 50% in cash and 50% in immediately vested shares
subject to a retention period of one year.
* Subject to clawback provisions for seven years from
grant, which may be extended to 10 years in the event
of an ongoing internal/regulatory investigation.
---------- ------------------------------------------------------------
Long-term Performance Vesting
incentive period period
----------
u u u u u u u
Retention u
period
u u u u
Malus
u
Clawback
u
* Award subject to a three-year forward-looking
performance period.
* Subject to performance outcome, awards will vest in
five equal annual instalments starting from the third
anniversary of the grant date.
* On vesting, shares are subject to a retention period
of one year.
* Unvested awards subject to malus provisions.
* Subject to clawback provisions for seven years from
grant, which may be extended to 10 years in the event
of an ongoing internal/regulatory investigation.
---------- ------------------------------------------------------------ ----- -------- --- ---- --- ----- ----- ----- ----- ----- ----- ----- ----
Notes to the single figure of remuneration
(Audited)
Benefits
In the single figure of remuneration table, 'benefits'
refers to all taxable benefits (gross value before payment of
tax), including the provision of medical insurance, accommodation
and car, club membership, as well as any tax gross-up. It also
includes non-taxable benefits, including the provision of life
assurance and other insurance coverage.
The values of the significant benefits in the single figure
table are set out in the following table.
(Audited)
Tax expense
Car benefit on car benefit
(UK and Hong Hong Kong bank-owned and Hong Kong Insurance benefit
Kong)(1) accommodation(1,2) bank-owned accommodation(1) (non-taxable)(1)
(GBP000) (GBP000) (GBP000) (GBP000)
----------------- ------ ------------- -------------------- --------------------------- -------------------
Stuart Gulliver 2018 - - - -
----------------- ------------- -------------------- --------------------------- -----------------
2017 - 282 164 63
------------------------ ------------- -------------------- --------------------------- -----------------
1 The car benefit, Hong Kong bank-owned accommodation, tax on
benefits and insurance benefits for 2018 for all executive
Directors are not included in the above table as they were not
significant. Taxable benefits during 2018 for Stuart Gulliver as an
executive Director includes GBP41,711 in respect of Hong Kong
bank-owned accommodation and GBP17,117 in respect of tax expense on
car benefit and Hong Kong bank-owned accommodation. Further details
regarding Stuart Gulliver's benefits between 21 February 2018 and
11 October 2018 are available on page 190.
2 Taxable value determined based on the current market rental
value of the bank-owned property in Hong Kong, as estimated by an
external lease service provider, plus utility costs, rates, the
taxable value of furniture and taking into account the business use
of the property.
Notional returns
In the single figure of remuneration table above, 'notional
returns' refers to the notional return on deferred cash for awards
made prior to 2017.
The deferred cash portion of the annual incentive granted prior
to 2017 includes a right to receive notional returns for the period
between grant date and vesting date, which is determined by
reference to the dividend yield on HSBC shares, calculated
annually.
A payment of notional return is made annually in the same
proportion as the vesting of the deferred awards on each vesting
date. The amount is disclosed on a paid basis in the year in which
the payment is made. No deferred cash awards have been made to
executive Directors under the current policy that has been operated
from the 2016 financial year.
Determining executive Directors' annual performance
(Audited)
Awards made to executive Directors reflected the Committee's
assessment of each of the executive Director's performance against
the objectives in their scorecards, which were agreed at the start
of the year and reflect the Group's strategic priorities and risk
appetite. The Committee also consulted the Group Risk Committee and
took into consideration its feedback on risk and compliance
matters.
In order for any annual incentive award to be made, each
executive Director must achieve a required behaviour rating,
which is assessed by reference to the HSBC Values. For 2018,
all executive Directors achieved the required behaviour
rating.
The performance achieved by executive Directors in the year is
shown in the table below. For John Flint and Stuart Gulliver, the
scorecard outcome, as determined below, has been applied to the
maximum annual incentive opportunity on a pro-rata basis, taking
into account the time spent by them in the Group Chief Executive
role.
Annual assessment
Group Chief Risk
Group Chief Executive Group Finance Director Officer
Weighting Assessment Outcome Weighting Assessment Outcome Weighting Assessment Outcome
(%) (%) (%) (%) (%) (%) (%) (%) (%)
---------- -------- --------- ---------- -------- --------- ---------- ----------
Profit
before
tax(1) 20.00 100.00 20.00 10.00 100.00 10.00 15.00 100.00 15.00
-------------
Positive
jaws 10.00 - - 15.00 - - - - -
------------- --------- ---------- -------- --------- ---------- -------- --------- ---------- --------
Revenue
growth 10.00 70.00 7.00 - - - - - -
------------- --------- --------- ---------
Capital
management
(RoTE) 10.00 58.75 5.88 25.00 58.75 14.69 10.00 58.75 5.88
------------- --------- --------- ---------
Strategic
priorities
------------- --------- --------- ---------
- Financials 7.50 78.53 5.89 2.50 100.00 2.50 2.50 100.00 2.50
------------- --------- ---------- -------- --------- ---------- -------- --------- ---------- --------
- Other
targets 17.50 96.46 16.88 22.50 98.62 22.19 12.50 94.88 11.86
------------- --------- ---------- -------- --------- ---------- -------- --------- ---------- --------
Risk and
compliance 25.00 80.00 20.00 25.00 95.00 23.75 60.00 89.58 53.75
------------- --------- ---------- -------- --------- ---------- -------- --------- ---------- --------
Total 100.00 75.65 100.00 73.13 100.00 88.99
--------- ---------- -------- --------- ---------- -------- --------- ---------- --------
Maximum
annual
incentive
opportunity
(GBP000) GBP1,488 GBP1,488
--------- ---------- -------- --------- ---------- -------- --------- ---------- ----------
- John Flint GBP2,560 - -
------------- --------- ---------- -------- --------- ---------- -------- --------- ---------- ----------
- Stuart
Gulliver GBP2,660 - -
------------- --------- ---------- -------- --------- ---------- -------- --------- ---------- ----------
Annual
incentive
(GBP000) GBP1,088 GBP1,324
------------- --------- ---------- -------- --------- ---------- -------- --------- ---------- ----------
- John Flint
(86%) GBP1,665 - -
------------- --------- ---------- -------- --------- ---------- -------- --------- ---------- ----------
- Stuart
Gulliver
(14%) GBP282 - -
------------- --------- ---------- -------- --------- ---------- -------- --------- ---------- ----------
Financial performance
Annual assessment
Minimum Maximum
(25% payout) (100% payout) Performance Assessment
-------------------------------
Measure
Profit before tax ($bn)(1) US$19.7 US$22.7 US$23.3 100.00
------------------------------- ------------- -------------- ------------- ----------
Positive jaws (%) Positive 1.5 (1.2) -
------------------------------- ------------- -------------- --------- ----------
Revenue growth (%) 2.0 6.0 4.4 70.00
------------------------------- ------------- -------------- --------- ----------
Capital management (RoTE%)(2) 9.3 11.3 10.2 58.75
------------------------------- ------------- -------------- --------- ----------
Strategic priorities(3) Various Various
------------------------------- ----------------------------- ---------------------------
1 Profit before tax, as defined for Group annual bonus pool
calculation. This definition excludes business disposal gains and
losses, debt valuation adjustments and variable pay expense. It
does however, take into account fines, penalties and costs of
customer redress, which are excluded from the adjusted profit
before tax. The adjusted profit before tax as per adjusted results
is found on page 2.
2 RoTE excluding significant items and bank levy.
3 Strategic priorities measures include: accelerate revenue
growth from our Asian franchise, grow international revenue, turn
around the US business, improve customer service, strengthen
external relationships, employee engagement, talent development and
diversity.
Non-financial performance
The table below provides an overview of the non-financial
performance achieved by each executive Director.
Group Chief Executive
Strategic priorities
* Deliver HSBC's strategy * Set out strategic priorities to return HSBC to growth
and create value for our shareholders. The strategy
was communicated in the Strategy Update in June 2018
* Turn around the US business to investors, shareholders and employees. Execution
of the strategy is underway.
* Accelerate revenue growth from our Asian franchise
* RoTE in the US business at 2.7% exceeded target of
2.2%, supported by favourable expected credit losses
* Deliver revenue growth from our international network and significant capital reductions. Commercial
Banking revenue grew by 7% and transaction banking
revenue in Global Banking and Markets rose 9%.
* Improve customer satisfaction
* Revenue growth of 11.4% in Asia was driven by
* Strengthen the Group's external relationships Commercial Banking as well as Retail Banking and
Wealth Management, reflecting wider spreads and
balance sheet growth, with double-digit revenue
* Improve employee engagement growth in Hong Kong, Pearl River Delta and mainland
China.
* Strengthen HSBC's leadership cadre
* Revenue growth from international clients was strong
at 7.2%; transaction banking revenue grew 14%, driven
* Improve diversity in senior leadership by double-digit growth across Global Liquidity and
Cash Management, Foreign Exchange and Securities
Services.
* Customer satisfaction rankings improved in key Retail
Banking and Wealth Management markets (first in
Mexico, Singapore and Hong Kong and second in UAE).
Rankings in Commercial Banking largely remained
unchanged, but required improvement with the
exception of the UK (third) and Singapore (third).
Customer engagement score ('CES') in Global Banking
and Markets at 85 was at par with the CES of our
competitors. In Global Private Banking, customer
satisfaction declined by 0.8 points from a mean of
8.4/10 in 2017 to 7.6/10 in the client engagement
programme survey. Action is being taken in all global
businesses to drive customer service improvements,
especially through investment in digital capability.
* Positive feedback was received on interactions with
investors and regulators, which found that they were
conducted with high professional competence and
embodying trust, respect and transparency.
* Employer advocacy, as a measure of employee
engagement, at the end of 2018 was 66% (2017: 64%),
which represents the number of employees who would
recommend HSBC as a great place to work.
* Succession plans are in place for all critical
leadership roles.
* Exceeded diversity target with female representation
in the senior leadership at 28.2%, and on track
towards our 2020 aspirational target of 30% senior
leadership positions to be held by women.
* HSBC was recognised as the 'Most Innovative
Investment Bank' by The Banker; the 'World's Best
Bank for Transaction Services', the 'World's Best
Bank for Corporates' and 'Asia's Best Bank for
Sustainable Finance' by Euromoney, and 'Best Overall
Global RMB Products/Services' by Asiamoney.
Risk and compliance
* Successfully embed financial crime risk governance * Significant progress was made to strengthen financial
and management information through the completion of crime risk management across the Group, specifically,
the Global Standards programme towards achieving operational effectiveness in global
businesses and regions. A strong tone from the top
included an aspiration to deliver industry-leading
* Effectively manage material operational risks financial crime standards as part of the Group's
strategy. Demonstrated excellent awareness and
understanding of key financial crime risks and
* Achieve and deliver sustainable global conduct issues. Actively engaged at senior governance forums
outcomes to strengthen risk management practices and controls.
Continued focus is required to complete the
transition to business-as-usual financial crime risk
* Comply with the 2018 FX DPA management, and further enhance the effectiveness of
financial crime governance in some countries, in
order to achieve sustainable operating maturity.
* Implementation of the operational risk management
framework was achieved with strong ownership and
proactive prioritisation of management of key risks
across the Group. However further work is required to
embed the framework and associated tools and
strengthen the control environment.
* Showed strong commitment to continue embedding the
conduct pillars and outcomes, and underpinning
controls across the Group.
* Additional steps were taken that were consistent with
the requirements of the 2018 FX DPA with the US
Department of Justice to enhance the Global Markets
compliance programme and related internal controls.
Areas of focus have included a strong tone from the
top, updated policies and procedures to prevent
violations of US law (such as fraud and market
manipulation) and comprehensive risk assessment.
Further enhancements and steps to comply with the DPA
are ongoing.
------------------------------------------------------------ ------------------------------------------------------------
Group Finance Director
Strategic priorities
* Deploy cloud technologies and enhance Finance * Deployed cloud technologies for regulatory reporting
operating efficiency of liquidity coverage ratio and net stable funding
ratio in Canada and France. Implementation plans to
deploy the technology in other locations are on
* Streamline and embed IFRS 9 and RWA production track. The innovative capabilities of Finance are
being further developed with eight key laboratories
set up to deliver a real-time vision for Finance,
* Deliver ring-fenced bank ('RFB') in the UK and Global utilising cloud technology, advanced analytics,
Service Company ('ServCo') structures and processes artificial intelligence and machine learning.
* Deliver cost savings * Completed 2018 IFRS 9 plan with few milestones
remaining and daily performance maturing, with no
major downstream impact on processing time. All key
* Strengthen the Group's external relationships activities integrated within routine processes.
* Improve employee engagement * Successfully established the Group's RFB - HSBC UK
Bank plc ('HSBC UK') - with a separate information
technology and operations infrastructure and
* Strengthen HSBC's leadership cadre financial, pensions and legal structures. Transfer of
Retail Banking and Wealth Management and Commercial
Banking customers and employees to HSBC UK was also
* Improve diversity in senior management completed. Successfully established the Group's
ServCo structure in the UK in support of ring-fencing
and the Recovery and Resolution Plan.
* Strengthened Group's relationships and reputation
with key stakeholders as evidenced by a high level of
investor relations engagement and robust regulatory
interactions.
* Employer advocacy, as a measure of employee
engagement, at the end of 2018 improved to 68% (2017:
66%). The Finance function's structure was further
simplified through the global consolidation of the
finance operational processes into a single Finance
operations team. The function is driving forward the
focus on digital leadership and capabilities across
all levels.
* Confirmed four key Finance 'enterprise critical
roles' and ensured that the succession plans are
actionable, resulting in a successor gender profile
of 38% female. Development plans and support in place
for all successors.
* Met aspirational gender diversity target, with 28%
female representation at senior management levels in
Finance. Finance leadership initiatives, sponsorship
of diverse networks, parental transition coaching and
career development support have all helped improve
gender diversity. Difference and inclusion is being
addressed more broadly within Finance with an aim to
increase the representation of lesbian, gay, bisexual
and transgender and differently abled employees.
------------------------------------------------------------ ------------------------------------------------------------
Risk and compliance
* Effectively manage material operational risks * Completed the implementation of the operational risk
framework in Finance, which is actively used to
monitor the effectiveness of key controls against
* Achieve and deliver sustainable global conduct significant accounting risks, including for
outcomes Sarbanes-Oxley compliance. Made significant progress
embedding the understanding of relevant roles and
responsibilities through improved governance and
* Deliver commitments to regulators reporting.
* Successful delivery of PRA and European Banking * Improved processes for monitoring and reporting
Authority ('EBA') stress tests and Comprehensive conduct outcomes for Finance, including strengthened
Capital Analysis and Review ('CCAR') capital plan governance meetings with an increased focus on
metrics. No significant conduct issues, breaches or
reportable events were identified. Internal review of
conduct governance and control for Finance were rated
as effective.
* Delivered all regulatory updates on time and to the
required standard, with queries addressed on a timely
basis. PRA and EBA stress tests in 2018 were
successfully submitted on time. HSBC North America
Holdings Inc received a non-objection to its CCAR
2018 capital plan submitted to the Federal Reserve
Board on both a qualitative and quantitative basis.
------------------------------------------------------------ ------------------------------------------------------------
Group Chief Risk Officer
Strategic priorities
* Improve customer satisfaction * Improved customer service satisfaction with measured
progress being made across markets. Global businesses
are showing delivery successes, with improvements
* Strengthen the Group's external relationships identified for action.
* Turn around the US business * Interacted regularly and successfully with
regulators. The strength, quality and independence of
financial risk management was recognised. An
* Improve employee engagement, strengthen HSBC's increased focus on non-financial risk management and
leadership cadre and improve diversity in senior model risk management is key to these ongoing
management interactions.
* Support innovation * Supported the turnaround of the US business through
active risk management oversight, focusing on a
credit risk and risk remediation programme; strong
* Deliver cost savings forward-looking capital management through engagement
and oversight of the stress testing CCAR programme;
and an enhanced modelling infrastructure in support
of stress testing and financial crime models. RoTE at
2.7% exceeded the target for 2018.
