RNS Number : 0293H
HSBC Holdings PLC
07 March 2018
 

 




Corporate Governance Report

 

Page

   The Board

121

Operation of the Board

121

   Director and Group Managing Director biographies

122

   Board of Directors

126

   Board committees

127

   Internal control

133

   Internal audit

134

   Going concern and viability

134

   Share capital and other disclosures

135

   Employees

138

   Statement of compliance

140



The Board

The Board aims to promote the Group's long-term success, deliver sustainable value to shareholders and promote a culture of openness and debate.

Led by the Group Chairman, the Board sets the Group's strategy and risk appetite. It also approves capital and operating plans for achieving strategic objectives on the recommendation of management.

Group Chairman

Douglas Flint retired as Group Chairman on 30 September 2017. Mark Tucker was appointed to the Board as an independent non-executive Director on 1 September 2017. He became non-executive Group Chairman on 1 October 2017.

Executive Directors

The Group Chief Executive, the Group Finance Director and the Group Chief Risk Officer are HSBC employees.

Independent non-executive Directors

The Board comprises a majority of independent non-executive Directors. Their role is to challenge and scrutinise the performance of management and to help develop proposals on strategy. They also review the performance of management in meeting agreed goals and objectives and monitor the Group's risk profile.

The Board considers all non-executive Directors to be independent of HSBC and has concluded that there are no relationships or circumstances likely to affect any individual non-executive Director's judgement. To satisfy the Rules Governing the Listing of Securities on the HKEx, all non-executive Directors have provided confirmation of their independence during the year. The non-executive Group Chairman was considered to be independent upon appointment.

Board and executive responsibilities

The roles of Group Chairman and Group Chief Executive are separate, with a clear division of responsibilities between the running of the Board and executive responsibility for running HSBC's business.

Jonathan Symonds was appointed as Senior Independent Director ('SID') in April 2017 following the retirement of Rachel Lomax.

The roles of the Group Chairman, Group Chief Executive and SID are set out in writing and are available on the website at www.hsbc.com/about-hsbc/corporate-governance/board-committees.

The Board delegates day-to-day management of the business and implementation of strategy to the Group Chief Executive. To assist the Group Chief Executive in his day-to-day management of the Group, as delegated by the Board, he is supported with recommendations and advice from the Group Management Board ('GMB'), an executive forum which he chairs.

There are special meetings of the GMB that provide oversight of risk matters (the Risk Management Meeting ('RMM'), chaired by the Group Chief Risk Officer) and of financial crime risk (the

 

Financial Crime Risk Management Meeting, chaired by the Group Head of Financial Crime Risk).

Powers of the Board

In exercising its duty to promote the success of the Company, the Board is responsible for overseeing the management of HSBC globally and, in so doing, may exercise its powers, subject to any relevant laws, regulations and HSBC Holdings' Articles of Association (the 'Articles of Association').

However, certain matters, including the review and approval of annual operating plans, risk appetite, performance targets, credit or market risk limits, acquisitions, disposals, investments, capital expenditure or realisation or creation of a new venture, specified senior appointments and any substantial change in balance sheet management policy, are reserved to the Board for its approval.  



Operation of the Board

The Board regularly reviews reports on performance against financial and other strategic objectives, key business challenges, risk, business developments, and investor and external relations. During 2017, it also considered presentations on strategy and performance by each of the global businesses and across the principal geographical areas.

All of HSBC's activities involve the measurement, evaluation, acceptance and management of risk or combinations of risks. The Board, advised by the Group Risk Committee ('GRC'), the Conduct & Values Committee ('CVC') and the Financial System Vulnerabilities Committee ('FSVC'), promotes a strong risk governance culture which shapes the Group's attitude to risk. The Board and these committees support the maintenance of a strong risk management framework.

Under the direction of the Group Chairman, the Group Company Secretary is responsible for ensuring good information flows within the Board and its committees and between senior management and non-executive Directors, as well as facilitating induction and assisting with professional development as required.

The Group Chairman meets with the independent non-executive Directors without the executive Directors in attendance after each Board meeting and otherwise, as necessary.

The Directors are encouraged to have free and open contact with management at all levels and full access to all relevant information. When attending off-site Board meetings and when travelling for other reasons, non-executive Directors are encouraged to visit local business operations and meet local management.

Directors may take independent professional advice, if necessary, at HSBC Holdings' expense.

Board performance evaluation

The Board is committed to regular, independent evaluation of its own effectiveness and that of its committees. Following on from the review of the Board undertaken by JCA Group in 2016, the actions identified and agreed were addressed during 2017. These actions included a stronger focus for the Board on individual business unit strategy and performance, as well as opportunities to address particular business themes, such as digital and IT innovation. The actions that have not already been closed out from this review form part of an ongoing assessment of the Group's governance framework being led by the Group Chairman.

Director performance evaluation

For non-executive Directors, individual performance evaluation is undertaken by the Group Chairman. In 2017, this involved a discussion about each Director's individual contribution, their individual training and development needs, and the time commitment that is required to continue to deliver the role effectively.

Executive Directors' individual performance evaluation is undertaken as part of the performance management process for all employees. The results are considered by the Group Remuneration Committee when determining variable pay awards

 




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each year, as set out in the Directors' Remuneration Report contained in this Annual Report.

The Group Chairman's performance is evaluated by the non-executive Directors, led by the SID.



Non-executive Group Chairman





Mark E Tucker,  60

Non-executive Group Chairman

Appointed to the Board: September 2017

Group Chairman since October 2017

 


Chairman of the Nomination Committee

Skills and experience: Mark has extensive experience in the financial services industry in Asia and the UK. Most recently he was Group Chief Executive and President of AIA Group Limited ('AIA'). Before joining AIA, Mark was Group Chief Executive of Prudential plc and the founding Chief Executive of Prudential Corporation Asia Limited. Mark also previously served as a non-executive director of the Court of The Bank of England, as an independent non-executive director of the Goldman Sachs Group and as Group Finance Director of HBOS plc.

Current appointments include: Serves on the Asia Business Council and the Advisory Board of the Asia Global Institute.  



Executive Directors





Stuart Gulliver,   58

Group Chief Executive

Appointed to the Board: May 2008

Group Chief Executive since January 2011

Retiring from Board: 21 February 2018

 


Skills and experience: Stuart has more than 37 years' international banking experience, having joined HSBC in 1980. He played a leading role in developing and expanding Global Banking and Markets, and has held key roles in the Group's operations worldwide, working in London, Hong Kong, Tokyo, Kuala Lumpur and the United Arab Emirates. Former appointments include Chairman of HSBC Bank plc, HSBC Bank Middle East Limited, HSBC Private Banking Holdings (Suisse) SA and HSBC France. He was also Deputy Chairman of HSBC Trinkaus & Burkhardt AG and a member of its supervisory board.

