HSBC faces rebellion over £120m executive bonus plan

  • @AlistairDawber

HSBC is set to be the next big British company to feel the wrath of its shareholders over directors' pay, when plans to make as much as £120m in bonuses available to its executive team will be presented at the bank's annual general meeting on Friday.

The payments, available over the next three years in cash and shares, would be linked to performance but a number of investors are already raising the stakes of the meeting by criticising the move in advance. Eric Knight, who runs Knight Vinke Asset Management, and who last year wrote to HSBC's chairman Stephen Green saying he thought the bank was as much as 50 per cent undervalued, will be at the meeting and has already been critical of the package.

Mr Green, who earns a basic salary of £1.25m a year, will not benefit from the bonus scheme. The bank's chief executive, Mike Geoghegan, could earn as much as 4m in bonuses, on top of his £1m-a-year salary, and up to £7m as part of the bank's long-term incentive plan, according to the proposals. Douglas Flint, the fin-ance director, the Asia chief executive Sandy Flockhart and chairman Vincent Cheng are also proposed beneficiaries. Stuart Gulliver, HSBC's markets head, and the highest paid executive at the bank, is not included in the new structure.

The bank said in a letter to shareholders that the move would put it on a more equal footing with the world's biggest banks and that "the objective was to ensure closer alignment of remuneration arrangements with HSBC's business strategy, taking into account competitive market practice". Mr Knight said on his website that this did not take shareholders' interests into account, adding: "This means that HSBC is measuring itself against the largest banks instead of measuring itself against the best performing banks." HSBC did not return calls yesterday.

The decision to increase senior executives' bonuses will be taken just a week after Hector Sants, the chief executive of the Financial Services Authority, said that the City watchdog is planning to take bankers' bonuses into account when it assesses banks' exposure to risk.

Shareholders at a number of FTSE 100 companies have expressed anger at pay awards in recent weeks. Last Wednesday, GlaxoSmithKline stockholders protested at a 2.5m retention payment made to its head of pharmaceuticals Chris Viehbach-er, who lost out to Andrew Witty in the race to succeed Jean-Pierre Garnier as chief executive. Only 61 per cent of votes cast were in favour of the payment.

Royal Dutch Shell shareholders also protested last week at plans to give three directors 1m each. A third of those voting on the plan last Tuesday rejected it.

While HSBC shareholders are likely to mount a protest on Friday, the resolution will almost certainly be backed. A spokesman for Mr Knight said that while the issue of directors' pay was important, more of an objection would be made about other areas where the bank was underperforming, such as the United States.

The bank reported this month than first-quarter profits were up on last year after growth in its emerging markets business. In March, it reported writedowns of $17.2bn, largely from its exposure to the US housing market.

Meanwhile, Knight Vinke's European Corporate Governance Fund underperformed the FTSE All World Europe Index in the fourth quarter of 2007 as its investments in HSBC and Project Adriatica investments in four European energy companies weighed on returns, according to data prepared for Calpers, the California pension fund. The return in the fourth quarter was -1.2 per cent compared with a benchmark return of 0.3 per cent, the report said.