* Delivered on the Global Risk function people
initiatives. Employer advocacy, as a measure of
employee engagement, increased to 68% at the end of
2018 (2017: 64%), which represents the number of
employees who would recommend HSBC as a great place
to work. Focused the development of our leadership
talent, and achieved the diversity target, with 28.7%
of senior management positions held by women.
* Enhanced the focus on innovative ways of working,
through the facilitation of idea generation and
knowledge concept evaluation and delivery of new
approaches. Education and training of Global Risk in
innovation was rolled out to enable change through
the use of agile methodologies and cloud
technologies.
* Enabled the management of costs and headcount of the
Global Risk function, through close ongoing
monitoring of performance.
----------------------------------------------------------- ------------------------------------------------------------
Risk and compliance
* Ensure Global Risk supports the financial crime risk * Enabled effective financial crime risk management
target end state through the enterprise wide and operational risk
management frameworks, with strong governance through
risk management meetings and completion of financial
* Effectively manage material operational risks crime risk model reviews.
* Achieve and sustain the delivery of the global * Made significant progress in adopting and embedding
conduct outcomes the operational risk management framework, with
active focus and engagement on the material
operational risks, and increased focus on
* Deliver commitments to regulators, including non-financial risks.
compliance with the 2018 FX DPA
* Successfully drove conduct outcomes through a strong
* Successfully deliver regulatory and internal stress tone from the top, and a continual monitoring of
tests in 2018 compliance on conduct regulations. Maturity levels
across conduct outcomes were excellent.
* Manage credit and market risk, and oversee liquidity
risk within Board approved risk appetite * Delivered all regulatory updates on time and up to
the required standard, with any remedial actions
tracked to timely completion. Engagements with other
* Successfully enhance HSBC's model risk management lead regulators gained positive feedback, including
working with the Department of Justice and Federal
Reserve Board to progress our commitments under the
FX DPA.
* Successfully delivered the 2018 annual cyclical
scenario to the PRA. Submitted the biennial stress
test to the EBA and the CCAR submission to the
Federal Reserve Board.
* Managed credit risk, market risk and liquidity risk
effectively within the Group risk appetite profile
and with oversight from the Group risk management
meeting.
* Made significant progress in model risk management
during 2018, through significant appointments,
ongoing employee training and key stakeholder
engagements.
----------------------------------------------------------- ------------------------------------------------------------
Long-term incentive awards
(Audited)
For the 2018 performance year, the Committee determined to grant
John Flint and Marc Moses an LTI award of GBP3,840,000 and
GBP2,232,000, respectively, after taking into consideration
performance achieved for the financial year ended 31 December 2018
and the progress made towards achieving the strategic priorities
set out in the June 2018 Strategy Update. The awards will be
subject to a three-year performance period starting 1 January 2019.
As the awards are not entitled to dividend equivalents per
regulatory requirements, the number of shares to be awarded to
executive Directors will be adjusted to reflect the expected
dividend yield of the shares over the vesting period.
In line with the approach set out for our new policy and
feedback received from investors, we have simplified the LTI
scorecard by using fewer measures. To ensure the rewards realised
by executive Directors are strongly aligned with our strategic
priorities and value created for shareholders, a 75% weighting has
been attached to the RoTE measure. For target payout (50% of
maximum) the average RoTE over the performance period will need to
be 11%, and is aligned with our target of achieving a RoTE of more
than 11% by 2020. For maximum payout, the average RoTE over the
performance period will need to be 12% reflecting a stretch and a
continued improvement of the RoTE performance. The RoTE measure
will also be subject to a CET1 underpin requiring the CET1 ratio at
the end of the performance period to be above the CET1 risk
tolerance level.
The scorecard also attaches a 12.5% weighting to an employer
advocacy measure. This is a key indicator of employee sentiment and
underpins our strategic priority to simplify our organisation and
invest in future skills. The 2018 score has been used to set the
threshold level of performance for this measure. The target
performance level will require an improvement over the 2018 score
and the maximum level requires further improvement.
Based on feedback received from investors, we have also included
an environmental, social and governance measure with a 12.5%
weighting. This will be assessed based on ratings issued by
Sustanalytics with threshold level of performance set at receiving
an 'average performer' rating and the maximum level of performance
requiring an 'outperformer rating', which is the highest rating
that can be achieved.
The LTI awards will also be subject to a risk and compliance
underpin, which would give the Committee the discretion to adjust
down the overall scorecard outcome taking into account performance
against risk and compliance factors at the end of the performance
period. For this purpose, the Committee will receive information on
any risk management failures which have caused significant
reputational damage to the Group or have an adverse impact on the
financial performance of the Group. This is to ensure that the
Group operates within tolerance levels set for relevant risk and
compliance metrics when achieving its financial targets.
The measures and weighting that will be used to assess
performance and payout are described in the following table.
To the extent performance conditions are satisfied at the end of
the three-year performance period, the awards will vest in five
equal annual instalments commencing from around the third
anniversary of the grant date. On vesting, awards are subject to a
retention period of one year.
Stuart Gulliver and Iain Mackay are not eligible to receive an
LTI award in respect of 2018.
Performance conditions for LTI awards in respect of 2018
Average RoTE (with
CET1 underpin)(1) 10.0% 11.0% 12.0% 75.0
------------------------
Employer advocacy(2) 65.0% 70.0% 75.0% 12.5
------------------------
Mid-point score Score required
Environmental, Score to achieve between average to achieve an
social and governance an 'average performer' and outperformer 'outperformer'
rank(3) rating threshold scores rating 12.5
------------------------
Total(4) 100.0
------------------------ ------------------------ ------------------ ---------------- -----
1 If the CET1 ratio at the end of performance period is below
the CET1 risk tolerance level set in the risk appetite statement,
then the assessment for this measure will be reduced to nil.
2 To be assessed based on results of the latest employee
Snapshot survey question 'I would recommend this company as a great
place to work'
3 To be assessed based on results of the latest rating issued by
Sustainalytics. In the event that Sustainalytics changes its
approach to provide the ratings during the performance period, this
may impact the assessment of the performance condition. To ensure
that the performance targets/assessment approach achieves its
original purpose (i.e. are no less or more difficult than when the
original targets were set) the Committee retains the discretion to
review and where appropriate modify the targets once further
details on any updated Sustainalytics ratings approach is
published.
4 Awards will vest on a straight-line basis for performance
between the minimum, target and maximum levels of performance set
in this table.
Total pension entitlements
(Audited)
No employees who served as executive Directors during the year
have a right to amounts under any HSBC final salary pension scheme
for their services as executive Directors or are entitled to
additional benefits in the event of early retirement. There is no
retirement age set for Directors, but the normal retirement age for
employees is 65.
Payments to past Directors
(Audited)
Details of payments made to Stuart Gulliver and Iain Mackay
after they stepped down as executive Directors are set out in the
following sections. No other payments were made to, or in respect
of, former Directors in the year in excess of the minimum threshold
of GBP50,000 set for this purpose.
Retirement arrangements for Stuart Gulliver
(Audited)
Stuart Gulliver stepped down as executive Director and Group
Chief Executive on 20 February 2018 and ceased employment with the
Group on 11 October 2018.
Under the terms of his service contract, and as previously
disclosed, for the period between 21 February 2018 and
11 October 2018, he received a salary of GBP802,988, FPA of
GBP1,089,600, cash in lieu of pension allowance of GBP240,897,
contractual benefits totalling GBP321,778 and other benefits of
GBP64,329. The value of contractual benefits includes the taxable
value of GBP201,078 for the use of a company-provided car and Hong
Kong accommodation, the tax expense of GBP78,201 in relation to the
use of a company car and Hong Kong accommodation and
insurance-related benefits of GBP42,499. In October 2018, he was
paid cash in lieu of unused holiday entitlement, accrued during the
period 2007 to 2017 for leave cancelled at the request of the Group
due to urgent HSBC matters, totalling to GBP466,778. Stuart
Gulliver also received a post-employment medical cover as per the
shareholder approved policy.
Stuart Gulliver received an annual incentive award for 2018
(pro-rated for time spent in Group Chief Executive role) as set out
on page 186. He did not receive an LTI award for 2018.
As disclosed in the 2017 Directors' remuneration report, and
referenced here for completeness, Stuart Gulliver was granted good
leaver status in respect of outstanding unvested share awards. In
respect of his 2016 LTI award, performance will be measured at the
end of the original performance period (i.e. 31 December 2019),
with the maximum number of shares available pro-rated for time in
employment (i.e. 357,911 shares after pro-ration for time and any
dividend equivalents accrued in the period during the vesting
period).
Stuart Gulliver will not receive:
-- an LTI award for 2018 ; and
-- any compensation or payment for the termination of his
service contract or his ceasing to be a Director of any Group
company.
Departure terms for Iain Mackay
(Audited)
Iain Mackay stepped down as executive Director and Group Finance
Director of the Company on 31 December 2018 ('Departure Date').
In January 2019, he received a payment of GBP64,385 in lieu of
his salary, FPA and cash in lieu of pension allowance for the
period from 1 January 2019 to 13 January 2019.
In accordance with the Directors' remuneration policy approved
by shareholders, Iain Mackay has been considered a good leaver.
Accordingly, he has been made eligible to receive:
-- an annual incentive award for 2018 (details are provided on page 186);
-- his unvested deferred awards that are due to vest after the
Departure Date, on the scheduled vesting dates, subject to the
relevant terms (including post-vest retention periods, malus and,
where applicable, clawback) and the achievement of any required
performance condition. For this purpose, his 2016 and 2017 LTI
awards will be pro-rated for the period he was employed by the
Group with the maximum number of shares being as follows:
- 2016 LTI awards: 228,817 shares (and the value of any dividend
equivalents accrued during the vesting period); and
- 2017 LTI awards: 131,796 shares; and
-- certain post-departure benefits for a period of up to seven years from the Departure Date.
Iain Mackay will not receive:
-- an LTI award for 2018; and
-- any compensation or payment for the termination of his
service contract or his ceasing to be a Director of any Group
company.
Recruitment arrangements for Ewen Stevenson
Ewen Stevenson was appointed as executive Director and Group
Chief Financial Officer of the Company on 1 January 2019, having
joined the Group on 1 December 2018.
Ewen Stevenson's 2019 remuneration details are provided on page
197.
In accordance with our approved policy, Ewen Stevenson will be
granted share awards to replace unvested RBS awards, which were
forfeited as a result of him joining HSBC. The grant value of these
awards is GBP6,464,478.
All replacement awards granted will, in general, match the
performance, vesting and retention periods attached to the awards
forfeited, and will be subject to any performance adjustments that
would otherwise have been applied by RBS.
Ewen Stevenson will also receive an award in lieu of any
variable pay award from RBS for the 2018 performance year. This
will be based on his maximum opportunity of GBP1.6m under RBS's
policy and the outcome of the 2018 scorecard, as disclosed in the
2018 annual report and accounts of RBS. This award will be granted
in shares that will vest in five equal annual instalments between
the third and seventh anniversary of the grant date. On vesting,
the shares will be subject to a one-year retention period. Details
on the value of the final award will be disclosed in the Annual
Report and Accounts 2019.
External appointments
During 2018, executive Directors did not receive any fees from
external appointments.
Scheme interests awarded during 2018
(Audited)
The table below sets out the scheme interests awarded to
Directors in 2018, for performance in 2017, as disclosed in the
2017 Directors' remuneration report. No non-executive Directors
received scheme interests during the financial year.
Scheme awards in 2018
(Audited)
Basis Percentage Number
Type of on which Face value receivable of End of
interest award Date of awarded(1) for minimum shares performance
awarded made award GBP000 performance awarded period
---------------- ---------------- ------------- ------------ ----------- ------------ -------- ------------
Iain Mackay
(ceased
employment on
31 December LTI deferred % of salary 26 February 31 December
2018) shares (2) (4) 2018 2,860 25 395,388 2020
---------------- ---------------- ------------- ------------ ----------- ------------ -------- ------------
% of
LTI deferred salary 26 February 31 December
Marc Moses shares (2) (4) 2018 2,860 25 395,388 2020
---------------- ---------------- ------------- ------------ ----------- ------------ -------- ------------
John Flint
(appointed
on 21 February Deferred shares See note 26 February 31 December
2018) (3) 5 2018 1,201 - 166,014 2017
---------------- ---------------- ------------- ------------ ----------- ------------ -------- ------------
Stuart Gulliver
(retired from
the Board on % of
20 Deferred shares salary 26 February 31 December
February 2018) (3) (6) 2018 1,635 - 226,072 2017
---------------- ---------------- ------------- ------------ ----------- ------------ -------- ------------
1 The face value of the award has been computed using the actual share price of GBP7.234.
2 LTI awards are subject to a three-year forward-looking
performance period and vest in five equal instalments subject to
performance achieved. On vesting, awards will be subject to a
one-year retention period. Awards are subject to malus during the
vesting period and clawback for a maximum period of 10 years from
the date of the award.
3 Deferred shares form part of the annual incentive, for which
awards were determined based on performance achieved during the
period to 31 December 2017. These awards are subject to malus
during the vesting period and clawback for a maximum period of 10
years from the date of the award. The overall award level could
have been 0% of the maximum opportunity if minimum performance was
not achieved at the end of the performance period.
4 In line with regulatory requirements, scheme interests awarded
during 2018 were not eligible for dividend equivalents. In
accordance with the remuneration policy approved by shareholders at
the 2016 AGM, the LTI award was determined at 319% of salary and
the number of shares to be granted was determined by taking into
account a share price discounted based on HSBC's expected dividend
yield for the vesting period (i.e. GBP5.645).
5 John Flint received a discretionary annual incentive award for
2017. Of this 2017 annual incentive award 60% was deferred and 50%
of the total deferred award was granted over HSBC shares. The
deferred shares will vest in five equal instalments between the
third and seventh anniversary of the award date, and on vesting
will be subject to a one-year retention period. As the awards were
not eligible for dividend equivalents, the number of shares to be
granted was determined by taking into account a share price
discounted based on HSBC's expected dividend yield for the vesting
period (i.e. GBP5.645).
6 As previously disclosed Stuart Gulliver received a 2017 annual
incentive award equivalent to 170% of salary. Of this award 60% was
deferred into HSBC shares. The deferred shares will vest in five
equal instalments between the third and seventh anniversary of the
award date, and on vesting will be subject to a one-year retention
period. As the awards were not eligible for dividend equivalents,
in accordance with the remuneration policy, the number of shares to
be granted was determined by taking into account a share price
discounted based on HSBC's expected dividend yield for the vesting
period (i.e. GBP5.645).
The above table does not include details of shares issued as
part of the FPA and shares issued as part of the 2017 annual
incentive award that vested on grant and were not subject to any
further service or performance conditions. Details of the
performance measures and targets for the LTI award in respect of
2017 and 2016 are set out on page 191.
Directors' interests in shares
(Audited)
The shareholdings of all persons who were Directors in 2018,
including the shareholdings of their connected persons, at 31
December 2018 (or date of retirement from the Board, if earlier)
are set out below. The following table shows the comparison of
shareholdings with the company shareholding guidelines. There
have been no changes in the shareholdings of the Directors from
31 December 2018 to the date of this report.
Individuals are given five years from their appointment date to
build up the recommended levels of shareholding. Unvested
share-based incentives are not normally taken into consideration in
assessing whether the shareholding requirement has been met.
The Committee reviews compliance with the shareholding
requirement and has full discretion in determining if any unvested
shares should be taken into consideration for assessing compliance
with this requirement (taking into account investor expectations
and guidelines). The Committee also has full discretion in
determining any penalties for non-compliance.
HSBC operates an anti-hedging policy under which individuals are
not permitted to enter into any personal hedging strategies in
relation to HSBC shares subject to a vesting and/or retention
period.