Current appointments include: Chairman of the Group Management Board, and The Hongkong and Shanghai Banking Corporation Limited.  





Iain Mackay,   56

Group Finance Director

Appointed to the Board: December 2010

 


Skills and experience: Iain has extensive financial and international experience, having worked in London, Paris, the US, Africa and Asia. He joined HSBC in 2007 as Chief Financial Officer of HSBC North America Holdings Inc. Other former appointments include director of Hang Seng Bank Limited; Chief Financial Officer, HSBC Asia-Pacific. Before joining HSBC, Iain worked at General Electric ('GE'), serving as Controller of its Global

 

Consumer Finance Unit, Chief Financial Officer of GE Consumer Finance Americas, and Chief Financial Officer of GE Healthcare - Global Diagnostic Imaging. Iain is a member of the Institute of Chartered Accountants of Scotland.

Current appointments include: Member of the Board of Trustees of the British Heart Foundation and chairman of its audit and risk committee. Iain is also an Independent Member of the Court of the University of Aberdeen.  





Marc Moses,   60

Group Chief Risk Officer

Appointed to the Board: January 2014

 


Skills and experience: Marc joined HSBC in 2005 as Chief Financial and Risk Officer for Global Banking and Markets, and in December 2010 became Group Chief Risk Officer. He has extensive risk management and financial experience. Marc is a Fellow of the Institute of Chartered Accountants in England and Wales. He was European chief financial officer at J.P. Morgan and an audit partner at Price Waterhouse.  



Independent non-executive Directors





Phillip Ameen,   69

Independent non-executive Director

Appointed to the Board: January 2015

 

 


Member of the Group Audit Committee.

Skills and experience: Phillip has extensive financial and accounting experience. He served as Vice President, Comptroller, and Principal Accounting Officer of General Electric. Prior to that, he was a partner of KPMG. He also served on the International Financial Reporting Interpretations Committee of the International Accounting Standards Board, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants and the Financial Accounting Standards Board Emerging Issues Task Force.

Current appointments include: A non-executive director of HSBC North America Holdings Inc., HSBC Bank USA N.A., HSBC Finance Corporation and HSBC USA Inc.  





Kathleen Casey,   51

Independent non-executive Director

Appointed to the Board: March 2014

 


Member of the Group Audit Committee and the Financial System Vulnerabilities Committee.

Skills and experience: Kathleen has extensive financial regulatory policy experience. She is a former Commissioner of the US Securities and Exchange Commission, and acted as its principal representative in multilateral and bilateral regulatory dialogues with the G-20 Financial Stability Board and the International Organisation of Securities Commissions. Other former appointments include Staff Director and Counsel to the United States Senate Committee on Banking, Housing, and Urban Affairs; Chair of the Alternative Investment Management

 




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Association; and Legislative Director and Chief of Staff for a US Senator.

Current appointments include: Senior adviser to Patomak Global Partners and to a number of public bodies in the US, and a member of the Board of Trustees of the Financial Accounting Foundation.  





Laura Cha,   GBM, 68

Independent non-executive Director

Appointed to the Board: March 2011

 


Chairman of the Philanthropic & Community Investment Oversight Committee and member of the Conduct & Values Committee and the Nomination Committee.

Skills and experience: Laura has extensive regulatory and policy making experience in the finance and securities sector in Hong Kong and mainland China. She is the former Vice Chairman of the China Securities Regulatory Commission. Other former appointments include serving as a non-executive director of Bank of Communications Co., Limited; and Tata Consultancy Services Limited. She also served as Deputy Chairman of the Securities and Futures Commission in Hong Kong.

Current appointments include: A non-executive Deputy Chairman of The Hongkong and Shanghai Banking Corporation Limited, Chairman of Hong Kong's Financial Services Development Council and a non-executive director of China Telecom Corporation Limited, Unilever PLC and Unilever N.V.  





Henri de Castries,   63

Independent non-executive Director

Appointed to the Board: March 2016

 


Member of the Group Remuneration Committee

Skills and experience: Henri has more than 25 years' international experience in the financial services industry. He joined AXA in 1989 holding a number of senior roles, ultimately as Chairman and Chief Executive Officer of AXA SA until 1 September 2016.

Current appointments include: Chairman of Europe and Special Advisor of General Atlantic, Chairman of Institut Montaigne, a French think-tank; the lead independent director of Nestlé S.A. and a non-executive director of the French National Foundation for Political Science.





Lord Evans of Weardale,  60

Independent non-executive Director

Appointed to the Board: August 2013

 


Chairman of the Financial System Vulnerabilities Committee, and member of the Conduct & Values Committee and the Philanthropic & Community Investment Oversight Committee.

Skills and experience: Jonathan has 30 years of experience in national security policy and operations. He was formerly Director General of the UK's Security Service (MI5) and had oversight of the Joint Terrorist Analysis Centre and the Centre for the

 

Protection of National Infrastructure, and attended the National Security Council.

Current appointments include: A non-executive director of Ark Data Centres and an adviser to various cybersecurity and technology companies.  





Joachim Faber,  67

Independent non-executive Director

Appointed to the Board: March 2012

 


Skills and experience: Joachim has extensive international experience in banking and asset management. He is a former Chief Executive Officer of Allianz Global Investors AG and a former member of the management board of Allianz SE. He spent 14 years with Citicorp, holding positions in Trading and Project Finance, and as Head of Capital Markets for Europe, North America and Japan. He was also Chairman of various Allianz subsidiaries. He was previously a member of the supervisory board and Chairman of the audit and risk committee of OSRAM Licht AG. He was also a member of the German Council for Sustainable Development and a member of the advisory board of the Siemens Group Pension Board.

Current appointments include: Chairman of the supervisory board of Deutsche Börse AG and the Shareholder Committee of Joh. A. Benckiser SARL, and a director of Coty Inc.  





Irene Lee,   64

Independent non-executive Director

Appointed to the Board: July 2015

 


Skills and experience: Irene has more than 40 years' finance industry experience, having held senior investment banking and fund management positions in the UK, the US and Australia, including positions at Citibank and the Commonwealth Bank of Australia. Other former appointments include serving as a member of the Advisory Council of J.P. Morgan Australia and the Australian Takeovers Panel.

Current appointments include: Executive Chairman of Hysan Development Company Limited and a non-executive director of The Hongkong and Shanghai Banking Corporation Limited, Hang Seng Bank Limited, Cathay Pacific Airways Limited and CLP Holdings Limited.  





John Lipsky,   71

Independent non-executive Director

Appointed to the Board: March 2012

 


Member of the Group Risk Committee, the Nomination Committee and the Group Remuneration Committee.

Skills and experience: John worked for the International Monetary Fund (IMF) in Washington and Chile, for Salomon Brothers in New York and London, and for JP Morgan in New York. At JP Morgan, he was Vice Chair of the Investment Bank, and at the IMF he served as the First Deputy Managing Director - also serving pro tem as the Acting Managing Director. Other former appointments include Trustee of the Economic Club of New York, and Chairman of the World Economic Forum's Global Agenda

 




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Council on the International Monetary System.

