HSBC is sounding out its shareholders on a proposed shake-up of its executive pay plans, which could see its top bankers unable to sell their stock until retirement.
Driven by John Thornton, chairman of the bank’s remuneration committee and a former Goldman Sachs executive, the plans would see top management assessed on a wider range of performance metrics, with an emphasis on the longer term.
The changes, which also include a cut in the maximum amounts awarded, would see potential remuneration for Stuart Gulliver, the bank’s new chief executive, capped at £12.5m ($20m), compared with £15m currently.
The same principles would apply to other top executives, though it is unclear how many would be covered by the scheme.
Compared with the current structure, which allows top bankers to earn as much as four times their salary as an annual bonus plus seven times salary in a long-term incentive plan (LTIP), the new scheme would cut those multiples to three times and six times, according to people briefed on it.
That reverses an inflation of multiples seen under Michael Geoghegan, the bank’s previous chief executive.
HSBC said its consultation with large shareholders was continuing and would be subject to investor approval at the bank’s annual meeting on May 27.
Mr Thornton’s proposal to force executives to hold stock awards until retirement is an imported idea from his former employer.
Goldman Sachs has long obliged top staff to hold 75 per cent of stock awards until they leave the bank. HSBC’s normal retirement age is 65.
Also included in the plan is a proposal to extend the period over which share awards would vest, from three years – as is the case at most UK companies – to five years.
HSBC’s leading investors are broadly supportive of the changes, particularly the widening of targets beyond current shareholder return and profit measures to an unspecified basket of “balanced scorecard” measures.
“Moving away from purely financial metrics is a good thing,” said one. However, investors remain concerned about certain aspects of the plan.
One said that HSBC’s proposed shrinking of the period for which the LTIP is awarded – from three years to one – would be unpopular with shareholders.
Mr Thornton has proposed cutting that performance period as a quid pro quo for the longer vesting period.