Shares
(Audited)
At 31 Dec 2018, or date of retirement
from the Board, if earlier
--------- -----------
Scheme interests
Shares awarded
subject to deferral(1)
------------- -----------
Share
interests(4) with
Shareholding Shareholding
guidelines(2) at (number performance
31 Dec 2018,
or date
of retirement
from the without
Board, if performance
earlier(3) Share conditions(4,
(% of salary) (% of salary) of shares) options(5) 6) conditions(7)
-------------------- ---------------- ----------------- ------------- ----------- ----------------
Executive Directors
Stuart Gulliver
(retired
on 20 February
2018)
(8) 400% 1,918% 3,711,169 - 2,293,071 738,499
--------- ---- ----------- --- ------------- ----------- ------------- --------------
Iain Mackay (ceased
employment
on 31 December
2018) 300% 663% 718,532 - 1,025,725 769,296
--------- ---- ----------- --- ------------- ----------- ------------- --------------
John Flint
(appointed
on 21 February
2018) 400% 445% 827,691 9,952 570,922 -
--------- ---- ----------- --- ------------- ----------- ------------- --------------
Marc Moses 300% 1,415% 1,533,039 - 1,019,442 769,296
--------- ---- ----------- --- ------------- ----------- ------------- --------------
Group Managing
Directors 250,000
(9) shares n/a n/a n/a n/a n/a
-------------------- ---------------- ----------------- ------------- ----------- ------------- ----------------
1 The gross number of shares is disclosed. A portion of these
shares will be sold at vesting to cover any income tax and social
security that falls due at the time of vesting.
2 Unvested share-based incentives are not normally counted
towards compliance with the shareholding guideline.
3 The value of the shareholding is calculated using an average
of the daily closing share prices in the three months to 31
December 2018 (GBP6.4589).
4 For variable pay awards (annual incentive and LTI), in line
with regulatory requirements, any deferred shares (net of tax)
which the Director becomes entitled to are subject to a retention
requirement such that they must be held for a predefined period of
time. To provide the executive Directors with appropriate
flexibility, the Committee determined that the requirement to hold
these shares could be met either by retaining the shares that
vested from the underlying award (net of tax), or by separately
retaining a number of shares equivalent to those that vested under
the award. The Committee considers that such an arrangement results
in the employee holding the same number of shares as per the
original intention of the retention period, as set out in the
remuneration policy, approved by shareholders in 2014.
5 All share options are unexercised.
6 Includes Group Performance Share Plan ('GPSP') awards, which
were made following an assessment of performance over the relevant
period ending on 31 December before the grant date, but are subject
to a five-year vesting period.
7 LTI awards granted in February 2017 and February 2018 are
subject to the performance conditions as set out in the following
tables.
8 Stuart Gulliver's scheme interests deferred with performance
conditions include an award granted in March 2013 subject to
service and performance conditions. The award vested on 12 March
2018 following the Committee decision on 30 January 2018.
9 All Group Managing Directors are expected to meet their
shareholding guideline by 2019 or within five years of the date of
their appointment, whichever is later. The shareholding guidelines
for this population has been updated from 250,000 shares to 250% of
reference salary from 1 January 2019 to align with the approach
used for executive Directors.
The following tables detail the performance measures and targets
for the LTI award granted in respect of 2017 and 2016.
Performance conditions for LTI awards in respect of 2017 (granted in
2018)
Average return on equity (with
CET1 underpin)(1) 9.0% 10.0% 11.0% 20
Cost-efficiency ratio 60.0% 58.0% 55.5% 20
Straight-line
vesting At upper
At median between quartile
Relative total shareholder of the peer minimum and of the peer
return(2) group. maximum. group. 20
--------------- --------------- ---------------
Risk and compliance
* Achieve and sustain compliance with Global Financial
Crime Compliance policies and procedures. Performance will be assessed by the
Committee based on a number of qualitative
and quantitative inputs such as feedback
* Achieve a sustainable adoption of Group operation from the Financial System Vulnerabilities
risk management framework, along with its policies Committee, Group Financial Crime Risk
and practices. assessment against Financial Crime
Compliance objectives, outcome of
assurance and audit reviews, and achievement
* Achieve and sustain delivery of global conduct of the long-term Group objectives
outcomes and compliance with conduct of business and priorities during the performance
regulatory obligations. period. 25
------------------------------------------------------------
Strategy 15
$30bn $34bn $37bn
* Sustainable finance(3)
* Employee confidence(4) 65% 67% 70%
Improvement Improvement Improvement
* Customer in in in
recommendation recommendation recommendation
in three of in four of in all of the
(Based on customer recommendation the top five the top five top five
in top five markets by revenue) markets for markets for markets
CMB, GBM and CMB, GBM and for CMB, GBM
RBWM. RBWM. and RBWM.
------------------------------------------------------------ --------------- --------------- --------------- -----
Total 100
------------------------------------------------------------ --------------- --------------- --------------- ---
1 Significant items are excluded from the profit attributable to
ordinary shareholders of the company for the purpose of computing
adjusted return on equity. If the CET1 ratio at the end of
performance period is below the CET1 risk tolerance level set in
the RAS, then the assessment for this measure will be reduced to
nil.
2 The peer group for the 2017 award is: Bank of America,
Barclays, BNP Paribas, Citigroup, Credit Suisse Group, DBS Group
Holdings, Deutsche Bank, J.P. Morgan Chase & Co., Lloyds
Banking Group, Standard Chartered and UBS Group.
3 To be assessed based on cumulative financing and investment
made to develop clean energy, lower-carbon technologies and
projects that contribute to the delivery of the Paris Agreement and
the UN sustainable development goals.
4 Assessed based on results of the latest employee snapshot
survey question 'I am seeing the positive impact of our
strategy'.
Performance conditions for LTI awards in respect of 2016 (granted in
2017)
Average return on
equity(1) 7.0% 8.5% 10.0% 20
Cost efficiency (adjusted
jaws) Positive 1.5% 3.0% 20
Straight-line
vesting At upper
At median of between quartile
Relative total shareholder the peer minimum and of the peer
return(2) group. maximum. group. 20
------------------------------------------------------------ --------------- --------------- --------------- ---
Met all
commitments
to achieve
closure
of the AML DPA
and protect
HSBC
from further
regulatory
censure
for financial
Global Standards including crime
risk and compliance compliance
* Status of AML DPA. Not applicable Not applicable failings. 25
Performance will be assessed by the Committee
* Achieve and sustain compliance with Global Financial based on a number of qualitative and
Crime Compliance policies and procedures. quantitative
inputs such as feedback from the Financial
System Vulnerabilities Committee, Group
Financial
Crime Risk assessment against Financial Crime
Compliance objectives, outcome of assurance
and audit reviews, and achievement of the
long-term Group objectives and priorities
during the performance period.
------------------------------------------------------------ -----
Strategy
* International client revenues
(Share of revenue
supported by international
network) 50% 51% 52% 15
* Revenue synergies
(Share of revenues
supported by universal
banking model) 22% 23% 24%
* Employee(3)
(Results of employee
survey) 65% 67% 70%
Rank within Rank within Rank within
* Customer top top top
three in at three in three three in all
least of the four four RBWM and
(Based on customer two of the RBWM CMB customer
recommendation in four and CMB segments in
home country markets) RBWM and CMB customer home
customer segments in country
segments home markets.
in home country
country markets.
markets.
------------------------------------------------------------ --------------- --------------- --------------- -----
Total 100
------------------------------------------------------------ --------------- --------------- --------------- ---
1 Significant items are excluded from the profit attributable to
ordinary shareholders of the company for the purpose of computing
adjusted return on equity.
2 The peer group for the 2016 award is: Australia and New
Zealand Banking Group, Bank of America, Barclays, BNP Paribas,
Citigroup, Credit Suisse Group, DBS Group Holdings, Deutsche Bank,
JPMorgan Chase & Co., Lloyds Banking Group, Standard Chartered
and UBS Group.
3 Assessed based on results of the latest employee snapshot
survey question 'I am seeing the positive impact of our
strategy'.
Share options
(Audited)
Date of Exercise
award price Exercisable
---------------- -------- --------- ---------
At 1 Jan
2018,
or date
of appointment, Granted Exercised At 31
GBP from(1) until if later in year in year Dec 2018
----------------------- -------- -------- ------- ------ ---------------- -------- --------- -----------
John Flint (appointed 22 Sep 1 Nov 30 Apr
21 February 2018) 15 4.0472 18 19 4,447 - - 4,447
-------- -------- ------- ------ ---------------- -------- --------- ---------
21 Sep 1 Nov 30 Apr
18 5.4490 23 24 - 5,505 - 5,505
----------------
Iain Mackay (ceased
employment on 31 23 Sep 1 Nov 30 Apr
December 2018) 14 5.1887 17 18 3,469 - 3,469 -
----------------------- -------- -------- ------- ------ ---------------- -------- --------- ---------
1 May be advanced to an earlier date in certain circumstances, such as retirement.
The above awards were made under HSBC UK Sharesave, an
all-employee share plan under which eligible employees may be
granted options to acquire HSBC Holdings ordinary shares. The
exercise price is determined by reference to the average market
value of HSBC Holdings ordinary shares on the five business days
immediately preceding the invitation date, then applying a discount
of 20%. Employees may make contributions of up to
GBP500 each month over a period of three or five years. The
market value per ordinary share at 31 December 2018 was GBP6.469.
Market value is the mid-market price derived from the London Stock
Exchange Daily Official List on the relevant date. Under the
Securities and Futures Ordinance of Hong Kong, the options are
categorised as unlisted physically settled equity derivatives.
Summary of shareholder return and Group Chief Executive
remuneration
The following graph shows the total shareholder return ('TSR')
performance against the FTSE 100 Total Return Index for the 10-year
period that ended on 31 December 2018. The FTSE 100 Total Return
Index has been chosen as this is a recognised broad equity market
index of which HSBC Holdings is a member. The single figure
remuneration for the Group Chief Executive over the past 10 years,
together with the outcomes of the respective annual incentive and
long-term incentive awards, is presented in the following
table.
HSBC TSR and FTSE 100 Total Return Index
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
--------------------- ----------- ----------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Group Chief Michael Michael Stuart Stuart Stuart Stuart Stuart Stuart Stuart Stuart John
Executive Geoghegan Geoghegan Gulliver Gulliver Gulliver Gulliver Gulliver Gulliver Gulliver Gulliver Flint
----------- ----------- ---------- --------
Total single
figure
GBP000 7,580 7,932 8,047 7,532 8,033 7,619 7,340 5,675 6,086 2,387 4,582
---------- --------
Annual incentive(1)
(% of maximum) 94% 82% 58% 52% 49% 54% 45% 64% 80% 76% 76%
--------------------- ------ ------ ----- ----- ----- ----- ----- ----- ----- ----- ----
Long-term
incentive(1,2,3)
(% of maximum) 25% 19% 50% 40% 49% 44% 41% -% -% 100% -%
--------------------- ------ ------ ----- ----- ----- ----- ----- ----- ----- ---------- --------
1 The 2012 annual incentive figure for Stuart Gulliver used for
this table includes 60% of the annual incentive disclosed in the
2012 Directors' remuneration report, which was deferred for five
years and subject to service conditions and satisfactory completion
of the five-year deferred prosecution agreement with the US
Department of Justice, entered into in December 2012 ('AML DPA') as
determined by the Committee. The AML DPA performance condition has
been met, and as such, this award has now been released. This award
vested in 2018 and the value of the award at vesting has been
included in the 2018 single figure of remuneration and included as
long-term incentive for 2018.
2 Long-term incentive awards are included in the single figure
for the year in which the performance period is deemed to be
substantially completed. For GPSP awards this is the end of the
financial year preceding the date of grant (GPSP awards shown in
2011 to 2015 therefore relate to awards granted in 2012 to 2016).
For performance share awards that were awarded before introduction
of GPSP, the value of awards that vested subject to satisfaction of
performance conditions attached to those awards are included at the
end of the third financial year following the date of grant (for
example, performance share awards shown in 2010 relates to awards
granted in 2008).
3 The GPSP was replaced by the LTI in 2016 and the value for
GPSP is nil for 2016 as no GPSP award was made for 2016. LTI awards
have a three-year performance period and the first LTI award was
made in February 2017. The value of the LTI awards expected to vest
will be included in the total single figure of the year in which
the performance period ends. Stuart Gulliver was not eligible for
an LTI award in respect of 2017 and 2018 given his announced
retirement.
Comparison of Group Chief Executive and all-employee pay
The following charts compare the changes in Group Chief
Executive pay to changes in employee pay between 2017 and 2018, and
provide a breakdown of total staff pay relative to the amount paid
out in dividends.
Percentage change in remuneration
between 2017 and 2018
Base salary(1) -4% 6%
Benefits(2,
3) -76% -1%
------------------------- ----
Annual incentive(4) -8% 2%
------------------------- ----
1 Employee group consists of local full-time UK employees as
representative of employees from different businesses and functions
across the Group. The changes for the Group Chief Executive are
based on the annualised base salary of the current and former Group
Chief Executive to provide a meaningful comparison.
2 The change in the value of the benefit is due to the change in
the value of the benefit as reported in the single figure table for
the current and former Group Chief Executive.
3 For benefits, the employee group consists of UK employees,
which was deemed the most appropriate comparison for the Group
Chief Executive given varying local requirements.
4 For annual incentive, the employee group consists of all
employees globally. The change is based on annual incentive pool as
disclosed on page 33 and staff numbers are based on full-time
equivalents at the financial year-end. The percentage change in
annual incentive award of the Group Chief Executive is primarily
driven by the difference in the 2017 and 2018 scorecard outcome,
reflecting performance achieved in those years, and change in
annual incentive maximum opportunity for John Flint and Stuart
Gulliver, based on their annualised salary. Details of the 2018
total single figure of remuneration for the Group Chief Executive
are on page 185.
Relative importance of spend on pay
The following chart shows the change in:
-- total staff pay between 2017 and 2018; and
-- dividends paid out in respect of 2017 and 2018.
In 2018, we returned a total of $2bn to shareholders through
share buy-backs.
Relative importance of spend on
pay
î ì
7.6% 0.1%
Return to shareholder Employee compensation
and benefits
Dividends
Share buy-back
Pay ratio
The following table shows on the ratio between the total pay of
the Group Chief Executive and the median pay of our UK
employees.
Pay ratio for 2018
Pay ratio 118:1
-------------------- -----
We considered compensation of over 40,000 employees (other than
the Group Chief Executive) providing services in the UK as at 31
December 2018. We estimated our median compensation using:
-- full-time equivalent fixed pay, which includes salary and allowances;
-- 2018 variable pay award, including notional returns paid during 2018;
-- gains realised from exercising awards granted under HSBC
Sharesave and all other employee share plans;
-- value of benefits (including pension contributions); and
-- the value of the AML DPA award that vested in 2018.
The value of the benefits have been computed as a percentage of
salary. Benefits that are one-off benefits and are provided on a
temporary basis to employees currently on secondment to the UK have
not been included in calculating the above ratios as these are not
permanent in nature and in some cases, depending on individual
circumstances, may not truly reflect a benefit to the employee.
The above ratio has been calculated based on the annualised
fixed and variable pay for John Flint as we consider this a better
basis for a year-on-year comparison for 2019 when the regulations
for disclosing the above ratios come into force. The total
remuneration of John Flint does not include a value for an LTI
award as the performance period for the first LTI award granted to
John Flint ends on 31 December 2021. Therefore, to the extent
performance conditions are satisfied for an LTI award, the relevant
value for John Flint will be reported in the Directors'
remuneration report for 2021. In a year in which a value for an LTI
award is included in the single figure table of remuneration, the
above ratios could be higher.
Given the different business mix, size of the business,
methodologies for computing the median pay, estimates and
assumptions used by other companies to calculate their respective
pay ratios, as well as differences in employment and compensation
practices between companies, the ratios reported above may not be
comparable to that reported by other listed peers on the FTSE 100
and our international peers.
Non-executive Directors
(Audited)
The following table shows the total fees and benefits of
non-executive Directors for 2018, together with comparative figures
for 2017.