Current appointments include: Peterson Distinguished Scholar at the Kissinger Centre for Global Affairs of Johns Hopkins University's School of Advanced International Studies. He also serves as the Vice Chair of the National Bureau of Economic Research (NBER), and of the Centre for Global Development.





Heidi Miller,   64

Independent non-executive Director

Appointed to the Board: September 2014

 


Member of the Group Risk Committee.

Skills and experience: Heidi is a former President of International at JP Morgan Chase, and was responsible for leading the global expansion and the international business strategy across its investment bank, asset management, and treasury and securities services divisions. She was also a non-executive director of Merck & Co., Inc. and Progressive Corp.; Executive Vice President and Chief Financial Officer of Bank One Corporation; Senior Executive Vice President of Priceline.com Inc.; and Executive Vice President and Chief Financial Officer of Citigroup Inc.

Current appointments include: Chairman of HSBC North American Holdings Inc., a non-executive director of First Data Corporation and General Mills Inc., and an advisory director of SRS Acquiom LLC.  





David Nish,   57

Independent non-executive Director

Appointed to the Board: May 2016

 


Member of the Group Audit Committee and Group Remuneration Committee. 

Skills and experience: David served as Chief Executive Officer of Standard Life plc between 2010 and 2015, having joined as Finance Director in 2006. Other former appointments include non-executive director of the UK Green Investment Bank plc, Group Finance Director of Scottish Power plc, non-executive director of HDFC Life (India) and partner of Price Waterhouse. He is a qualified chartered accountant.

Current appointments include: A non-executive director of Vodafone plc, London Stock Exchange Group plc and Zurich Insurance Group.  





Jonathan Symonds,   CBE, 58

Independent non-executive Director

Appointed to the Board: April 2014

Senior Independent Director since April 2017

 


Chairman of the Group Audit Committee and member of the Nomination Committee and the Conduct & Values Committee.

Skills and experience: Jonathan is a former Chief Financial Officer of Novartis AG and AstraZeneca plc. He was also a partner and Managing Director of Goldman Sachs, a partner of KPMG, and a non-executive director and chair of the Audit Committee of Diageo plc. He is a fellow of the Institute of Chartered Accountants in England and Wales.

 

Current appointments include: Chairman of HSBC Bank plc and Proteus Digital Health Inc., and a non-executive director of Genomics England Limited.  





Jackson Tai,   67

Independent non-executive Director

Appointed to the Board: September 2016

 


Chairman of the Group Risk Committee and member of the Financial System Vulnerabilities Committee.

Skills and experience: Jackson was formerly Vice Chairman and Chief Executive of DBS Group and DBS Bank Ltd, having served the group as Chief Financial Officer and then as President and Chief Operating Officer. He previously worked at J.P. Morgan & Co. Incorporated as an investment banker in New York, Tokyo and San Francisco. Other former appointments include non-executive director of Bank of China Limited, Singapore Airlines, NYSE Euronext, ING Groep N.V., CapitaLand Ltd, SingTel Ltd. and Jones Lang LaSalle Inc. Jackson also served as Vice Chairman of Islamic Bank of Asia.

Current appointments include: Non-executive director of Eli Lilly and Company, Koninklijke Philips Electronics N.V., Mastercard Incorporated and the Canada Pension Plan Investment Board.  




Pauline van der Meer Mohr,  57

Independent non-executive Director

Appointed to the Board: September 2015


Chairman of the Group Remuneration Committee and the Conduct & Values Committee and member of the Group Nomination Committee.

Skills and experience: Pauline has extensive legal and human resources experience across a number of different sectors, and contributed to the Dutch Banking Code Monitoring Commission. Former appointments include President of Erasmus University Rotterdam; Senior Executive Vice President and Head of Group Human Resources at ABN AMRO Bank NV; Group Human Resources Director at TNT NV; HR Director, Information Technology, Royal Dutch Shell Group; and Senior Legal Counsel, Shell International.

Current appointments include: Chair of the supervisory board of EY Netherlands and member of the supervisory boards of ASML Holding N.V. and Royal DSM N.V.



Group Company Secretary





Ben Mathews,  50

Group Company Secretary

 


Ben joined HSBC in June 2013 and became Group Company Secretary in July 2013. He is a Fellow of the Institute of Chartered Secretaries and Administrators. Former appointments include Group Company Secretary of Rio Tinto plc and of BG Group plc.

 




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Group Chief Executive Designate





John Flint,   49

Group Chief Executive Designate

 


John joined HSBC in 1989 and became a Group Managing Director in 2013. Former appointments include: a director of HSBC Private Banking Holdings (Suisse) SA, a director of HSBC Bank Canada, Chief of Staff to the Group Chief Executive and Group Head of Strategy and Planning, Chief Executive Officer HSBC Global Asset Management, Group Treasurer and Deputy Head of Global Markets. John was CEO, Retail Banking and Wealth Management until January 2018. John was appointed as a director of The HongKong and Shanghai Banking Corporation Limited on 16 January 2018 and will take over from Stuart Gulliver as Group Chief Executive on 21 February 2018.



Group Managing Directors



Elaine Arden,  49

Group Head of Human Resources

Elaine joined HSBC in June 2017 as Group Head of Human Resources. She has previously held senior human resources and employee relations roles in a number of other financial institutions. Elaine is a fellow of the Chartered Institute of Banking in Scotland and a member of the Chartered Institute of Personnel & Development.  



Samir Assaf,  57

Chief Executive, Global Banking and Markets

Samir joined HSBC in 1994 and became a Group Managing Director in 2011. He is Chairman and a non-executive director of HSBC France; a director of HSBC Trinkaus & Burkhardt AG and The Saudi British Bank. Former appointments include: a director of HSBC Bank plc; HSBC Global Asset Management Limited and HSBC Bank Egypt S.A.E.; and Head of Global Markets for Europe, Middle East and Africa.  



Colin Bell, 50

Group Head of Financial Crime Risk

Colin Bell joined HSBC in July 2016 and was appointed a Group Managing Director in March 2017. Colin previously worked at UBS, where he was Head of Compliance and Operational Risk Control. He has 10 years of experience in managing risk and financial crime, following 16 years in the British Army.  



Peter Boyles,  62
Chief Executive Officer of Global Private Banking

Peter joined HSBC in 1975 and became a Group Managing Director in 2013. He is a director of HSBC Global Asset Management Limited and HSBC Private Bank (UK) Limited. Former appointments include: Chief Executive of HSBC France; a director of HSBC Bank plc, HSBC Bank Malta plc and HSBC Trinkaus & Burkhardt AG.



