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The Guardian: Anger at HSBC plan to make bonuses easier to earn

Jill Treanor
Monday March 31 2008

HSBC is preparing to publish a potentially controversial pay scheme that could allow its top executives to earn larger bonuses.

Britain’s largest bank has consulted its biggest shareholders and is thought to have failed to reach a consensus of opinion among investors who will vote on the plan at the May annual general meeting.

Details of the consultation were revealed by activist investor Knight Vinke, which this weekend published an eight-page document sent to investors and signed by Sir Mark Moody-Stuart, the former head of Shell who now chairs the remuneration committee at HSBC. The outcome of the consultation is expected to be published shortly.

The remuneration committee is thought to have concluded that it will use a simpler way to calculate earnings per share – one of the main ways of measuring company performance. It will also introduce economic profit, a pure measure of profit, as another way of gauging performance and plans to change the group of companies against which it compares its performance to nine banks from the current 28.

These subjects were raised during the consultation with investors. Knight Vinke argued that economic profit allows companies to pay a bonus even if other performance measures – such as total shareholder return – do not reach the target.

Knight Vinke, run by veteran campaigner Eric Knight, has repeatedly raised questions about the pay policies at HSBC but has yet to win much backing from other institutional investors.

In the latest consultation on pay, Knight Vinke said: “The problems facing the banking industry are attributable at least in part to poor alignment of management and shareholder interests.”

The fund management group owns less than 1% of the bank’s stock but is trying to keep the heat on HBSC by publishing a letter sent to the bank’s senior independent director, Simon Robertson, on March 14. In the letter, Knight Vinke urged HSBC to “sell, spin-off or otherwise ring-fence” HFC – its US-based business that has been caught in the eye of the sub-prime mortgage storm in the US.

HFC was acquired with Household five years ago, a deal that Knight Vinke describes as a “catastrophic strategic mistake” and argues that if HSBC had followed its advice, first given last June, it would have “virtually no remaining exposure to sub-prime”. HSBC has insisted it is committed to HFC and said it is “unrealistic and unthinkable” to walk away from the troubled operation.

HSBC’s shares ended 2p higher at 823p on Friday and have recently performed better than their peers.

This article appeared in the Guardian on Monday March 31 2008 on p28 of the Financial section. It was last updated at 00:04 on March 31 2008. and its sister non-profit websites,,,,,, and are owned by John Donovan. There is also a Wikipedia feature.

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