Fees and benefits
(Audited) Fees(1) Benefits(2) Total
(GBP000) Footnotes 2018 2017 2018 2017 2018 2017
--------------------------- ---------- ----- ------- ----- -------
Phillip Ameen (Retired
on 20 April 2018) 3 154 474 6 12 160 486
----- ----- ------- ----- ----- -----
4,
Kathleen Casey 13 171 174 23 16 194 190
----- ----- ------- ----- ----- -----
Henri de Castries 13 161 132 4 5 165 137
----- ----- ------- ----- ----- -----
5,
6,
Laura Cha 14 255 269 13 22 268 291
----- ----- ------- ----- ----- -----
6,
13,
Lord Evans of Weardale 14 200 215 2 8 202 223
--------------------------- ---------- ----- ----- ------- ----- ----- -----
Joachim Faber (Retired
on 20 April 2018) 38 162 3 9 41 171
--------------------------- ---------- ----- ----- ------- ----- ----- -----
7,
Irene Lee 13 361 300 5 8 366 308
--------------------------- ---------- ----- ----- ------- ----- ----- -----
John Lipsky (Retired on
20 April 2018) 66 199 - 25 66 224
--------------------------- ---------- ----- ----- ------- ----- ----- -----
8,
Heidi Miller 13 573 571 9 18 582 589
--------------------------- ---------- ----- ----- ------- ----- ----- -----
David Nish 13 187 158 11 18 198 176
--------------------------- ---------- ----- ----- ------- ----- ----- -----
9,
Jonathan Symonds 14 653 639 1 2 654 641
--------------------------- ---------- ----- ----- ------- ----- ----- -----
10,
Jackson Tai 13 228 194 47 43 275 237
--------------------------- ---------- ----- ----- ------- ----- ----- -----
Mark Tucker 11 1,500 500 97 318 1,597 818
--------------------------- ---------- ----- ----- ------- ----- ----- -----
12,
Pauline van der Meer Mohr 14 239 239 17 16 256 255
--------------------------- ---------- ----- ----- ------- ----- ----- -----
Total 4,786 4,226 238 520 5,024 4,746
---------------------------
Total ($000) 6,383 5,636 317 693 6,700 6,329
--------------------------- ---------- ----- ----- ------- ----- ----- -------
1 Fees include a travel allowance of GBP4,000 for non-UK-based non-executive Directors.
2 Benefits include taxable expenses such as accommodation,
travel and subsistence relating to attendance at Board and other
meetings at HSBC Holdings' registered office. Amounts disclosed
have been grossed up using a tax rate of 45%, where relevant.
3 Includes fees of GBP106,000 in 2018 (GBP330,000 in 2017) as a
Director and Chair of the Audit Committee of HSBC North America
Holdings Inc.
4 Resigned as a member of the Financial System Vulnerabilities Committee.
5 Appointed as a member of the Financial System Vulnerabilities
Committee on 20 April 2018. Includes fees of GBP80,000 in 2018
(GBP75,000 in 2017) as a Director, Deputy Chairman and member of
the Nomination Committee of The Hongkong and Shanghai Banking
Corporation Limited.
6 The Philanthropic and Community Investment Oversight Committee was demised during 2018.
7 Appointed as a member of the Group Remuneration Committee on
20 April 2018. Includes fees of GBP210,000 in 2018 (GBP187,000 in
2017) as a Director, and member of the Audit Committee and the Risk
Committee of The Hongkong and Shanghai Banking Corporation Limited
and as a Director, member of the Audit Committee and Chair of the
Risk Committee of Hang Seng Bank Limited.
8 Includes fees of GBP412,000 in 2018 (GBP427,000 in 2017) as
Chair of HSBC North America Holdings Inc.
9 Appointed as Deputy Group Chairman on 6 August 2018 and
appointed as a member of the Group Risk Committee on 20 April 2018.
Includes fees of GBP240,000 (GBP382,000 in 2017) as non-executive
Chair of HSBC Bank plc, from which he stepped down on 6 August
2018.
10 Appointed as a member of the Group Audit Committee on 1
December 2018. Appointed as Chair of the GRC on 28 April 2017. As
set out in the statement from the Chair of the Group Remuneration
Committee, the fee for GRC Chair was increased to GBP120,000 on 1
December 2018, taking into account the increase in the expectations
of the role of the GRC Chair from a regulatory perspective and the
expanded oversight role of the Group Risk Committee following the
re-assignment of the work previously undertaken by the Conduct
& Values Committee and the Financial System Vulnerabilities
Committee.
11 The Group Chairman's benefits in 2018 included GBP10,200 in
respect of life assurance and GBP15,426 in respect of healthcare
insurance, as approved by the Group Remuneration Committee.
12 Appointed a member of the Group Risk Committee on 20 April 2018.
13 Appointed as a member of the Nomination & Corporate Governance Committee on 20 April 2018.
14 Conduct and Values Committee was demised during 2018.
The following table sets out the base fee and further fees for
additional Board duties such as chairmanship or membership of a
committee received by directors in 2018.
2018 fees
Position GBP
Non-executive Group Chairman (1) 1,500,000
Non-executive Director (base fee) 110,000
Deputy Group Chairman (2) 40,000
--------------------------------------------------------------- ---------
Senior Independent Director (2) 54,000
--------------------------------------------------------------- ---------
Group Risk Committee (3) Chair 60,000
---------
Member 30,000
-------------------------------------------------------------- ---------
Group Audit, Group Remuneration and Financial System
Vulnerabilities Committee Chair 60,000
-------
Member 30,000
Nomination & Corporate Governance Committee Chair 40,000
------------------------------------------------------ ------- ---------
Member 25,000
-------------------------------------------------------------- ---------
1 Group Chairman does not receive a base fee or any other fees
in respect of chairmanship of any other committee.
2 The fees for the Deputy Group Chairman and Senior Independent
Director were combined and increased to GBP375,000 with effect from
1 August 2018.
3 The fee for the Group Risk Committee Chair was increased to
GBP120,000 with effect from 1 December 2018.
Non-executive Directors' interests in shares
(Audited)
The shareholdings of persons who were non-executive Directors in
2018, including the shareholdings of their connected persons,
at
31 December 2018, or date of cessation as a Director, if
earlier, are set out below. The following table shows the
comparison of shareholdings to the company shareholding
guidelines.
Shares
Shareholding
guidelines Share interests
(number of (number of
shares) shares)
------------------------------------------ ------------ -----------------
Phillip Ameen (retired on 20 April 2018) 15,000 5,000
---------------
Kathleen Casey 15,000 9,635
---------------
Laura Cha 15,000 10,200
---------------
Henri de Castries 15,000 18,064
---------------
Lord Evans of Weardale 15,000 12,892
------------ ---------------
Joachim Faber (retired on 20 April 2018) 15,000 93,221
------------------------------------------ ------------ ---------------
Irene Lee 15,000 11,172
------------ ---------------
John Lipsky (retired on 20 April 2018) 15,000 16,165
------------ ---------------
Heidi Miller 15,000 4,420
------------ ---------------
David Nish 15,000 50,000
------------ ---------------
Jonathan Symonds 15,000 43,821
------------ ---------------
Jackson Tai 15,000 56,075
------------ ---------------
Mark Tucker 15,000 288,381
------------ ---------------
Pauline van der Meer Mohr 15,000 15,000
------------------------------------------ ------------ ---------------
Voting results from Annual General Meeting
The following table summarises the voting results at our
AGM.
Annual General Meeting voting results
For(1) Against(1) Withheld
--------------------------------
Remuneration report (2018 AGM) 97.00% 3.00% -
--------------------------------
10,062,767,783 311,311,586 31,562,311
-------------------------------- ---------------------
Remuneration policy (2016 AGM) 96.05% 3.95% -
--------------------------------
8,887,168,002 365,908,568 35,165,873
-------------------------------- --------------------- --------------------- ----------
1 Votes cast.
Implementation of remuneration policy in 2019 for executive
Directors
The following table summarises how each element of pay will be
implemented in 2019.
Implementation of remuneration policy in 2019
Group Chief Group Chief Group Chief
Summary of operation Executive Financial Officer Risk Officer
Base salary 3.3% increase with effect
(GBP) from 1 March 2019 1,240,000 723,000 723,000
------------------ ----------------- ------------------ -------------
Fixed pay
allowance
(GBP) No change 1,700,000 950,000 950,000
------------------ ---------------------------------- ----------------- ------------------ -------------
Cash in lieu
of pension No change 30% of base salary
------------------ ---------------------------------- ------------------------------------------------------
Same benefit provisions will be made
Benefits No change available to executive Directors
------------------ ---------------------------------- ------------------------------------------------------
Annual incentive Maximum opportunity will be 215% of
No change in maximum opportunity base salary
------------------ ------------------------------------------------------
Long-term Maximum opportunity will be 320% of
incentive No change in maximum opportunity base salary
------------------ ---------------------------------- ------------------------------------------------------
Annual incentive scorecards
The weightings and performance measures for the 2019 annual
incentive award for executive Directors are disclosed below. The
performance targets for the annual incentive are commercially
sensitive and it would be detrimental to the Group's interests to
disclose them at the start of the financial year. Subject to
commercial sensitivity, we will disclose the targets for a given
year in the Annual Report and Accounts for that year in the
Directors' remuneration report.
2019 annual incentive scorecards
Executive Directors will be eligible for an annual incentive
award of up to 215% of base salary.
2019 annual incentive scorecards measures and weightings
Group Chief Financial Group Chief Risk
Group Chief Executive(1) Officer Officer
Measures % % %
Profit before tax ($bn) 10.0 10.0 10.0
------------------------------------- ------------------------ --------------------- ----------------
RoTE 5.0 8.3 3.3
------------------------------------- ------------------------ --------------------- ----------------
Revenue growth 10.0 - -
------------------------------------- ------------------------ --------------------- ------------------
Positive jaws 5.0 10.0 -
------------------------------------- ------------------------ --------------------- ------------------
Capital metrics 5.0 16.7 6.7
------------------------------------- ------------------------ --------------------- ----------------
Strategic priorities 30.0 20.0 15.0
------------------------------------- ------------------------ --------------------- ----------------
Risk and compliance 25.0 25.0 45.0
------------------------------------- ------------------------ --------------------- ----------------
Personal objectives 10.0 10.0 20.0
------------------------------------- ------------------------ --------------------- ----------------
Total 100.0 100.0 100.0
------------------------------------- ------------------------ --------------------- ----------------
1 Strategic priorities includes financial/quantitative metrics with a 25% weighting.
Long-term incentives
Details of the performance measures and targets for LTI awards
to be made in 2019, in respect of 2018, are provided on page
189.
The performance measures and targets for awards to be made in
respect of 2019, granted in 2020, will be provided in the Annual
Report and Accounts 2019.
Additional remuneration disclosures
This section provides disclosures required under the Hong Kong
Ordinances, Hong Kong Listing Rules, the US Securities and Exchange
Commission Form 20-F and the Pillar 3 remuneration disclosures.
Employee compensation and benefits
Executive Directors
The details of compensation paid to executive Directors for the
year ended 31 December 2018 are set out below.
Emoluments
John Flint(1) Stuart Gulliver(2) Iain Mackay Marc Moses
2018 2017 2018 2017 2018 2017 2018 2017
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------ ------------ ------ ----------- -------- ------- ------ ------ --------
Basic salaries,
allowances
and benefits in kind 2,863 - 534 3,896 1,984 1,961 1,911 1,914
------------ ------ ----------- ------- ------
Pension contributions - - - - - - - -
------------ ----------- ------- ------
Performance-related pay
paid or receivable(3) 5,505 - 282 2,127 1,088 3,566 3,556 3,590
------------ ----------- ------- ------ ------ ------
Inducements to join
paid
or receivable - - - - - - - -
------------ ----------- ------- ------
Compensation for loss
of office - - - - - - - -
------------------------ ------------ ------ ----------- -------- ------- ------ ------ ------
Notional return on
deferred
cash 54 - 41 63 33 42 33 42
------------------------ ------------ ------ ----------- -------- ------- ------ ------ ------
Total 8,422 - 857 6,086 3,105 5,569 5,500 5,546
------------------------ ------------ ------ ----------- -------- ------- ------ ------ ------
Total ($000) 11,232 - 1,143 7,834 4,141 7,168 7,335 7,139
------------------------ ------------ ------ ----------- -------- ------- ------ ------ ------
1 John Flint succeeded Stuart Gulliver as Group Chief Executive
with effect from 21 February 2018 and his remuneration in this
table is in respect of services provided as an executive
Director.
2 Details of payments made to Stuart Gulliver after he stepped
down from the Board on 20 February 2018 are provided on page
190.
3 Includes the value of the deferred and LTI awards at grant.
The aggregate amount of Directors' emoluments (including both
executive Directors and non-executive Directors) for the year ended
31 December 2018 was $30,550,208. As per our policy, benefits in
kind may include, but are not limited to, the provision of medical
insurance, income protection insurance, health assessment, life
assurance, club membership, tax assistance, Hong Kong
accommodation, car benefit, travel assistance and relocation costs
(including any tax due on these benefits, where applicable).
Post-employment medical insurance benefit was provided to former
Directors, Douglas Flint of GBP4,563 ($6,085), Alexander Flockhart
of GBP5,463 ($7,286), and Stuart Gulliver of GBP2,840 ($3,787)
during the year ended 31 December 2018. Amounts are converted into
US dollars based on the average year-to-date exchange rates for the
respective year.
Emoluments of senior management and five highest paid
employees
The following table sets out the details of emoluments paid to
senior management (in this case, executive Directors and Group
Managing Directors of the Group) for the year ended 31 December
2018, or for the period of appointment in 2018 as a Director or
Group Managing Director. Details of the remuneration paid to the
five highest paid employees, comprising two executive Directors and
three Group Managing Directors of the Group, for the year ended 31
December 2018, are also presented.
Emoluments
Five highest
paid employees Senior management
GBP000 GBP000
----------------------------------------------- --------------- -------------------
Basic salaries, allowances and benefits
in kind 14,982 39,285
Pension contributions 10 188
Performance-related pay paid or receivable(1) 19,696 40,519
Inducements to join paid or receivable - -
Compensation for loss of office - -
----------------------------------------------- --------------- -----------------
Total 34,688 79,992
----------------------------------------------- --------------- -----------------
Total ($000) 46,260 106,678
----------------------------------------------- --------------- -----------------
1 Includes the value of deferred shares awards at grant.
Emoluments by bands
Number of Number of
Hong Kong dollars US dollars highest paid employees senior management
-------------------------- -------------------------- ------------------------- --------------------
$2,000,001 - $2,500,000 $255,182 - $318,978 - 1
-------------------------- --------------------------
$16,000,001 - $16,500,000 $2,041,457 - $2,105,253 - 1
-------------------------- --------------------------
$17,000,001 - $17,500,000 $2,169,048 - $2,232,844 - 1
-------------------------- --------------------------
$24,500,001 - $25,000,000 $3,125,981 - $3,189,777 - 1
-------------------------- --------------------------
$27,500,001 - $28,000,000 $3,508,754 - $3,572,550 - 1
-------------------------- --------------------------
$32,000,001 - $32,500,000 $4,082,914 - $4,146,710 - 2
-------------------------- --------------------------
$33,500,001 - $34,000,000 $4,274,301 - $4,338,096 - 1
-------------------------- --------------------------
$34,500,001 - $35,000,000 $4,401,892 - $4,465,687 - 1
-------------------------- -------------------------- ----------------------- ------------------
$35,500,001 - $36,000,000 $4,529,483 - $4,593,278 - 1
-------------------------- -------------------------- ----------------------- ------------------
$38,000,001 - $38,500,000 $4,848,461 - $4,912,256 - 1
-------------------------- -------------------------- ----------------------- ------------------
$39,500,001 - $40,000,000 $5,039,847 - $5,103,643 - 1
-------------------------- -------------------------- ----------------------- ------------------
$41,500,001 - $42,000,000 $5,295,029 - $5,358,825 - 1
-------------------------- -------------------------- ----------------------- ------------------
$46,000,001 - $46,500,000 $5,869,189 - $5,932,984 - 1
-------------------------- -------------------------- ----------------------- ------------------
$50,000,001 - $50,500,000 $6,379,553 - $6,443,349 - 1
-------------------------- -------------------------- ----------------------- ------------------
$57,000,001 - $57,500,000 $7,272,691 - $7,336,486 1 1
-------------------------- -------------------------- ----------------------- ------------------
$58,000,001 - $58,500,000 $7,400,282 - $7,464,077 1 1
-------------------------- -------------------------- ----------------------- ------------------
$69,500,001 - $70,000,000 $8,867,579 - $8,931,374 1 1
-------------------------- -------------------------- ----------------------- ------------------
$84,000,001 - $84,500,000 $10,717,649 - $10,781,445 1 1
-------------------------- -------------------------- ----------------------- ------------------
$93,000,001 - $93,500,000 $11,865,969 - $11,929,764 1 1
-------------------------- -------------------------- ----------------------- ------------------
Pillar 3 remuneration disclosures
Remuneration for all employees
Remuneration policy overview and governance
Our remuneration strategy is designed to reward competitively
the achievement of long-term sustainable performance, and attract
and motivate the very best people, regardless of gender, ethnicity,
age, disability or any other factor unrelated to performance or
experience with the Group. We believe that remuneration is an
important tool for instilling the right behaviours, and driving and
encouraging actions that are aligned to organisational values and
the long-term interests of our stakeholders.