Patrick Burke,  56

President and Chief Executive Officer of HSBC USA

Patrick joined HSBC in 1989 and became a Group Managing Director in 2015. He is also an Executive Director, President and

 

CEO of HSBC North America Holdings Inc. and Chairman of HSBC Bank USA, N.A., HSBC Finance Corporation, HSBC USA Inc. and HSBC Global Asset Management (USA) Inc.  



Pierre Goad,  56

Group Head of Global Communications

Pierre first joined HSBC in 2001. In 2010 he left and joined Zurich Insurance Group as Head of Communications. He rejoined HSBC in 2011 and became a Group Managing Director in 2015. He is a director of HSBC Bank Canada. Former appointments include: Global Co-Head of Communications; and Head of Corporate Development, Europe, Middle East and Global Businesses.  



Pam Kaur,  54

Group Head of Internal Audit

Pam joined HSBC and became a Group Managing Director in 2013. She is a co-opted Council member of The Institute of Chartered Accountants in England and Wales. Former appointments include: Global Head of Group Audit for Deutsche Bank AG; Chief Financial Officer and Chief Operating Officer of the Restructuring and Risk Division, Royal Bank of Scotland Group plc; Group Head of Compliance and AML, Lloyds TSB; and Global Director of Compliance, Global Consumer Group, Citigroup.  



Stuart Levey,  54

Chief Legal Officer

Stuart joined HSBC and became a Group Managing Director in 2012. Former appointments include: Under Secretary for Terrorism and Financial Intelligence in the US Department of the Treasury; Senior Fellow for National Security and Financial Integrity at the Council on Foreign Relations; Principal Associate Deputy Attorney General at the US Department of Justice; and a Partner at Miller, Cassidy, Larroca & Lewin LLP and at Baker Botts LLP.  



Andy Maguire,  51

Group Chief Operating Officer

Andy joined HSBC in 2014 as Group Chief Operating Officer and became a Group Managing Director in 2015. He is Chairman of HSBC Global Services (UK) Limited and a director of HSBC Global Services Limited and HSBC Group Management Services Limited. He is formerly a Managing Partner (UK and Ireland) of the Boston Consulting Group.  



Paulo Maia,  59

Chief Executive, Latin America

Paulo joined HSBC in 1993 and became a Group Managing Director on 1 February 2016. He is Chairman of Grupo Financiero HSBC Mexico S.A. de C.V., HSBC Argentina Holdings S.A. and a Director of HSBC North America Holdings Inc. Former appointments include: Chief Executive of HSBC Bank Canada and HSBC Bank Australia Limited.  



Charlie Nunn,  46

Chief Executive Officer, Retail Banking and Wealth Management

Charlie joined HSBC in 2011 and became a Group Managing Director and CEO, Retail Banking and Wealth Management in January 2018. Charlie was previously Head of Group Retail Banking and Wealth Management, leading the teams supporting HSBC's Retail and Wealth businesses globally. Prior to this, he was Group Head of Wealth Management and before that Global Chief Operating Officer for Retail Banking and Wealth Management. Charlie has extensive financial services experience and was formerly a Partner at Accenture and a Senior Partner at McKinsey & Co.

 




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Noel Quinn,  56

Chief Executive, Global Commercial Banking

Noel joined HSBC in 1992 when the Group acquired Midland Bank and became a Group Managing Director on 1 September 2016. Former appointments include: Head of Specialised and Equity Finance, Director of Strategy & Development for Commercial Banking, Head of Commercial Finance Europe, Head of Commercial Banking UK and Head of Commercial Banking Asia.  



Antonio Simoes,  42

Chief Executive, HSBC Bank plc

Antonio joined HSBC in 2007 and became a Group Managing Director on 1 February 2016. He is a director of HSBC Bank plc and HSBC France. Former appointments include: Chief Executive of HSBC UK; Head of Retail Banking and Wealth Management, Europe; and Chief of Staff to the Group Chief Executive and Group Head of Strategy and Planning?. Antonio was also formerly the Chairman of the Practitioner Panel of the FCA, a Partner of McKinsey & Company and an Associate at Goldman Sachs.  



Peter Wong,  66

Deputy Chairman and Chief Executive,

The Hongkong and Shanghai Banking Corporation Limited

Peter joined HSBC in 2005 and became a Group Managing Director in 2010. He is Chairman and non-executive Director of HSBC Bank (China) Company Limited and a non-executive director of Hang Seng Bank Limited and HSBC Bank Malaysia Berhad. He is also non-executive Vice Chairman of Bank of Communications Co., Limited and an independent non-executive Director of Cathay Pacific Airways Limited. Other appointments include President of the Hong Kong Institute of Bankers, Vice Chairman of the Hong Kong General Chamber of Commerce and First Vice President, Board Member and Chairman of the Executive Committee and Nominating Committee of The Community Chest of Hong Kong.



Board of Directors

Appointment, retirement and re-election of Directors

Appointments to the Board are made on merit and candidates are considered against objective criteria, having due regard to the benefits of the diversity of the Board. A rigorous selection process is followed in relation to the appointment of Directors and certain specified senior appointments. For further details on the appointments made in 2017 please refer to the report of the Nomination Committee.

The number of Directors must not be less than five nor exceed 25. The Board may at any time appoint any person as a Director, either to fill a vacancy or as an addition to the existing Board. The Board may appoint any Director to hold any employment or executive office and may revoke or terminate any such appointment. Shareholders may, by ordinary resolution, appoint a person as a Director or remove any Director before the expiration of his or her period of office.

Newly appointed Directors retire at the Annual General Meeting ('AGM') following appointment and are eligible for election. Directors are nominated for annual re-election by shareholders subject to continued satisfactory performance based upon an assessment by the Group Chairman and the Nomination Committee.

Non-executive Directors are appointed for an initial three-year term and, subject to re-election by shareholders at each AGM, are typically expected to serve two three-year terms. The Board may invite a Director to serve additional periods. Any term beyond six years is subject to particularly rigorous review.

The terms and conditions of appointment of non-executive Directors are set out in a letter of appointment, which includes the expectations of them and the time estimated to meet their

 

commitment to the Group. The current anticipated minimum time commitment, which is subject to periodic review, is around 30 days per year. Non-executive Directors are also advised that the time they need to devote to the Group may be considerably more if they serve on Board Committees or as other matters require. All non-executive Directors have confirmed they can meet this requirement, taking into account any other commitments they have at the time of appointment, and, in practice, most devote considerably more time.

During their term of appointment, non-executive Directors are expected to consult the Group Chairman or the Group Company Secretary if they are considering whether to accept or vary any commitments outside the Group. The agreement of the Group Chairman is required if any additional or changed commitment might affect the time that a Director is able to devote to his or her role with the Group.

Letters setting out the terms of appointment of each non-executive Director are available for inspection at the registered office of HSBC Holdings.

The Board diversity policy is available at www.hsbc.com/ investor-relations/governance/corporate-governance-codes.

