Executive pay revolt looms at HSBC

Directors at HSBC are heading for a potentially bitter showdown with shareholders this week over a new remuneration package that could reward the bank’s most senior executives with more than £100m over the next three years.

The scheme, made up of generous annual bonuses and long-term incentives, could see a number of senior directors receiving up to 12 times their basic salary each year for the next three years.

The remuneration report is expected to be the main focus at the bank’s annual meeting on Friday.

Pirc, the investor body, is recommending shareholders vote against the scheme. Earlier this month, the Association of British Insurers, which represents some of HSBC’s biggest shareholders, signalled its concern by issuing an “amber top” alert on remuneration.

Knight Vinke, an activist investor, also voiced concerns that generous remuneration packages could encourage excessive risks.

Shareholders have launched several revolts against bonus packages in recent weeks. Royal Dutch Shell and GlaxoSmithKline faced protests last week over high one-off retention bonuses. Meanwhile, the Financial Services Authority said it would take remuneration into consideration when assessing the risk faced by financial institutions.

HSBC said shareholders had been made aware of the scheme details and the bank did not expect a large-scale rejection of the proposals.

It has laid out tough performance measures, which top directors have to meet to qualify for the maximum pay-outs.

Directors would, for example, have to increase earnings per share by a minimum of 28 per cent over three years, equating to more than 8 per cent compound growth a year. Analyst forecasts point to earnings per share growth of about half that level over the three years.

HSBC’s remuneration committee retains the right to block bonus payments even if performance targets are met if it fears directors are not acting in the interests of shareholders.

If targets were met Mike Geoghegan, chief executive, could receive £36m over the next three years, while Douglas Flint, finance director, could pocket more than £25m. Stephen Green, chairman, is not taking part in the bonus scheme, but could receive £8.75m through long-term incentives.

Investors are also expected to question the performance of HSBC’s US division after large writedowns on sub-prime mortgage assets. Some could put pressure on the bank to offload the division.