Our remuneration strategy, as approved by the Group Remuneration
Committee, is based on the following principles:
-- An alignment to performance at all levels (individual,
business and Group) taking into account both 'what' has been
achieved and 'how' it has been achieved. The 'how' helps ensure
that performance is sustainable in the longer term, consistent with
HSBC's values and risk and compliance standards.
-- Being informed, but not driven by, market position and
practice. Market benchmarks are sourced through independent
specialists and provide an indication of the range of pay levels
and employee benefits provided by our competitors.
-- Considering the full-market range when making pay decisions
for employees, taking into account the individual's and the Group's
performance in any given year. An individual's pay will vary
depending upon their performance.
-- Compliance with relevant regulation across all of our countries and territories.
Based on these principles, our approach to determining
remuneration is based on the following objectives:
-- Offering our employees a competitive total reward package.
This includes market competitive fixed pay levels, which ensure our
employees are able to meet their basic day-to-day needs.
-- Maintaining an appropriate balance between fixed pay,
variable pay and employee benefits, taking into consideration an
employee's seniority, role, individual performance and the
market.
-- Ensuring variable pay is awarded on a discretionary basis and
dependent upon Group, business and individual performance.
-- Offering employee benefits that are valued by a diverse
workforce, appropriate at the local market level and support HSBC's
commitment to employee well-being.
-- Promoting employee share ownership through variable pay
deferral or voluntary enrolment in an all-employee share plan.
-- Linking reward packages to performance and behaviour with no
bias towards an individual's ethnicity, gender, age, or any other
characteristic.
The remuneration policy applies for all employees on a
Group-wide basis.
Governance and role of relevant stakeholders
The Committee is responsible for setting the principles,
parameters and governance framework for the Group's remuneration
policy applicable to all Group employees. The Committee also
reviews the effectiveness and compliance of the Group's reward
strategy.
All members of the Committee are independent non-executive
Directors of HSBC Holdings plc. Details of the roles,
responsibility and membership of the Committee, including other
committees and senior management that the Committee engages with,
are set out on page 163. Activities and advisers used by the
Committee are detailed on page 184.
The Committee reviewed the Group's remuneration policy in
2018 and made no material changes to the policy and its
implementation for 2018.
Link between risk, performance and reward
Our remuneration practices promote sound and effective risk
management while supporting our business objectives.
The key features of our remuneration framework, which (subject
to compliance with local laws and regulations) help enable us to
achieve alignment between risk, performance and reward, are
detailed in the following table.
Alignment between risk and reward
Variable The Group variable pay pool is expected to move in line with
pay pool Group performance. We also use a countercyclical funding methodology,
and individual with both a floor and a ceiling, and the payout ratio reducing
performance as performance increases to avoid pro-cyclicality. The floor
scorecard recognises that even in challenging times, remaining competitive
is important. The ceiling recognises that at higher levels
of performance it is not always necessary to continue to increase
the variable pay pool, thereby limiting the risk of inappropriate
behaviour to drive financial performance.
The main quantitative and qualitative performance and risk
metrics used for assessment of performance include:
* Group and business unit performance: An evaluation of
overall Group and business unit performance provided
by Finance is considered by the Group Remuneration
Committee when determining the Group variable pay
pool and the variable pay pool for each business
unit. Where performance in a year is weak, as
measured by profits, this will have a direct and
proportionate impact on the pool. Judgement is
exercised to ensure that the pool is adjusted for
appropriate current and future risks taking into
consideration performance against the risk appetite
statement ('RAS'), annual operating plan and global
conduct outcomes. Fines, penalties and provisions for
customer redress are automatically included in the
Committee's definition of profit.
* Individual performance: Assessment of performance is
made with reference to a balanced scorecard of clear
and relevant objectives. Risk and compliance
objectives are included in the performance scorecard
of senior management and a mandatory global risk
objective is included in the scorecard of all other
employees. All employees receive a behaviour rating
as well as a performance rating, which ensures
performance is assessed not only on what is achieved
but also on how it is achieved. Therefore, variable
pay of individuals is expected to reflect Group
performance, their individual behaviour rating and
performance rating determined against their
performance objectives for the year, which are
aligned to the Group's strategic actions, risk
objectives and adherence to the HSBC Values.
----------------- -----------------------------------------------------------------------
Remuneration
for Control * The performance and reward of individuals in Control
Function Functions, including risk and compliance employees,
staff are assessed according to a balanced scorecard of
objectives specific to the functional role they
undertake. This is to ensure their remuneration is
determined independent of the performance of the
business areas they control.
* The Committee is responsible for approving the
remuneration recommendations for the Group Chief Risk
Officer and senior management in Control Functions.
* Group policy is for Control Functions staff to report
into their respective function. Remuneration
decisions for senior functional roles are led by, and
must carry the approval of, the global function head.
* The variable pay pool for Control Functions is
determined centrally, without influence from the
relevant business areas.
* Remuneration is carefully benchmarked with the market
and internally to ensure it is set at an appropriate
level.
----------------- -----------------------------------------------------------------------
Variable
pay adjustments * Variable pay awards may be adjusted downwards in
and conduct circumstances including:
recognition
* detrimental conduct, including conduct that brings
HSBC into disrepute;
* involvement in events resulting in significant
operational losses, or events that have caused or
have the potential to cause significant harm to HSBC;
and
* non-compliance with the HSBC Values and other
mandatory requirements or policies.
* Rewarding positive conduct may take the form of use
of our global recognition programme, At Our Best, or
positive adjustments to variable pay awards. These
are used where exceptional behaviours have been
demonstrated that go beyond the normal course of an
employee's responsibilities. This can also happen
when an employee sets an outstanding example of the
HSBC Values.
----------------- -----------------------------------------------------------------------
Malus Malus can be made to unvested deferred awards granted in prior
years. It may be applied in circumstances including:
* detrimental conduct, including conduct that brings
the business into disrepute;
* past performance being materially worse than
originally reported;
* restatement, correction or amendment of any financial
statements; and
* improper or inadequate risk management.
----------------- -----------------------------------------------------------------------
Clawback Clawback can be applied to vested or paid awards granted to
Material Risk Takers ('MRTs') on or after 1 January 2015 for
a period of seven years. From 2016 onwards, this period may
be extended to 10 years for employees under the PRA's Senior
Managers Regime in the event of ongoing internal/regulatory
investigation at the end of the seven-year period. Clawback
may be applied in circumstances including:
* participation in, or responsibility for, conduct that
results in significant losses;
* failing to meet appropriate standards and propriety;
* reasonable evidence of misconduct or material error
that would justify, or would have justified, summary
termination of a contract of employment; and
* a material failure of risk management suffered by
HSBC or a business unit in the context of Group
risk-management standards, policies and procedures.
Sales incentives
* We generally do not operate commission-based sales
plans.
----------------- -----------------------------------------------------------------------
Identification
of MRTs * Individuals are identified as MRTs if they perform
certain specified roles or activities for our
regulated entities, or if their total compensation
exceeds certain threshold. The variable pay awards of
MRTs are deferred over a period of three to seven
years to ensure alignment between the payout realised
by them and the long-term performance of the Group.
Details of the variable pay structure, the deferral
and retention period applied to MRTs, in accordance
with the applicable local regulations, are detailed
in the following table.
----------------- -----------------------------------------------------------------------
Remuneration structure
Total compensation (fixed pay and variable pay) is the key focus
of our remuneration framework, with variable pay differentiated by
performance and adherence to the HSBC Values. The key features and
design characteristics of our remuneration framework that apply on
a Group-wide basis, subject to compliance with local laws, are set
out below:
Overview of remuneration structure for employees
Fixed pay
Attract and * Fixed pay may include salary, fixed pay allowance,
retain employees cash in lieu of pension and other cash allowances in
by paying market accordance with local market practices. These pay
competitive elements are categorised as fixed pay as they are
pay for the based on predetermined criteria, are
role, skills non-discretionary, are transparent and are not
and experience reduced based on performance.
required for
the business.
* Fixed pay represents a higher proportion of total
compensation for more junior employees.
* All elements of fixed pay are fixed and may change to
reflect an individual's position, role or grade, cost
of living in the country, individual skills,
competencies, capabilities and experience, as may be
evidenced by sustained strong performance of the
individual.
* Fixed pay is generally delivered in cash on a monthly
basis. However, the fixed pay allowance of executive
Directors is delivered in shares.
----------------------- ----------------------------------------------------------------
Benefits
Ensure market * Benefits may include, but are not limited to, the
competitiveness provision of a pension, medical insurance, life
and provide insurance, health assessment and relocation
benefits in allowances.
accordance
with local
market practice.
----------------------- ----------------------------------------------------------------
Annual incentive
Incentivise * All employees are eligible to be considered for a
and reward discretionary variable pay award. Individual awards
performance are determined on the basis of individual performance
based on annual against their performance objectives for the year,
financial and which are aligned to the Group's strategic actions, a
non-financial global risk objective, and adherence to the HSBC
measures consistent Values and business principles.
with the medium-
to long-term
strategy, stakeholder * There is a process to identify behavioural
interests and transgressions for all employees during the year to
adherence to ensure compliance with Group policies and procedures,
HSBC Values. and other expected behaviours. Such transgressions
are taken into consideration in determining any
current year adjustments to variable pay.
* Annual incentives represent a higher proportion of
total compensation for more senior employees and will
be more closely aligned to Group and business
performance as seniority increases.
* Variable pay awards for all Group employees
identified as MRTs under European Union Regulatory
Technical Standard 604/2014 are limited to 200% of
fixed pay.(1)
* All awards are subject to malus and awards granted to
employees identified as MRTs are subject to clawback
(see section on variable pay adjustment, malus and
clawback).
* Awards are generally paid in cash and shares. For
MRTs, at least 50% of the awards are in shares and/or
where required by regulations, in units linked to
asset management funds.
* A portion of the annual incentive award may be
deferred and vest over a period of three years, five
years or seven years.
----------------------- ----------------------------------------------------------------
Deferral
Alignment with * A deferral approach is applicable to all employees
the medium- across the Group to defer a portion of annual
to long-term incentive awards above a specified threshold. The
strategy, stakeholder deferred variable pay is delivered through HSBC
interests and shares. Vesting of deferred awards will be annually
adherence to over a three-year period with 33% vesting on the
the HSBC Values. first and second anniversaries of grant and 34% on
the third anniversary.
* For MRTs identified in accordance with the PRA and
Financial Conduct Authority ('FCA') remuneration
rules, awards are generally subject to a minimum 40%
deferral (60% for awards of GBP500,000 or more) over
a minimum period of three years(2) . A longer
deferral period is applied for certain MRTs as
follows:
* five years for individuals identified in a
risk-manager MRT role under the PRA and FCA
remuneration rules. This reflects the deferral period
prescribed by both the PRA and the European Banking
Authority ('EBA') for individuals performing key
senior roles with the Group; or
* seven years for individuals in PRA-designated senior
management functions, being the deferral period
mandated by the PRA as reflecting the typical
business cycle period.
* Individuals based outside the UK who have not been
identified at the Group level as an MRT, but who are
identified as MRTs under local regulations, are
generally subject to a three-year deferral period. In
Germany, a five-year deferral period is applied for
members of the local management board and individuals
in managerial roles reporting into the management
board. In Malta, a five-year deferral period is
applied for executive Committee members. Local MRTs
are also subject to a minimum deferral rates
discussed above, except in China (where a minimum
deferral rate of 50% is applied for the Chief
Executive Officer in China), Germany (where a minimum
deferral rate of 60% is applied for members of the
local management board and individuals in managerial
roles reporting into the management board) and Oman
(where a minimum deferral rate of 45% is applied).
* Where an employee is subject to two sets of
regulations, the requirement that is specific to the
sector and/or country in which the individual is
working is applied, subject to meeting the minimum
requirements applicable under each regulation.
* All deferred awards are subject to malus provisions,
subject to compliance with local laws. Awards granted
to MRTs on or after 1 January 2015 are also subject
to clawback.
* HSBC operates an anti-hedging policy for all
employees. This prohibits employees from entering
into any personal hedging strategies in respect of
HSBC securities.
----------------------- ----------------------------------------------------------------
Deferral instruments
Alignment with * For all employees, other than MRTs identified in
the medium- accordance with the PRA and FCA remuneration rules or
to long-term other similar local rules, the underlying instrument
strategy, stakeholder for all deferred awards is HSBC shares to ensure
interests and alignment between the long-term interest of our
adherence to employees and the interest of shareholders.
the HSBC Values.
* For Group and local MRTs, excluding executive
Directors where deferral is typically in the form of
shares only, a minimum of 50% of the deferred awards
is in HSBC shares and the balance is deferred into
cash. In accordance with local regulatory
requirements, for local MRTs in Poland, 50% of the
deferred awards are delivered in an instrument linked
to the performance of the local entity and the
balance in deferred cash. For local MRTs in Brazil
and Oman, 100% of the deferred amount is delivered in
shares or linked to the value of shares.
* For some employees in our asset management business,
where required by the regulations applicable to asset
management entities within the Group, at least 50% of
the deferred awards is linked to fund units
reflective of funds managed by those entities, with
the remaining portion of deferred awards being in the
form of deferred cash awards.
----------------------- ----------------------------------------------------------------
Overview of remuneration structure for employees (continued)
Post-vesting
retention period * Variable pay awards made in HSBC shares or linked to
Ensure appropriate relevant fund units granted to MRTs, identified in
alignment with accordance with the PRA and FCA remuneration rules,
shareholders. are generally subject to a one-year retention period
post-vesting. Local MRTs (except those in Brazil,
France, Oman and Russia) are also generally subject
to a one-year retention period post-vesting. For
local MRTs in Brazil, France and Russia, a six-month
retention period is applied. No retention period is
applied for local MRTs in Oman.
* MRTs who are subject to a five-year deferral period,
except senior management or individuals in PRA- and
FCA-designated senior management functions, have a
six-month retention period applied to their awards.
----------------------- ----------------------------------------------------------------
Long-term incentive
awards ('LTI') * Only executive Directors are eligible to be
Align the medium- considered for an LTI award. See details on page 189.
to long-term
strategy with
stakeholder
interests and
adherence to
the HSBC Values.
----------------------- ----------------------------------------------------------------
Shareholding
requirement * All executive Directors and Group Managing Directors
Align interests of HSBC Holdings are subject to a minimum
of senior management shareholding requirement. Details are set out on page
with shareholders' 191.
interests.
* The minimum shareholding requirement must be achieved
by 2019 or within five years of their appointment,
whichever is later.
----------------------- ----------------------------------------------------------------
Buy-out awards
Support recruitment * Buy-out awards may be offered if an individual holds
of talent. any outstanding unvested awards that are forfeited on
resignation from the previous employer.
* The terms of the buy-out awards will not be more
generous than the terms attached to the awards
forfeited on cessation of employment with the
previous employer.
----------------------- ----------------------------------------------------------------
Guaranteed
variable remuneration * Guaranteed variable remuneration is awarded in
Support recruitment exceptional circumstances for new hires, and is
of talent. limited to the individual's first year of employment
only.
* The exceptional circumstances where HSBC would offer
a guaranteed variable remuneration would typically
involve a critical new hire and would also depend on
factors such as the seniority of the individual,
whether the new hire candidate has any competing
offers and the timing of the hire during the
performance year.
----------------------- ----------------------------------------------------------------
Severance payments
Adhere to contractual * Where an individual's employment is terminated
agreements involuntarily for gross misconduct then, subject to
with involuntary compliance with local laws, the Group's policy is not
leavers. to make any severance payment in such cases. For such
individuals, all outstanding unvested awards are
forfeited.