Induction

Formal induction programmes are arranged for newly appointed Directors, based on the individual's needs, skills and experience. Typically, these consist of a series of meetings with other Directors and senior executives, as well as local site visits, to provide familiarity with the business. Directors also receive comprehensive guidance from the Group Company Secretary on the Group's governance framework and associated policies, as well as their duties as Directors on the Board.

Conflicts of interest, indemnification of Directors and contracts of significance

The Board has established a policy and procedures relating to Directors' conflicts of interest. Where conflicts of interest arise, the Board has the power to authorise them. A review of those conflicts which have been authorised, and the terms of those authorisations, is undertaken by the Board annually.

The Articles of Association contain a qualifying third-party indemnity provision which entitles Directors and other Officers to be indemnified out of the assets of HSBC Holdings against claims from third parties in respect of certain liabilities. All Directors have the benefit of directors' and officers' liability insurance.

None of the Directors had, during the year, a material interest, directly or indirectly, in any contract of significance with any HSBC company. Each Director is routinely reminded of their obligations in respect of transacting in HSBC Group securities and has confirmed that he or she has complied with regulatory requirements.

Training and development

Training and development is provided for each Director supported by the Group Company Secretary. Non-executive Directors develop and refresh their skills and knowledge through day-to-day interactions and briefings with senior management of the Group's businesses and functions. During the year, all Directors were provided with training on MiFID 2, anti-money laundering, anti-bribery and corruption, embedding good conduct, protecting information and sanctions.

A two-day forum for all of the Group's non-executive Directors was held during the year. Awareness and discussion sessions were conducted by senior executives and subject matter experts on emerging technologies, financial crime compliance, culture and conduct and business developments.

Jonathan Symonds, Chair of the Group Audit Committee ('GAC'), and Jackson Tai, Chair of the GRC, hosted a separate forum for the chairs of the Group's subsidiary audit and risk committees.

In addition, non-executive Directors sitting on risk and audit committees across the Group received training on IFRS 9.

 




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Shareholder engagement

Communication with shareholders is given high priority by the Board. Extensive information about HSBC and its activities is provided to shareholders in its Annual Report and Accounts, the Strategic Report and the Interim Report as well as at www.hsbc.com.

To complement these publications, there is regular dialogue with institutional investors. Enquiries from individuals on matters relating to their shareholdings and HSBC's business are welcomed.

Directors are encouraged to develop an understanding of the views of major shareholders.

As SID, Jonathan Symonds is available to shareholders if they have concerns that cannot be resolved or for which the normal channels would be inappropriate. He may be contacted via the Group Company Secretary at 8 Canada Square, London E14 5HQ.

The AGM and other general meetings

The 2018 AGM will be held at the Queen Elizabeth II Conference Centre, Broad Sanctuary, Westminster, London SW1P 3EE on Friday 20 April at 11.00am and a live webcast will be available on www.hsbc.com. A recording of the proceedings will be available on www.hsbc.com shortly after the conclusion of the AGM until 20 May 2018. Shareholders are encouraged to attend the meeting. Shareholders may send enquiries to the Board in writing via the Group Company Secretary, HSBC Holdings plc, 8 Canada Square, London E14 5HQ or by sending an email to shareholderquestions@hsbc.com.

Shareholders may require the Directors to call a general meeting other than an AGM as provided by the UK Companies Act 2006. Requests to call a general meeting may be made by members representing at least 5% of the paid-up capital of HSBC Holdings that carries the right of voting at its general meetings (excluding any paid-up capital held as treasury shares). A request must state the general nature of the business to be dealt with at the meeting and may include the text of a resolution that may properly be moved and is intended to be moved at the meeting. A request may be in hard copy form or in electronic form and must be authenticated by the person or persons making it. A request may be made in writing to HSBC Holdings at its UK address, referred to in the paragraph above or by sending an email to shareholderquestions@hsbc.com. At any general meeting convened on such request, no business shall be transacted except that stated by the requisition or proposed by the Board.

 

 



Board Committees

The Board has seven standing committees and a Chairman's Committee. In the case of the FSVC and the Philanthropic & Community Investment Oversight Committee, membership includes co-opted non-Director members as well as non-executive Directors.

The Chairs of each Committee report matters of significance to the Board after each meeting and the minutes of the meetings are made available to all Board members.

The detailed roles and responsibilities of each Committee are set out in its terms of reference, which can be found on the website at www.hsbc.com/about-hsbc/corporate-governance/board-committees.

Interaction with principal subsidiaries

The Board manages relationships with the regions through seven principal subsidiary companies. There are close interactions between the subsidiary boards and the Group Board and their respective committees, including the sharing of minutes and a requirement for certain appointments to subsidiary boards to be approved by the Group Board.

As explained in more detail in the reports of the GAC and the GRC on pages 128 and 130, this interaction is reinforced through an Audit and Risk Committee Chairs' Forum. The Chairs of the subsidiary audit and risk committees globally are invited to attend the forum to raise and discuss current and future global risk and audit issues.

Board members are encouraged to, and do, make visits to the regions and attend principal subsidiary meetings as guests. Similarly, directors from the regions regularly are invited to attend committee meetings at a Group level.

The GAC and GRC make a number of recommendations to the Board in relation to the preparation of the financial statements which are supported by certificates from the principal subsidiaries.

Whistleblowing

The GAC and the CVC are responsible for reviewing the Group's whistleblowing procedures and receive regular updates on relevant concerns raised under these procedures, together with management actions taken in response.

Committee effectiveness

The effectiveness of the Committees is evaluated as part of the overall performance evaluation of the Board and through annual effectiveness reviews at a Committee level. In addition, the Committees review the papers and the effectiveness of each meeting as a standing agenda item to ensure that they continue to be effective, challenging and well-managed, and review a rolling planner of proposed committee business.

