Buried in today’s release of its annual results, HSBC revealed that it caps bonuses for its executive directors — its top management — at nine times salaries, far above the EU’s proposed cap of 2.5 times salaries. It also pays some of its bankers very well indeed.
According to the bank’s annual report, executive directors have their annually paid bonuses capped at three times salaries and their longer term performance pay capped at six times salaries. A spokeswoman for HSBC said the caps were put in place two years ago. The bank only publishes caps for directors, but the spokeswoman said similar caps apply to employees lower down as well. “It’s safe to say that what happens at the top of the organization flows down to the rest of the bank,” she said.
Sam Whitaker, a counsel in the executive compensation practice at law firm Shearman & Sterling, said all banks in the UK are required to set ratios between fixed and variable pay by the UK Financial Services Authority (FSA). HSBC is one of the only banks to disclose this ratio, however. The FSA doesn’t stipulate what the ratio must be.
HSBC’s generosity is not restricted to bonuses as a ratio of salaries. Absolute amounts look generous too. The bank’s annual report also includes the following table, which shows that several of its bankers – none of whom are directors, but each of whom is on the global management board – are being paid annual compensation in excess of $5m. Beyond the executive committee, the highest paid employee at HSBC earned $11m for 2012, of which $2.6m is payable this year.
HSBC declined to comment on the identity of the individuals in the table above, but it seems fair to assume that several work of them in the global banking and markets division (the investment bank). Samir Assaf, chief executive of HSBC global banking and markets would seem a likely candidate, for example. Last year, pre-tax profit in HSBC’s investment bank rose 24% from 2011. Revenues from credit sales and trading rose 139% over the same period.
The pay figures are surprising because HSBC is not known for its generosity. HSBC was one of the first banks to introduce five-year vesting for share awards. Second to Royal Bank of Scotland, HSBC pays one of the lowest amounts of any bank to its registered banking employees in Europe.
Despite its historic parsimony, HSBC shows an awareness of the risks of underpaying its staff. In today’s results, the bank also states that it imposes a floor on bonus payments, meaning they will not be reduced below an (unspecified level). “The floor recognises that franchise protection is typically required irrespective of performance levels,” said HSBC today.