* For other cases of involuntary termination of
employment, any severance that may be determined to
be paid to an individual will take into consideration
the performance of the individual, contractual notice
period, applicable local laws and circumstances of
the case.
* Where an individual's employment is terminated
involuntarily (except where an individual is
dismissed for gross misconduct), all outstanding
unvested awards will normally continue to vest in
line with the applicable vesting dates. Where
relevant, any performance conditions attached to the
awards, and malus and clawback provisions, will
remain applicable to those awards.
* Severance amounts awarded to MRTs are considered as
fixed pay where such amounts include: (i) payments of
fixed remuneration that would have been payable
during the notice and/or consultation period; (ii)
statutory severance payments; (iii) payments
determined in accordance with any approach applicable
in the relevant jurisdictions; and (iv) payments made
to settle a potential or actual dispute.
----------------------- ----------------------------------------------------------------
1 Shareholders approved the increase in the maximum ratio
between the fixed and variable components of total remuneration
from 1:1 to 1:2 at the 2014 Annual General Meeting held on 23 May
2014 (98% in favour). The Group has also used the discount rate of
15.3% for individuals with seven-year deferral period and 7.7% for
individuals with five-year deferral period. This discount rate was
used for four MRTs in UK and one MRT in Hong Kong.
2 HSBC does not dis-apply any remuneration rules on
proportionality grounds. However, in accordance with the terms of
the PRA and FCA remuneration rules, and subject to compliance with
local regulations, the deferral requirement for MRTs is not applied
to individuals where their total compensation is GBP500,000 or less
and variable pay is not more than 33% of total compensation. For
these individuals, the Group standard deferral applies.
Material Risk Takers
We identify individuals as Material Risk Takers ('MRTs') based
on the qualitative and quantitative criteria set out in the
Regulatory Technical Standard ('RTS') EU 604/2014. We also identify
MRTs based on additional criteria developed internally. The
following key principles underpin HSBC's identification
process:
-- MRTs are identified at Group, HSBC Bank plc (consolidated) and HSBC UK Bank plc level.
-- MRTs are also identified at other solo regulated entity level
as required by the regulations.
-- When identifying an MRT, HSBC considers an employee's role
within its matrix management structure. The global business and
functions that an individual works within takes precedence,
followed by the geographical location in which they work.
In addition to applying the qualitative and quantitative
criteria specified in the RTS, we also identified additional MRTs
based on our own internal criteria, which included compensation
thresholds and individuals in certain roles and grades who
otherwise would not be identified as MRTs under the criteria
prescribed in the RTS.
The list of MRTs, and any exclusions from it, is reviewed by
Chief Risk Officers and Chief Operating Officers of the relevant
global functions and businesses. The overall results are reviewed
by the Group Chief Risk Officer.
The Group Remuneration Committee reviews the methodology, key
decisions regarding identification, and approves the results of the
identification exercise, including proposed MRT exclusions.
Management body and senior management
For the purpose of the Pillar 3 remunerations disclosures,
executive Directors and non-executive Directors are considered to
be members of the management body. Members of the Group Management
Board other than the executive Directors are considered as senior
management. No guaranteed bonus, sign-on or severance payments were
made to this population for the year ended 31 December 2018.
Remuneration disclosures
The following tables set out the remuneration disclosures for
individuals identified as MRTs for HSBC Holdings plc. Remuneration
information for individuals who are only identified as MRTs at HSBC
Bank plc, HSBC UK Bank plc or other solo-regulated entity levels
are included, where relevant, in those entities' disclosures.
The 2018 variable pay information included in the following
tables is based on the market value of awards granted to MRTs. For
share awards, the market value is based on HSBC Holdings plc's
share price at the date of grant (unless indicated otherwise). For
cash awards, it is the value of awards expected to be paid to the
individual over the deferral period.
Remuneration - fixed and variable amounts
Non-executive
Executive Directors Directors Senior management Total
------------------------- ------------------- ------------- ----------------- -------
Number of MRTs 4 11 16 31
------------------- ------------- ----------------- -----
$m $m $m $m
------------------------- ------------------- ------------- ----------------- -------
Total fixed 13.8 6.3 36.4 56.5
-------------------------
Cash-based(1) 6.7 6.3 36.4 49.4
- of which:
deferred cash - - - -
-------------------------
Share-based 7.1 - - 7.1
- of which:
deferred shares - - - -
-------------------------
Total variable(2) 16.8 - 44.7 61.5
------------------------- ------------------- ------------- ----------------- -----
Cash-based 2.5 - 21.1 23.6
- of which:
deferred cash - - 12.8 12.8
Share-based(3) 14.3 - 23.6 37.9
- of which:
deferred shares(3) 11.8 - 15.3 27.1
-------------------------
Other forms(3) - - - -
- of which:
deferred(3) - - - -
Total remuneration 30.6 6.3 81.1 118.0
------------------------- ------------------- ------------- ----------------- -----
1 Cash-based fixed remuneration is paid immediately.
2 Variable pay awarded in respect of 2018. In accordance with
shareholder approval received on 23 May 2014 (98% in favour), for
each MRT the variable component of remuneration for any one year is
limited to 200% of fixed component of the total remuneration.
3 Share-based awards are made in HSBC shares. Vested shares are
subject to a retention period of up to one year.
Deferred remuneration at 31 December(1)
Executive Non-executive Senior
Directors Directors management Total
$m $m $m $m
Cash
Total outstanding deferred
remuneration(2) 2.7 - 24.4 27.1
* of which:
Unvested 2.7 - 24.4 27.1
Total amount of outstanding
deferred and retained remuneration
exposed to ex post explicit
and/or implicit adjustment 2.7 - 24.4 27.1
Total amount of amendment
during the year due to ex
post implicit adjustment - - - -
Total amount of amendment
during the year due to ex
post explicit adjustment(3) - - - -
Total amount of deferred remuneration
paid out in the financial
year 4.6 - 12.4 17.0
Shares
Total outstanding deferred
remuneration(2) 60.7 - 57.1 117.8
* of which:
Unvested 56.5 - 48.7 105.2
Total amount of outstanding
deferred and retained remuneration
exposed to ex post explicit
and/or implicit adjustment 60.7 - 57.1 117.8
Total amount of amendment
during the year due to ex
post implicit adjustment (10.9) - (9.7) (20.6)
Total amount of amendment
during the year due to ex
post explicit adjustment(3) - - - -
Total amount of deferred remuneration
paid out in the financial
year(4) 21.8 - 31.3 53.1
Other forms
Total outstanding deferred
remuneration(2) - - - -
* of which:
Unvested - - - -
Total amount of outstanding
deferred and retained remuneration
exposed to ex post explicit
and/or implicit adjustment - - - -
Total amount of amendment
during the year due to ex
post implicit adjustment - - - -
Total amount of amendment
during the year due to ex
post explicit adjustment(3) - - - -
Total amount of deferred remuneration
paid out in the financial
year(4) - - - -
1 This table provides details of balances and movements during
performance year 2018. For details of variable pay awards granted
for 2018, please refer to the remuneration tables above. Deferred
remuneration is made in cash and/or shares. Share-based awards are
made in HSBC shares.
2 Includes unvested deferred awards, and vested deferred awards
subject to retention period as at 31 December 2018.
3 Includes any amendments due to malus or clawback. Page 200
provides details of in-year variable pay adjustments.
4 Shares are considered as paid when they vest. Vested shares
are valued using the sale price or the closing share price on the
business day immediately preceding the vesting day.
Other MRTs (non-senior management)
Remuneration - fixed and variable amounts
Independent
Investment Retail Asset Corporate control
banking banking management functions functions All other Total
Number of MRTs 628 167 27 144 151 64 1,181
---------- -------- ----------- ---------- ----------- --------- ---------
$m $m $m $m $m $m $m
---------- -------- ----------- ---------- ----------- --------- ---------
Total fixed 388.6 90.6 17.9 77.6 60.9 40.9 676.5
---------- -------- ----------- ---------- ----------- --------- ---------
Cash-based(1) 388.6 90.6 17.9 77.6 60.9 40.9 676.5
- of which: deferred
cash - - - - - - -
Share-based - - - - - - -
- of which: deferred
shares - - - - - - -
Total variable(2) 385.6 83.1 17.0 75.1 45.8 39.5 646.1
Cash-based 188.1 40.6 8.4 37.0 23.1 19.4 316.6
- of which: deferred
cash 95.9 20.1 4.1 17.9 9.6 10.4 158.0
Share-based(3) 197.5 42.5 4.6 38.1 22.6 20.1 325.4
- of which: deferred
shares(3) 106.7 22.6 2.4 20.0 11.1 11.5 174.3
Other forms(3) - - 4.0 - 0.1 - 4.1
- of which: deferred
shares(3) - - 2.4 - - - 2.4
Total remuneration 774.2 173.7 34.9 152.7 106.7 80.4 1,322.6
----------- --------- ---------
1 Cash-based fixed remuneration is paid immediately.
2 Variable pay awarded in respect of 2018. In accordance with
shareholder approval received on 23 May 2014 (98% in favour), for
each MRT the variable component of remuneration for any one year is
limited to 200% of the fixed component of the total
remuneration.
3 Share-based awards are made in HSBC shares and/or linked to
notional fund units in the HSBC World Selection Balanced Portfolio.
Vested shares are subject to a retention period of up to one
year.
Guaranteed bonus, sign-on and severance payments
Independent
Investment Retail Asset Corporate control
banking banking management functions functions All other Total
Guaranteed bonus and
sign-on payments(1)
-----------
Made during year ($m) 20.1 1.7 - 1.8 - - 23.6
---------- ----------- ---------- ----------- --------- -------
Number of beneficiaries 22 2 - 3 - - 27
---------- -------- ----------- ---------- ----------- --------- -----
Severance payments(2)
-----------
Awarded during year
($m) 17.8 5.7 - 0.9 1.0 1.8 27.2
Number of beneficiaries 18 9 - 2 4 4 37
Highest such award to
a single person ($m) 5.4 2.6 - 0.6 0.3 0.8 -
---------- -------- ----------- ---------- ----------- --------- -----
Paid during year ($m) 14.0 5.3 - 0.4 1.0 1.6 22.3
Number of beneficiaries 18 8 - 2 4 3 35
1 No sign-on payments were made in 2018. A guaranteed bonus is
awarded in exceptional circumstances for new hires, and in the
first year only. The circumstances where HSBC would offer a
guaranteed bonus would typically involve a critical new-hire, and
would also depend on factors such as the seniority of the
individual, whether the new-hire candidate has any competing offers
and the timing of the hire during the performance year.
2 Includes payments such as payment in lieu of notice, statutory
severance, outplacement service, legal fees, ex-gratia payments and
settlements (excludes pre-existing benefit entitlements triggered
on terminations).
Deferred remuneration at 31 December(1)
Independent
Investment Retail Asset Corporate control
banking banking management functions functions All other Total
$m $m $m $m $m $m $m
---------- -------- ------------- ------------ ------------- --------- --------
Cash
Total outstanding
deferred
remuneration(2) 170.2 33.6 8.7 26.9 14.8 17.8 272.0
* of which:
Unvested 170.2 33.6 8.7 26.9 14.8 17.8 272.0
Total amount of
outstanding
deferred and retained
remuneration exposed
to ex post explicit
and/or implicit
adjustment 170.2 33.6 8.7 26.9 14.8 17.8 272.0
Total amount of amendment
during the year due
to ex post implicit
adjustment - - - - - - -
Total amount of amendment
during the year due
to ex post explicit
adjustment(3) - - - - - - -
Total amount of deferred
remuneration paid out
in the financial year 71.3 13.4 4.4 10.6 5.3 8.5 113.5
Shares
Total outstanding
deferred
remuneration(2) 252.3 46.5 8.7 52.5 22.0 30.6 412.6
* of which:
Unvested 219.2 41.1 7.5 46.2 20.8 24.3 359.1
Total amount of
outstanding
deferred and retained
remuneration exposed
to ex post explicit
and/or implicit
adjustment 252.3 46.5 8.7 52.5 22.0 30.6 412.6
Total amount of amendment
during the year due
to ex post implicit
adjustment (39.2) (7.2) (1.4) (7.4) (3.5) (4.9) (63.6)
Total amount of amendment
during the year due
to ex post explicit
adjustment(3) - - - - - - -
Total amount of deferred
remuneration paid out
in the financial year(4) 199.5 40.3 7.9 37.2 20.9 19.8 325.6
Other forms
Total outstanding
deferred
remuneration(2) - - 4.0 - 0.1 - 4.1
* of which:
Unvested - - 2.7 - - - 2.7
Total amount of
outstanding
deferred and retained
remuneration exposed
to ex post explicit
and/or implicit
adjustment - - 4.0 - 0.1 - 4.1
Total amount of amendment
during the year due
to ex post implicit
adjustment - - (0.3) - - - (0.3)
Total amount of amendment
during the year due
to ex post explicit
adjustment(3) - - - - - - -
Total amount of deferred
remuneration paid out
in the financial year(4) - - 1.9 - 0.1 - 2.0
1 This table provides details of movements during performance
year 2018. For details of variable pay awards granted for 2018,
please refer to both the remuneration tables above. Deferred
remuneration is made in cash and/or shares. Share-based awards are
made in HSBC shares and/or linked to notional fund units in the
HSBC World Selection Balanced Portfolio.
2 Includes unvested deferred awards, and vested deferred awards
subject to retention period as at 31 December 2018.
3 Includes any amendments due to malus or clawback. Page 200
provides details of in-year variable pay adjustments.
4 Shares are considered as paid when they vest. Vested shares
are valued using the sale price or the closing share price on the
business day immediately preceding the vesting day.
MRTs' remuneration by band(1)
Management
body All other Total
EUR0 - 1,000,000 9 804 813
EUR1,000,000 - 1,500,000 1 214 215
EUR1,500,000 - 2,000,000 1 87 88
EUR2,000,000 - 2,500,000 - 36 36
EUR2,500,000 - 3,000,000 - 21 21
EUR3,000,000 - 3,500,000 - 10 10
EUR3,500,000 - 4,000,000 1 5 6
EUR4,000,000 - 4,500,000 1 12 13
EUR4,500,000 - 5,000,000 - 3 3
EUR5,000,000 - 6,000,000 - 3 3
EUR6,000,000 - 7,000,000 1 1 2
EUR7,000,000 - 8,000,000 - - -
EUR8,000,000 - 9,000,000 - - -
EUR9,000,000 - 10,000,000 - 1 1
EUR10,000,000 - 11,000,000 - - -
EUR11,000,000 - 12,000,000 1 - 1
1 Table prepared in euros in accordance with Article 450 of the
European Union Capital Requirements Regulation, using the exchange
rates published by the European Commission for financial
programming and budget for December of the reported year as
published on its website.
Directors' responsibility statement
The Directors are responsible for preparing the
Annual Report and Accounts 2018,
the Directors' remuneration report and the financial statements
in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law, the Directors
have prepared the parent company ('Company') and Group financial
statements in accordance with International Financial Reporting
Standards ('IFRSs') as adopted by the European Union. In preparing
these financial statements, the Directors have also elected to
comply with IFRSs, issued by the International Accounting Standards
Board ('IASB'). Under company law, the Directors must not approve
the financial statements unless they are satisfied that they give a
true and fair view of the state of affairs of the Company and
Group, and of the profit or loss of the Company and Group for that
period. In preparing these financial statements, the Directors are
required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- state whether applicable IFRSs as adopted by the European
Union and IFRSs issued by IASB have been followed, subject to any
material departures disclosed and explained in the financial
statements; and
-- prepare the financial statements on a going concern basis
unless it is inappropriate to presume that the Company and Group
will continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions, and disclose with reasonable accuracy at any time the
financial position of the Company and the Group enabling them to
ensure that the financial statements and the Directors'
remuneration report comply with the Companies Act 2006 and, as
regards the Group financial statements, Article 4 of the IAS
Regulation. They are also responsible for safeguarding the assets
of the Company and the Group, and hence for taking reasonable steps
for the prevention and detection of fraud and other
irregularities.