 




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2017 Board and Committee attendance

 

AGM


Board*


Group Audit

Committee


Group Risk

Committee


Group

Remuneration

Committee


Nomination

Committee


Financial

System

Vulnerabilities

Committee


Conduct &

Values

Committee


Philanthropic & Community Investment

Oversight Committee


Number of meetings held*

1


8


8


7


7


7


7


6


3


Group Chairman

 

 

 

 

 

 

 

 

 

Mark Tucker1

n/a


3/3


-


-


-


2/2


-


-


-


Douglas Flint2

1


6/6


-


-


-


-


-


-


-


Executive Directors

 

 

 

 

 

 

 

 

 

Stuart Gulliver

1


8


-


-


-


-


-


-


-


Iain Mackay

1


8


-


-


-


-


-


-


-


Marc Moses

1


8


-


-


-


-


-


-


-


Non-executive Directors

 

 

 

 

 

 

 

 

 

Phillip Ameen

1


8


8


-


-


-


-


-


-


Kathleen Casey

1


8


8


-


-


-


7


-


-


Laura Cha

1


7


-


-


-


7


-


6


3


Henri de Castries3

1


6


-


-


4/4


-


-


-


-


Lord Evans of Weardale

1


7


-


-


-


-


7


6


3


Joachim Faber4

1


8


-


6


-


-


-


-


-


Sam Laidlaw5

1


3/3


-


-


2/2


2/2


-


-


-


Irene Lee

1


8


-


-


-


-


-


-


-


John Lipsky

1


8


-


7


7


7


-


-


-


Rachel Lomax6

1


3/3


-


3/3


-


2/2


-


2/2


-


Heidi Miller

1


8


-


7


-


-


-


-


-


David Nish7

1


6


8


-


4/4


-


-


-


-


Jonathan Symonds8

1


8


8


-


-


5/5


-


5


-


Jackson Tai

1


7


-


7


-


-


7


-


-


Pauline van der Meer Mohr

1


8


-


-


7


6


-


6


-


Paul Walsh9

-


2/2


-


-


0/1


0/1


-


-


-


*Board meetings in 2017 were held in London, New York and Hong Kong. In addition to the Board meetings listed there were also Chairman's Committee meetings held in 2017.



1

Appointed to the Board and as Chair of the Nomination Committee on 1 September 2017. Appointed as Group Chairman on 1 October 2017.



2

Resigned from the Board 30 September 2017.



3

Appointed to the Group Remuneration Committee 26 May 2017



4

Stepped down from the Group Risk Committee 30 November 2017.



5

Resigned from the Board 28 April 2017.



6

Resigned from the Board 28 April 2017.



7

Appointed to the Group Remuneration Committee 26 May 2017.



8

Appointed as interim Chair of the Nomination Committee from 28 April 2017 to 1 September 2017. Appointed as Senior Independent Director on 28 April 2017.



9

Resigned from the Board 21 April 2017.



Group Audit Committee

Members

Jonathan Symonds (Chairman)

Phillip Ameen

Kathleen Casey

David Nish

Role and responsibilities

The GAC has non-executive responsibility for reviewing matters relating to financial reporting, including Pillar 3 disclosures, and the effectiveness of internal financial control systems. The Committee also safeguards the independence of the Group Internal Audit function and oversees its performance.

Governance

The Group Finance Director, Group Chief Accounting Officer, Group Head of Internal Audit, Group Financial Controller and other members of senior management routinely attend meetings of the GAC. The external auditor also attended all meetings. The Chairman of the GAC had regular meetings with management to discuss agenda planning and specific issues as they arose during the year.

How the Committee discharges its responsibilities

Financial reporting

The GAC reviews HSBC's financial and reporting judgements and their application to the Group's financial reporting, including Pillar 3 disclosures, Costs to Achieve and significant items. It also

 

 

reviews presentations to external analysts including the key financial metrics relating to HSBC's strategic actions.

The GAC assesses the adequacy of resources of the accounting and financial reporting function. It also monitors the legal and regulatory environment relevant to its responsibilities.

Linkages with principal subsidiary audit committees

The GAC maintains links with the audit committees of The Hong Kong and Shanghai Banking Corporation, HSBC North America Holdings Inc., HSBC Bank Canada, HSBC Bank plc, HSBC Latin America Holdings (UK) Limited, HSBC Bank Middle East Limited and HSBC Private Banking Holdings (Suisse) SA ('the Principal Subsidiaries').

During the year, in addition to the annual Audit and Risk Committee Chairs' Forum, the Chairman attended an audit committee meeting of The Hongkong and Shanghai Banking Corporation to discuss key judgements made in the Bank of Communications impairment assessment.

Any new appointments to the audit committees of the Principal Subsidiaries are also reviewed by the GAC. The GAC Chairman meets with any proposed new chairs of the Principal Subsidiary audit committees.

Internal controls

The GAC assesses the effectiveness of the internal control system for financial reporting and any developments affecting it in support of the Board's assessment of internal control over financial reporting in accordance with section 404 of the Sarbanes-Oxley Act.

 




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The GAC has received confirmation that executive management has taken or is taking the necessary actions to remedy any failings or weaknesses identified through the operation of the Group's framework of controls.

Further detail of how the Board reviews the effectiveness of key aspects of internal control can be found on page 133.

External audit

The GAC reviews the external auditor's approach, strategy for the annual audit and audit findings.

All non-audit services provided by the external auditor are pre-approved by the GAC in accordance with the auditor independence policy to ensure that services do not create a conflict. Details of the significant engagements for non-audit services are contained in Note 6.

A policy is in place and monitored by the GAC on hiring employees or former employees of the external auditor.

The GAC regularly meets privately with the external auditor and the GAC Chairman maintains regular contact with the audit partner throughout the year.

Fees payable to PwC for the year ended 31 December 2017 totalled $129.7m, of which $44.9m or 34.6% was payable in respect of non-audit services. A further breakdown of the fees paid to the auditors for each of the last three financial years can be found in Note 6 on the Financial Statements.

The GAC reviewed the findings of the Financial Reporting Council's audit quality review carried out on the 2016 audit and endorsed PwC's proposed action plan in response.

The GAC considered PwC to be independent and PwC, in accordance with professional ethical standards, provided the GAC with written confirmation of its independence for the duration of 2017.

The GAC has therefore recommended to the Board that PwC be reappointed as auditor. Resolutions concerning the reappointment of PwC and their audit fee for 2018 will be proposed to shareholders at the 2018 AGM.

Internal Audit

The GAC approves Internal Audit's annual plan, resource and budget, and reviews the performance and effectiveness of the Group Head of Internal Audit. The Group Head of Internal Audit reports to the Chairman of the GAC and administratively to the Group Chief Executive. The Committee regularly meets with the Group Head of Internal Audit without other management present.

Compliance with Regulatory Requirements

The Board is satisfied that each member of the GAC is independent according to SEC criteria, may be regarded as audit committee financial experts for the purposes of section 407 of the Sarbanes-Oxley Act and has recent and relevant financial experience for the purposes of the UK and Hong Kong Corporate Governance Codes.

 

The Committee has complied with the relevant parts of the Competition and Markets Authority Final Order on the statutory audit market for the year ended 31 December 2017.

Principal activities and significant issues considered during 2017

Internal control framework

The GAC continued to monitor the progress being made to upgrade entity level controls. During 2017, the GAC undertook a series of deep dives to monitor the remediation of identified control deficiencies, noting that good progress was made during the year. The GAC continued to monitor the remediation of controls over access management in IT.

IFRS 9 implementation

The GAC continued to receive detailed presentations and updates from management on the Group's readiness to implement IFRS 9 and considered the possible commercial impact of IFRS 9 on the global businesses.

Bank of Communications ('BoCom')

The GAC received regular updates on the assumptions underpinning the valuation of BoCom. It monitored indicators
of impairment, both macro and BoCom specific, and reviewed
the results of the impairment assessments carried out by management.

Resolution planning

The Group is required to have in place a Group Recovery Plan that sets out recovery options to be initiated in the event of the Group coming under severe financial stress. During 2017, the GAC received updates on the structure of the Group Recovery Plan. The GAC considered the Group Recovery Plan and its integration with the Group's Risk Management Framework.

Establishment of the ring-fenced bank

Progress on the establishment of HSBC UK, the ring-fenced bank, was monitored by the GAC during 2017. The GAC considered the accounting judgements in relation to the creation of HSBC UK.

Internal Audit

The GAC concluded that the Internal Audit function remained effective.

External auditor

During the year, the Committee assesses the effectiveness of PwC as the Group's external auditor, using a questionnaire which focuses on the overall audit process, its effectiveness and the quality of output.

Changing regulatory landscape

The GAC received briefings on the significant forthcoming changes in the regulatory landscape. Plans around the implementation of IFRS 9 were reviewed.

 




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Significant accounting judgements considered during 2017 included:

Expected impact of IFRS 9

Since 2014, the GAC has considered the progress of the project to implement IFRS 9 and the key judgements related to its implementation, including the expected impacts disclosed and the approach to transition disclosures. Topics addressed include: the approach to the incorporation of forward economic guidance for expected credit losses (ECL) and the economic scenarios to be applied at 1 January 2018, the operating model and approach to governance of ECL, impact assessments and dry runs including key learnings and how these issues are being addressed, expected commercial impacts of ECL and status updates on implementation challenges to systems and governance processes.

Bank of Communications Co., Limited ('BoCom') impairment testing

 

During the year, the GAC considered the regular impairment reviews of HSBC's investment in BoCom. The GAC reviewed a number of aspects of management's work in this area, including the sensitivity of the result of the impairment review to estimates and assumptions of projected future cash flows. The audit committee considered the model's sensitivity to long-term assumptions including the continued appropriateness of the discount rate.

 

Appropriateness of provisioning for legal proceedings and regulatory matters

The GAC received reports from management on the recognition and amounts of provisions, as well as the existence of contingent liabilities for legal proceedings and regulatory matters. Specific matters addressed included accounting judgements in relation to provisions and contingent liabilities arising out of: (a) investigations by regulators and competition and law enforcement authorities around the world into trading on the foreign exchange markets; (b) investigations of HSBC's Swiss Private Bank by a number of tax administration, regulatory and law enforcement authorities; and (c) investigations into historical sales of US mortgage securitisations by The United States Attorney for the District of Colorado for potential violations of The Financial Industry Reform, Recovery and Enforcement Act of 1989, 12 U.S.C. § 1833a.

 

Quarterly and annual reporting

The GAC considered key judgements in relation to quarterly and annual reporting. It reviewed draft presentations to external analysts and key financial metrics included in HSBC's strategic actions.

 

Loan impairment,

allowances and charges

The GAC considered loan impairment allowances for personal and wholesale lending. For personal lending this included a review of the adequacy of and movement in collective impairment allowances, and consideration of portfolio-specific characteristics. For wholesale lending, the GAC considered management's key judgements used to establish the appropriate level of individual allowances on material individually assessed cases and whether management overlays were appropriate on collective allowances. Specific attention was applied to credit risk in the UK and the implications of Brexit from a credit perspective.

 

Valuation of financial instruments

The GAC considered the key valuation metrics and judgements involved in the determination of the fair value of financial instruments. The GAC considered the valuation control framework, valuation metrics, significant year-end judgements and emerging valuation topics.

Viability statement

Under the obligations of the UK Corporate Governance Code the Directors have carried out a robust assessment of the principal risks for the Group and parent company. The GAC has considered the Directors' judgement in concluding that the Group and parent company will be able to continue in operation and meet liabilities as they fall due, and that it is appropriate that the viability statement covers a period of three years.

Goodwill impairment testing

The GAC noted that no impairment was identified as a result of the annual goodwill impairment test and subsequent review for any impairment indicators. Following the full impairment of GPB Europe goodwill in 2016 along with an improved performance outlook for RBWM Europe, there are no longer any CGUs considered sensitive to key assumptions.

Tax-related judgements

The GAC considered the recoverability of deferred tax assets, in particular in the US. The committee also considered management's judgements relating to the tax indemnity agreed to by HSBC as part of the sale of its Brazilian operations in 2016. This includes consideration of the key inputs and assumptions used to estimate any obligation under the indemnity.

UK customer remediation

The GAC considered the provisions for redress for mis-selling of payment protection insurance ('PPI') policies in the UK and the associated redress on PPI commissions earned under certain criteria, including management's judgements regarding the effect of the time-bar for claims ending August 2019. In addition, the GAC monitored progress on the remediation of operational processes and associated customer redress.

 



Group Risk Committee

Members

Jackson Tai (appointed Chairman effective from 25 April 2017)

Joachim Faber (stepped down as Chairman effective 25 April 2017 and resigned on 30 November 2017)

John Lipsky

Heidi Miller

Rachel Lomax (resigned on 28 April 2017)

Role and responsibilities

The GRC has non-executive responsibility for the oversight of enterprise risk management, risk governance and internal control systems (other than internal financial control systems, which are overseen by the GAC). In forming a holistic view of risk, the GRC is supported by the FSVC and CVC, which are the Board committees responsible for overseeing risks relating to financial crime, cyber-crime and information security, anti-bribery and corruption, and for culture and conduct respectively. These two committees escalate and report second order risks to the GRC. Appropriate linkages and information flows between these three committees are further enhanced by cross membership and close engagement of the members and the committee attendees.

Governance

In carrying out its responsibilities, the GRC is closely supported by the Group Chief Risk Officer, Group Finance Director, Group Head of Internal Audit, Group Financial Controller, Global Head of Regulatory Compliance and Global Head of Risk Strategy, who all

 

 

regularly attend GRC meetings in order to contribute to discussions relating to their areas of expertise.

The GRC works closely with the GAC to ensure there are no gaps, that any areas of significant overlap are appropriately addressed and to improve inter-committee communication. The chairmen of both these committees engage on the agendas of each other's committee meetings and attend as guests as appropriate. This further enhances the linkages and the flows of information between the GRC and GAC.

The GRC meets with the Group Chief Risk Officer and, separately, with the Group Head of Internal Audit and external auditors without management present at the majority of its meetings.

How the Committee discharges its responsibilities

At each meeting, the GRC reviews the Group Risk Profile report which identifies the key issues and common themes arising from the Group's enterprise risk reports. This report includes a synthesised view of the Group's risk appetite statement, top and emerging risks and the Group risk map. It clearly sets out which Board committee has accountability for the monitoring and oversight of each risk and issue and identifies any areas where management is required to assess vulnerabilities via stress testing.