The Directors are responsible for the maintenance and integrity
of the Annual Report and Accounts 2018 as they appear on the
Company's website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
The Directors consider that the Annual Report and Accounts 2018,
taken as a whole, is fair, balanced and understandable, and
provides the information necessary for shareholders to assess the
Company's position, performance, business model and strategy.
Each of the Directors, whose names and functions are listed in
the 'Report of the Directors: Corporate governance report' on pages
153 to 157 of the Annual Report and Accounts 2018, confirm that, to
the best of their knowledge:
-- the Group financial statements, which have been prepared in
accordance with IFRSs as adopted by the EU, give a true and fair
view of the assets, liabilities, financial position, and profit or
loss of the Group; and
-- the management report represented by the Report of the
Directors includes a fair review of the development and performance
of the business and the position of the Group, together with a
description of the principal risks and uncertainties that it
faces.
The GAC has responsibility, delegated to it from the Board, for
overseeing all matters relating to external financial reporting.
The GAC report on page 159 sets out how the GAC discharges its
responsibilities.
Disclosure of Information to Auditors
In accordance with section 418 of the Companies Act 2006, the
Directors' report includes a statement, in the case of each
Director in office as at the date the Report of the Directors is
approved, that:
-- so far as the Director is aware, there is no relevant audit
information of which the Company's auditors are unaware; and
-- they have taken all the steps they ought to have taken as a
Director in order to make themselves aware of any relevant audit
information and to establish that the Company's auditors are aware
of that information.
On behalf of the Board
Mark E Tucker
Group Chairman
19 February 2019
Report of the independent auditors to the members of
HSBC Holdings plc
Opinion
In our opinion HSBC Holdings plc's ('HSBC') Group financial
statements(1) and parent company financial statements:
-- give a true and fair view of the state of the Group's and
parent company's affairs at 31 December 2018 and of the Group's and
parent company's profit and cash flows for the year then ended;
-- have been properly prepared in accordance with IFRSs as adopted by the European Union; and
-- have been prepared in accordance with the requirements of the
Companies Act 2006, and as regards the Group financial statements,
Article 4 of the IAS Regulation.
Basis of these opinions
In expressing this opinion, I believe that the audit evidence I
have obtained is sufficient and appropriate. My work has been
undertaken, and my opinion expressed, in accordance with applicable
law and the International Standards on Auditing (UK) as issued by
the Financial Reporting Council ('FRC') of the United Kingdom. My
responsibilities and those of the directors are explained later in
this report.
How the audit approach was structured
This was the fourth year that it has been my responsibility to
form this opinion on behalf of PricewaterhouseCoopers LLP ('PwC'),
who you first appointed on 31 March 2015 in relation to that year's
audit. Over 2,000 partners and staff from member firms of the PwC
network have spent more than 500,000 hours supporting this report,
which in addition to the opinion provides information on how I
approached the audit, how it changed from the previous year and
details of the significant discussions that I, and my senior
colleagues, had with the Group Audit Committee ('GAC').
The audit approach remained broadly unchanged, and reflects how
HSBC is organised. It incorporated four important aspects.
(1) Risk assessment and audit planning at a Group level, having
regard to HSBC's global businesses:
Additional partners led our audit work on three of the global
businesses. Global Private Banking was not included because of its
relative contribution to the financial statements. These partners
met regularly with the relevant HSBC management to understand
strategy and matters which arose throughout the year that could
have impacted financial reporting. The partners are specialists in
the nature of the relevant businesses and were best placed to
design the appropriate audit approach for that part of HSBC. They
oversaw each PwC member firm involved in the audit of that global
business and assisted me in my review of their work.
(2) Audit work performed at global shared service centres:
A significant amount of the operational processes which are
critical to financial reporting are undertaken in operations
centres run by HSBC Operations Services and Technology ('HOST')
across 11 individual locations. Financial reporting processes are
performed in HSBC's 4 Finance Operations Centres. Working closely
with me, a partner coordinated the audit work performed by PwC
member firms in the UK, Poland, China, Sri Lanka, Malaysia, India
and Philippines. This work established an end-to-end picture of the
key processes that supported material balances, classes of
transactions and disclosures within the HSBC financial statements.
It enabled the team to evaluate the effectiveness of the controls
over these processes and to consider the implications for the
remainder of our audit work. Approximately 10% of the controls
tested in the audit are undertaken in these sites.
(3) Audit work executed on individual legal entities:
I received opinions from PwC member firms which had been
appointed as the external auditors of the Hongkong and Shanghai
Banking Corporation Limited, HSBC North America Holdings Inc, HSBC
Mexico S.A., HSBC Bank Middle East Limited Dubai branch, HSBC Bank
Canada, HSBC Bank plc, HSBC Bank UK plc, HSBC Global Services (UK)
Limited and HSBC Group Management Services Limited (together the
'Significant Subsidiaries').
I was in active dialogue throughout the year with the partners
responsible for these audits; this included consideration of how
well they planned and performed their work. My senior colleagues
and I visited these Significant Subsidiaries, and attended Audit
Committee meetings for most of them. We also visited businesses in
a further three countries. These visits increased our understanding
of some of the smaller businesses within HSBC. I also attended
meetings with management in each of these Significant Subsidiaries
at the year-end.
The audits of these Significant Subsidiaries relied upon work
performed by PwC member firms in Australia, China, India, France,
and Germany. I considered how my Significant Subsidiary audit teams
instructed and reviewed the work undertaken in these locations in
order to ensure the quality and adequacy of their work.
Collectively, the PwC member firms completed procedures covering
85% of assets, 75% of total operating income and 85% of profit
before tax.
(4) Audit procedures undertaken at a Group level and on the
parent company:
I ensured that appropriate further work was undertaken for the
HSBC Group and parent company. This work included auditing, for
example, the consolidation of the Group's results, the preparation
of the financial statements, certain disclosures within the
Directors' remuneration report, litigation provisions and
exposures, and management's entity level and oversight controls
relevant to financial reporting.
In March 2018, I chaired a three-day meeting in London of the
partners and senior staff from PwC member firms who undertake
audits of the Significant Subsidiaries. There were no significant
changes in this team during 2018. The meeting provided an
opportunity for those partners and staff to hear directly from HSBC
management, including the new Group CEO who outlined his areas of
focus. We considered during this meeting how our view of
significant audit risks had changed.
1 We have audited HSBC Holdings plc's financial statements which
comprise the consolidated and parent company balance sheets as at
31 December 2018, the consolidated and parent company income
statements and the consolidated and parent company statements of
comprehensive income for the year then ended, the consolidated and
parent company statements of cash flows for the year then ended,
the consolidated and parent company statements of changes in equity
for the year then ended, and the notes to the financial statements,
which include a summary of significant accounting policies and
other explanatory information. We have also audited the
consolidated and parent company balance sheets as at 1 January
2018. Certain required disclosures have been presented elsewhere in
the Annual Report and Accounts 2018, rather than in the notes to
the financial statements. These are cross-referenced from the
financial statements and are identified as '(Audited)'. The
relevant disclosures are included in the Global businesses and
geographical regions sections on pages 47 to 49; the Risk sections
on pages 79 to 146; the Capital sections on pages 148 to 149; and
the Directors' remuneration report disclosures on pages 185 to
197.
Changes to the audit in 2018
More detailed changes in the approach arose because of:
(1) Changes in the structure and strategy of the HSBC Group
In assessing the Significant Subsidiaries in 2018 I limited work
performed on HSBC Bank Middle East Limited to the Dubai branch and
removed HSBC Private Bank Suisse S.A. because of its relative size.
HSBC Bank UK plc, the ring-fenced retail bank, was included for the
first time because it commenced trading as an independent entity in
July 2018. There were no other changes in scope.
(2) Impairment of assets required under IFRS 9 "Financial
Instruments"
IFRS 9 was applied from 1 January 2018. It has changed the
classification and measurement of assets and liabilities on the
balance sheet, and the calculation of impairment on assets. With
respect to impairment, this has been a substantial exercise for
HSBC with changes required to processes and controls to comply with
the complexities of the accounting standard. I asked a partner who
is a specialist in IFRS 9 to lead the audit of the processes
adopted, assumptions made, and control framework established for
both the analysis of the transition included in Note 37 and the
current year impacts included in the audited credit risk
disclosures on pages 79 to 146. The additional work required drove
much of the increased audit fee in both 2018 and 2017.
The work undertaken included a review of over 120 models used to
calculate the expected losses, but also considered the controls
governing the origination, maintenance and necessary adjustments to
the data used by these models, much of which had not previously
been subject to the application of internal controls suitable for
financial reporting.
Time was spent considering how macroeconomic events could impact
the calculation of expected loss through the application of forward
economic guidance. This guidance cannot consider all possible
outcomes that could occur in the future, but is an estimate based
on information available at the date of the financial statements.
As this is a new and complex accounting standard, market practice
will emerge that may lead to refinements in the methodology
adopted.
(3) The impact of geopolitical tensions on the macro
environment
Geopolitical factors were considered to determine if changes in
the approach were required, for example; the impacts of the UK's
departure from the EU, China-US trade arrangements, tensions in the
Middle East and changing oil prices. I specifically considered how
these matters were reflected in IFRS 9, but more broadly on the
valuation of assets and liabilities. IFRS requires financial
statements to carry certain assets at fair value, as discussed in
Note 1. Where this is the case, it is the value on 31 December
2018, and therefore the financial statements cannot reflect changes
which will occur in the future as a result of these or other
events.
(4) Adding unpredictability to our audit procedures
As required by auditing standards, my team undertook procedures
which were deliberately unexpected and could not have reasonably
been predicted by HSBC management. As an example, the team in the
Middle East undertook unannounced cash counts in branches during
the year. The results of these procedures were consistent with our
expectations.
(5) Using the work of others
During 2018 I made more use of evidence provided by others. This
included testing of controls performed by Group Internal Audit and
management themselves in some low risk areas. I also used the work
of experts where this is necessary, most notably; the calculation
of pension liabilities. An increasing number of controls are
operated on behalf of HSBC by third parties, where I rely on audit
evidence provided by other audit firms not part of the PwC network.
For example, I obtain a report evidencing the testing of external
systems and controls supporting HSBC's payroll and HR processes. In
all of these situations, the PwC audit teams reviewed the work
undertaken and determined it to be acceptable for the purposes of
the audit.
(6) Innovations in the audit
My senior colleagues and I are committed to driving innovation
and the use of technology in the audit to improve quality and
consistency. A workshop was held in India for the PwC member firms
involved in the audit to explore how work could be enhanced and new
audit procedures could be undertaken. As a result of this workshop,
we identified three areas of focus, Ways of Working, Technology
Enabled Audit, and Reliance on Others. As a result, we have
implemented our 'Agile' working methodology and tools to deliver
sections of the audit more efficiently, such as maximising the use
of our own offshore service delivery centres for approximately 100
audit procedures that can be performed consistently for all audit
teams. To make our audit more technology enabled, we developed five
solutions to automate certain standard audit procedures and
increased our use of robotics, data analytics and process
intelligence.
Responsibilities of the Directors and auditor
The Directors have, on page 206 acknowledged their
responsibility to prepare the financial statements to give a true
and fair view; to have controls enabling them to be satisfied that
the financial statements are free from material misstatement,
whether due to fraud or error; and, as described below to assess
whether the Group and parent company can continue as a going
concern.
It is the sole responsibility of the Directors to ensure that
you receive financial statements which are both true and fair.
However, an audit has an important role in providing confidence in
the financial statements that are provided by companies to their
members. That confidence is based upon independence and
objectivity. I can confirm that PwC remained independent of the
Group in accordance with the ethical requirements that are relevant
to the audit of listed public interest entities in the UK, which
includes the FRC's Ethical Standard. PwC has also fulfilled its
other ethical responsibilities in accordance with these
requirements.
There has been considerable media debate about the impact that
other services may have on auditor independence. I reviewed the
details of services provided by the PwC network of firms and
concluded that they were all permitted by the FRC's Ethical
Standard, as discussed on page 160, the GAC also rigorously
reviewed these other services. The fees for all services provided
by members of the PwC network is included in Note 7. Of these fees,
94% are for services related to the audit or providing independent
assurance, I am working with the GAC to ensure that progressively
during 2019 our services relate solely to these categories.
The audit opinion does not provide assurance over any particular
number or disclosure, but over the financial statements taken as a
whole. The scope of an audit is sometimes not fully understood. I
believe that it is important that you understand the scope in order
to understand the assurance that my opinion provides. A further
description of the scope of an audit is provided on the FRC's
website at www.frc.org.uk/auditorsresponsibilities; I recommend
that you read this description carefully.
It is also critical that you understand the inherent limitations
of the audit which are disclosed in this description, including the
possibility that an approach based upon sampling and other audit
techniques may not identify all issues.
As in all PwC statutory audits I did specifically address the
risk of management override of internal controls, including testing
journals and evaluating whether there was evidence of bias by the
directors that represented a risk of material misstatement due to
fraud.
While our audit procedures include obtaining representations
that the Group is in compliance with all applicable laws and
regulations, an audit does not involve testing HSBC's compliance
with each of the very large number of laws and regulations with
which the Group, as a financial services business, must comply. I
and my colleagues apply judgement in selecting the specific laws
and regulations as the focus of our audit procedures. For example,
we focused on business authorisations issued by the Prudential
Regulatory Authority because in our judgement a breach could lead
to a material impact on the financial statements or the Group's
going concern. Audit procedures were performed to identify if any
such breaches had occurred. These procedures included regularly
meeting with some of the Group's regulators, reviewing
correspondence with both regulators and legal advisors and meeting
with the Group General Counsel.
Annually the Prudential Regulatory Authority provide questions
covering aspects of our audit where they would like further
information to assist them in their regulatory responsibilities.
These questions did not highlight any areas that I had not already
considered in our audit.
Materiality
In order for me to perform my work, I had regard to the concept
of materiality. The table provides you with details of how I have
determined materiality for both the Group and the parent
company.
Overall Group $1bn (2017: $900m) $1bn (2017: $900m)
materiality
How I determined 5% of adjusted profit before 0.75% of total assets. This
it tax excluding the debit valuation would result in an overall
adjustment and non-qualifying materiality of $1.8bn and is
hedges. therefore capped at the materiality
for the Group.
Why I believe Given the geographically dispersed A benchmark of total assets
this is appropriate nature of HSBC and the diversity has been used as the parent
of its banking activities, company's primary purpose is
I believe a standard benchmark to act as a holding company
of 5% of adjusted profit before with investments in the group's
tax is an appropriate quantitative subsidiaries, not to generate
indicator of materiality, although operating profits and therefore
of course an item could also a profit based measure is not
be material for qualitative relevant.
reasons. 1% is a commonly used measure
I selected adjusted profit when determining materiality
before tax, because as discussed based on total assets. Given
on page 47, management believes the parent company has a significant
it best reflects the performance level of external debt, we
of HSBC. I excluded the debit considered 0.75% to be more
valuation adjustment and non-qualifying appropriate.
hedges as they are recurring
items that in my view form
part of ongoing business performance.
When planning the Group audit, I considered if multiple errors
might exist which, when aggregated, could exceed $1bn. In order to
reduce the risk of multiple errors that could aggregate to this
amount, I used a lower level of materiality, known as performance
materiality, of $750m to identify the individual balances, classes
of transactions and disclosures that were subject to audit. I asked
each of the partners reporting to me on the Significant
Subsidiaries to work to assigned materiality levels reflecting the
size of the operations they audited. The overall materialities
ranged from $67m (HSBC Mexico S.A.) to $837m (The Hongkong and
Shanghai Banking Corporation Limited).
My objective is to obtain reasonable assurance about whether the
financial statements are free from material misstatement, whether
due to fraud or error. Reasonable assurance is not a guarantee that
an audit will always detect a material misstatement when it exists.
It is important to recognise that identifying a material
misstatement arising from fraud is more difficult than identifying
one arising solely from error because fraud generally involves
deliberate concealment, collusion or misrepresentation.
Misstatements are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements. The misstatements identified during the audit were
carefully considered to assess if they were individually or in
aggregate material. I agreed with the GAC that we would report to
them misstatements identified during our audit above $50m (2017:
$50m), as well as misstatements below those amounts that, in our
view, warranted reporting for qualitative reasons. I reported
several items for both the Group and parent company to the GAC,
impacting either the absolute level of profit and equity or
misclassifications within the financial statements and notes. The
Directors concluded that all items which remained unadjusted were
not material to the financial statements. I agreed with their
conclusion. All other significant adjustments that we identified in
our audit were adjusted by the Group prior to the issuance of the
financial statements.
Matters discussed with the GAC
Most of our discussions occur with senior management of the
Group. However, we escalate those matters which we believe are most
important to the GAC for their consideration. I attended each of
the 13 GAC meetings held during the year. Part of each meeting
involved a discussion without management present. I also met with
members of the GAC a further 20 times. During these various
conversations we discussed my observations on a variety of
accounting matters, observations on controls over financial
reporting, culture and the impact of changes in senior management.
I can confirm that this report is consistent with the reporting
made to the GAC.
During the April meeting, the audit plan was presented. This was
supplemented by an update in December on how technology was being
used in the audit. Throughout the year, this plan was refreshed and
revisions discussed with the GAC. For example, given the focus on
'jaws' as an alternative performance measure in external reporting
and sensitivity to changes in income and expense recognition
significantly lower than materiality, I changed our risk assessment
and audit effort.
I discussed with the GAC all of the matters that presented the
most significant risks of material misstatement in the financial
statements. They include those that had the greatest effect on the
overall audit strategy, and the allocation of resources and effort
and are discussed below together with an explanation of how the
audit was tailored to address these specific areas. To help you
understand their impact on the audit, I have listed them in order
of decreasing audit effort. This is not a list of all audit risks
and I do not form an opinion on any one area, but on the financial
statements overall. The list is similar to last year, with the
exception of litigation and regulatory enforcement actions, which
was not a key audit matter in 2018 as a result of the settlements
made by the Group.
IT Access Management
The audit approach relies extensively on automated controls and therefore
on the effectiveness of controls over IT systems.
In previous years, we identified and reported that controls over access
to applications, operating systems and data in the financial reporting
process required improvements. Access management controls are critical
to ensure that changes to applications and underlying data are made
in an appropriate manner. Appropriate access controls contribute to
mitigating the risk of potential fraud or errors as a result of changes
to applications and data.
Over the past four years, management implemented remediation activities
that have contributed to reducing the risk over access management in
the financial reporting process. The status of the remediation was
discussed at several GAC meetings during the year.
However, issues related to privileged access and business user access
remained unresolved on parts of the technology infrastructure, requiring
our audit approach to respond to the risks presented.
This matter was discussed in relation to both the Group and the parent
company.
Access rights were tested over applications, operating systems and
databases relied upon for financial reporting. Specifically, the audit
tested that:
* New access requests for joiners were properly
reviewed and authorised.
* User access rights were removed on a timely basis
when an individual left or moved role.
* Access rights to applications, operating systems and
databases were periodically monitored for
appropriateness.
* Highly privileged access was restricted to
appropriate personnel.
Other areas that were independently assessed included password policies,
security configurations, controls over changes to applications and
databases and that business users, developers and production support
did not have access to change applications, the operating system or
databases in the production environment.
As a consequence of the deficiencies identified, a range of other procedures
were performed:
* Where inappropriate access was identified, we
understood the nature of the access, and, where
possible, obtained additional evidence on the
appropriateness of the activities performed.
* Additional substantive testing was performed on
specific year-end reconciliations (i.e. custodian,
bank account and suspense account reconciliations)
and confirmations with external counterparties.
* Testing was performed on other compensating controls
such as review controls undertaken by management.
* Testing was performed over toxic combination
controls.
* A list of users' access permissions was obtained and
manually compared to other access lists where
segregation of duties was deemed to be of higher risk,
for example users having access to both core banking
and payments systems.
GAC Report, page 160.
Effectiveness of internal controls, page 164.
Application of IFRS 9 in the calculation of impairment of loans and
advances
As this is the first year of adoption of IFRS 9, there is limited experience
available to back-test the charge for expected credit losses ('ECL')
with actual results. There is also a significant increase in the number
of data inputs required for the impairment calculation. The data is
sourced from a number of systems that have not been used previously
for the preparation of the accounting records. This increases risk
around completeness and accuracy of certain data used to create assumptions
and operate the models.
The global credit environment has remained benign for an extended period
of time, in part due to the globally low interest rates and relative
strength of the global economy. However, there are a number of headwinds
to the global economy as well as certain regional and country specific
risks. As a result, whilst the current levels of delinquencies and
defaults remains low, the risk of impairment remains significant.
At each GAC and Group Risk Committee meeting there was a discussion
on changes to risk factors and other inputs within the models, geopolitical
risks, such as the escalating US-China trade wars and the UK's departure
from the EU, as well as discussions on individually significant loan
impairments.
The more judgemental interpretations of IFRS 9 made by management continued
to be discussed, in particular the application of forward economic
guidance, including the severity and magnitude of modelled downside
scenarios; and associated considerations of post model adjustments.
As the control environment for the calculation of ECL under IFRS 9
continued to be strengthened following initial adoption, we provided
updates on the changes being made and the results of our testing procedures.
* Model performance monitoring controls were tested,
including periodic policy and independent model
reviews, back testing of performance, and approval of
model changes.
* Performed risk based substantive testing of models,
including independently re-building certain
assumptions.
* Tested the review and challenge of multiple economic
scenarios by an expert panel and internal governance
committee, and assessed the reasonableness of the
multiple economic scenarios and variables using our
economic experts.
* Controls over the inputs of critical data, into
source system, and the flow and transformation of
data between source systems to the impairment
calculation engine were tested. Substantive testing
was performed over the critical data used in the year
end ECL calculation.
* Assessed management's user acceptance testing over
the automated calculation of ECL to ensure it is
performed in line with business requirements, as well
as independently reviewing the underlying script to
validate that the calculation operated as per our
expectations.
* Observed review and challenge forums to assess the
ECL output and approval of post model adjustments.
* Tested the approval of the key inputs, assumptions
and discounted cash-flows that support the
significant individual impairments, and substantively
tested a sample of individually assessed loans.
Credit risk disclosures, page 88.
GAC Report, page 160.
Note 1.2 (d): Financial instruments measured at amortised cost, page
228.
Note 37: Effects of reclassification upon adoption of IFRS 9, page
296.
Investment in associate - Bank of Communications Company, Limited ('BoCom')
For eight consecutive year ends the market value of BoCom has been
below the carrying value. At 31 December, the market value based on
the share price was $6.8bn lower than the carrying value.
This is considered an indicator of potential impairment. An impairment
test was performed by HSBC using a value in use ('VIU') model to estimate
the investment's value assuming it continues to be held in perpetuity
rather than sold. The VIU was only $300m in excess of the carrying
value. On this basis no impairment was recorded and the share of BoCom's
profits has been recognised in the consolidated income statement.
The VIU model is dependent on many assumptions, both short-term and
long-term in nature. These assumptions are derived from a combination
of management estimates, analysts' forecasts and market data, and are
highly judgemental. Given the proximity of the carrying value and VIU,
small changes in some of these assumptions would lead to an impairment.
We discussed the appropriateness of these assumptions with the GAC,
particularly those with the greatest sensitivity related to short term
cash flows and the minimum level of capital required by BoCom. The
focus of this discussion was on whether the impact of China-US trade
tensions and perspectives on the China banking market had been fully
reflected. We also reviewed with the GAC the long term profit growth
rate and loan impairment rate, and considered reasonably possible alternatives.
In the discussion we specifically considered whether the assumptions
used captured the current levels of uncertainty, both individually
and when standing back and considering the output of the model in aggregate.
* The conclusions on the appropriateness of the model
were reviewed, including an assessment of
management's expert.
* A reasonable range for the discount rate used within
the model was independently calculated with the
assistance of our valuation experts.
* Inputs used in the determination of assumptions
within the model were challenged and corroborating
information was obtained with reference to external
market information, third-party sources, including
analyst reports, and historical publicly available
BoCom information.
* The controls in place over the model, and its
mathematical accuracy were tested.
* We observed a meeting in November 2018 between
management and senior BoCom executive management,
held specifically to identify facts or circumstances
impacting management assumptions.
* Disclosures made in the Annual Report and Accounts
2018 in relation to BoCom were reviewed.
* Representations were obtained from HSBC that the
assumptions used were consistent with information
currently available to them, both as a shareholder
and to which HSBC are entitled through their
participation on BoCom's Board of Directors.
GAC Report, page 160.
Note 1.1(f): Critical accounting estimates and judgements, page 226.
Note 18: Interests in associates and joint ventures, page 265.
Management override of controls - alternative performance measure
The use of alternative performance measures is common by listed companies
to help better explain performance. HSBC use a number, and the GAC
has considered them in detail during the year, specifically assessing
the appropriateness of 'adjusted profit'.
During the year we discussed with the GAC the potential for the jaws
target to be missed. Given the metric is highly sensitive to small
changes in revenue and cost, we concluded that this increased the incentive
for management to override controls to meet targets. This change in
assessment prompted us to perform a number of incremental procedures
which might indicate that revenue or costs were intentionally misstated.
We communicated the change in risk assessment during October 2018,
and designed a year end testing response as a result. The outcome of
our testing was communicated to the GAC in February 2019.
Reassessed significant judgements in light of the enhanced incentives
noted in the risk assessment.
* Performed additional tests on journals, specifically
considering cut off and unusual combinations that
impact costs and revenue.
* Performed work over revenue and expenses booked in
January 2019 to assess if they were included in the
correct period.
* Tested the clearance and appropriateness of
classification of aged reconciliation breaks,
considering if there was a trend towards only
resolving issues which would improve revenue or
reduce costs.
* Considered the accuracy of accruals with a specific
focus on the bonus accrual.
* Tested impairment processes at year end, identifying
where booking of impairments may have been delayed
into FY19 or was close to meeting criteria for
impairment at year end.
GAC Report, page 160.
There were a number of other matters which were covered in the
meetings, including;
-- the impact of models on the financial statements and the
related control environment. The carrying value of almost 70% of
the Group's total assets is calculated or supported by models and
included areas such as loans and advances, calculation of the
present value of inforce policies sold by the insurance businesses
and goodwill. Our audit work considered the controls over, inputs
into and reasonableness of the outputs of those models with a
material impact;
-- internal controls over financial reporting. At the GAC
meetings in November 2018 and February 2019, there was an update on
the control environment over financial reporting. I provided
information on the aggregate number of new and outstanding control
deficiencies identified by my team and management. Those deemed to
be significant in their potential impact on financial reporting,
but not material, were discussed individually;
-- a focus on uncertain tax positions ('UTPs'). During the
November GAC meeting, I highlighted the increase in UTP exposure,
particularly in the UK entities due to increased focus from HMRC on
UK VAT matters in financial services Groups. This increase in UTP
exposure is consistent with our expectations based on what we've
seen across the sector and given the nature of the Group's
business; and
-- a detailed discussion on the quality of the results of
quality inspections performed with respect to the audit work of
different PwC member firms on which I rely, and the rotation plans
for key audit partners.
Going concern
On page 165, the Directors confirmed their belief it was
appropriate to prepare the financial statements on a going concern
basis, because they believe that the Group and the parent company
will continue in business. That statement also included
confirmation that they had not identified any material
uncertainties to either the Group's or the parent company's ability
to continue as a going concern over a period of at least twelve
months from the date of their approval of these financial
statements. Because not all future events or conditions can be
predicted, this statement is not a guarantee. I reviewed this
statement, and considered HSBC's budgets, cash flows, capital plan
and stress tests. There is nothing arising from this review that is
materially inconsistent with my understanding and information
obtained during the audit. Further, there is nothing material that
I would add to this statement, or that I wish to draw your
attention to.
Other required matters and reporting on other information
The Annual Report and Accounts 2018 contains a considerable
amount of other information that is required by regulators or
standard setters and is outside of the audited financial statements
and the auditors' report. This information, while being unaudited,
may still be important to your consideration of the performance and
position of HSBC, for example risk weighted assets. The Directors
are responsible for this other information.
In the table below, I have set out certain areas, my related
responsibilities and reporting. Except as outlined in the table, I
have not provided an audit opinion or any form of assurance. It is
important that you understand the limitations in the scope of my
responsibility, particularly over areas important to considering
the future potential of HSBC such as the Viability Statement and
how the Group's key risks are managed.
Directors' remuneration report on pages 172 to 205
Those parts of which are Consider whether the information In my opinion, this information
marked as audited. is properly prepared. has been properly prepared
in accordance with the
Companies Act 2006.
Other remuneration report Consider whether certain The other required disclosures
disclosures. other disclosures specified have been made.
by the Companies Act have
been made.
Other areas
Strategic Report and the Consider whether they In my opinion, based on
Report of the Directors' are consistent with the the work undertaken in
on pages 2 to 206. audited financial statements. the course of the audit,
Consider whether they the information in these
are prepared in accordance reports is consistent
with applicable legal with the audited financial
requirements. statements and prepared
Report if I have identified in accordance with applicable
any material misstatements legal requirements.
in either report. This
is based on my knowledge I have no material misstatements
and understanding of the to report.
Group and parent company
and the environment they
operate in that was obtained
during the audit.
Viability statement on Review the confirmation I have nothing material
page 165 which considers and description in the to draw attention to or
the longer term sustainability light of the knowledge to add to the confirmation
of the Group's business gathered during the audit, or description.
model, as to whether the including making enquiries
Directors have a reasonable and considering the directors'
expectation that the Group processes used to support
will be able to continue the statements made.
in operation and meet Consider if the statements
its liabilities as they are aligned with the relevant
fall due over the period provisions of the UK Corporate
of their assessment, and Governance Code (the 'Code').
why the Directors consider
that period to be appropriate.
This includes confirmation
of the Directors' robust
assessment of principal
risks facing the Group,
including those that would
threaten its business
model, future performance,
solvency or liquidity,
and disclosures describing
those risks and how they
are managed or mitigated.
GAC Report on page 159. Consider whether it deals No exceptions to report.
appropriately with those
matters that I reported
to the GAC.
Directors' statement on Consider whether any information No disagreements to report.
page 206 that they consider found during the course
the HSBC Annual Report of the audit would cause
and Accounts 2018, taken me to disagree.
as a whole, to be fair,
balanced and understandable
and provides the information
necessary for you to assess
HSBC's position and performance,
business model and strategy.
Corporate governance report Consider whether the Directors' Nothing to report following
on pages 152 to 171. statement relating to my review.
the parent company's compliance
with the Code properly
discloses any departure
from a relevant provision
of the Code specified,
under the Listing Rules,
for review by the auditors.
All other information Read the other information Nothing to report following
in the Annual Report and and consider whether it my review.
Accounts 2018 aside from is materially inconsistent
the audited financial with the financial statements
statements and the auditors' or our knowledge gained
report. in the audit, or otherwise
appears to be materially
misstated. I am required
to perform additional
work to validate if apparent
inconsistencies or misstatements
are real, and report those
matters to you.
Other Reporting
In addition, I am required to report to you under the Companies
Act 2006 if:
-- I have not received all of the information and explanations required for my audit;
-- adequate accounting records have not been kept by the parent company;
-- returns adequate for my audit have not been received from branches not visited by PwC; and
-- the parent company financial statements and the audited part
of the Directors' remuneration report do not agree with the
accounting records and returns.
I have no exceptions to report as a result of any of these
responsibilities.
Use of this report
This report, including the opinions, has been prepared for and
only for you, the parent company's members as a body in accordance
with Chapter 3 of Part 16 of the Companies Act 2006, and for no
other purpose. We do not, in giving these opinions, accept or
assume responsibility for any other purpose or to any other person
to whom this report is shown or into whose hands it may come except
where expressly agreed by our prior written consent.
Richard Oldfield (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London, United Kingdom
19 February 2019
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
ACSEAKDKEEXNEFF
(END) Dow Jones Newswires
March 06, 2019 12:04 ET (17:04 GMT)
Hsbc (LSE:HSBA)
Gráfica de Acción Histórica
De Mar 2024 a Abr 2024
Hsbc (LSE:HSBA)
Gráfica de Acción Histórica
De Abr 2023 a Abr 2024