Page 63 provides further information on the top and emerging risks, the risk map and the risk appetite for the Group. The GRC receives presentations on a range of topics, including stress testing and briefings on developments in its principal markets. In addition, the GRC requests reports and updates from management on risk-related issues for in-depth consideration and receives regular reports on matters discussed at the Risk Management Meeting of the Group Management Board.

 




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The GRC reviews any revisions to the Group risk appetite statement ('RAS') bi-annually and any proposed changes are recommended to the Board. It reviews management's assessment of risk and provides scrutiny of management's proposed mitigating actions.

The GRC programmes forward-looking and thematic agendas which are supported by input from all three lines of defence within the global businesses and regions. The Committee also conducts deep dives on the risk implications of strategic matters, risks specific to regions, significant projects and key topical risks that are identified during the GRC's deliberations and discussion. By extending invitations to the chairmen of principal subsidiary risk

 

committees to participate in GRC meetings and thematic reviews, receiving regional updates and conducting holistic deep dives and sharing GRC highlights with the subsidiaries, the GRC has further enhanced its connectivity and linkages with the principal subsidiary risk committees.

During 2017, the GRC has provided challenge and review to the Group's regulatory submissions relating to capital management and liquidity adequacy assessments. It has continued to maintain oversight of the Group's regulatory and internal stress testing programmes with specific review and challenge of the design, key assumptions and outcomes of the principal tests conducted.




Principal activities and significant issues considered during 2017

 

 

 

The Group risk appetite statement ('RAS') and monitoring of the Group risk profile against the RAS

 

Following its bi-annual reviews, the GRC did not recommend any material changes to the overall level of Risk Appetite in 2017. The GRC expanded its focus on non-financial risk and significant work was undertaken to define forward-looking exposure based on metrics taking into account the inherent level of risk as well as the performance of our control environment.

 

Capital and liquidity

The GRC has fully engaged management in evaluating and challenging the Group's liquidity and funding risk appetite and the effectiveness of the liquidity and funding risk framework. The GRC continued to review the Group's approach to capital planning to ensure it is comprehensive, rigorous and forward looking. The GRC reviewed and challenged both the Group Individual Liquidity Adequacy Assessment Process and Internal Capital Adequacy Assessment.

Stress testing

The GRC conducted a comprehensive review and challenge of the scenarios and approach to the PRA stress tests and reviewed the results of both the Annual Cyclical Scenario and Biennial Exploratory Scenario stress tests. The GRC continued to review and oversee the regulatory and internal global stress testing programmes throughout the year.

Execution risk

Regular reports were received from the Group Chief Operating Officer, who updated each meeting on the progress and status of the Group's highest-priority change and transformation programmes and mitigating measures being introduced to manage the identified risks appropriately.

The GRC placed priority on monitoring and challenging management's assessment of execution risk and corresponding mitigating actions, as evidenced by thematic reviews on the execution risks at launch of our required ringfencing in the UK, on the progress of remediating high residual risks in non-financial risks, and the implications of economic growth rates for our China strategy.

 

 

Internal control and risk management

The GRC reviewed the Group's risk management framework and system of internal control (other than internal financial control systems, which were covered by the GAC) and the developments affecting them over the course of 2017, as part of the Board's assessment of internal control.

Deep dive reviews

The GRC conducted in-depth reviews of the risk implications relating to the Group's approach to model risk, to changes in economic growth rate assumptions for the Group's China strategy as well as execution risks arising from required ringfencing in the UK. The GRC also examined the Group's management of its non-financial risks, including its ability to remediate high residual risks.

 

Connectivity between the GRC and Subsidiary Risk Committees

The GRC has enhanced the connectivity and flow of information both to and from the Subsidiary Risk Committees during 2017. There has been more focused participation by the principal Subsidiary Risk Committee chairmen at GRC meetings. In addition, the GRC Chairman has attended risk committee meetings in Latin America, Europe, Middle East and Asia Pacific regions. The linkages with the Group and subsidiaries was further strengthened at the annual Non-Executive Director and Subsidiary Audit and Risk Committee Chairmen's Forum held in Hong Kong.

 

Committee effectiveness

The GRC Chairman has addressed the actions agreed at the beginning of the year arising from an external independent effectiveness review conducted at the end of 2016.

 



Financial System Vulnerabilities Committee

Members

Lord Evans of Weardale (Chairman)

Kathleen Casey

Jackson Tai

Michael Burgess (non-Director member) (appointed on
1 September 2017 and resigned on 11 December 2017)

Nick Fishwick, CMG (non-Director member)

Dave Hartnett, CB (non-Director member)

Lord Hogan-Howe (non-Director member) (appointed on
1 September 2017)

William Hughes, CBE QPM (non-Director member) (resigned on
30 June 2017)

David Irvine (non-Director member)

Clovis Meath Baker (non-Director member) (appointed on
1 September 2017)

Nehchal Sandhu (non-Director member)

 

 

 

Leonard Schrank (non-Director member) (resigned on 30 June 2017)

Sir William Patey (non-Director member) (resigned on 30 June 2017)

John Raine (non-Director member) (appointed on 1 September 2017)

The Honourable Juan Zarate (non-Director member)

The eight non-Director members support the Committee's work and between them have extensive experience in geopolitical risk, financial crime risk, international security, cybersecurity and law enforcement matters.

Role and responsibilities

The Committee has non-executive responsibility for the oversight of matters related to financial crime and system abuse, in particular anti-money laundering, sanctions, terrorist financing and proliferation financing, anti-bribery and corruption and cybersecurity. It is also responsible for monitoring, reviewing and advising the Board on the effectiveness of the policies and procedures established by management to ensure that HSBC meets its obligations to regulatory and law enforcement agencies.

 




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Principal activities and significant issues considered during 2017

Financial crime

The Committee monitored the Group's progress on the implementation of its Global Standards programme, and reviewed and discussed findings from country visits conducted by the Monitor.

Anti-bribery and corruption

The Committee reviewed the activities underway to address key bribery and corruption risks and management's progress with the implementation of a more robust anti-bribery and corruption compliance framework.

Engaging with the Monitor

The Committee was responsible for liaising with the Monitor to ensure his recommendations were acted on.

The information security environment and cybersecurity risk

The Committee reviewed HSBC's progress towards improving the Group's cybersecurity and the actions being taken to mitigate exposure to cyber-risk. It also monitored significant developments in the information security environment and progress delivering strategic financial crime risk management IT solutions.



Conduct & Values Committee

Members

Pauline van der Meer Mohr (Chair)

Laura Cha

Lord Evans of Weardale

Rachel Lomax (resigned on 28 April 2017)

Jonathan Symonds

Role and responsibilities

The Committee has non-executive responsibility for oversight of culture and conduct risk. It is responsible for the Group's policies, procedures and standards and ensuring that the Group conducts business responsibly and consistently adheres to the HSBC Values. The CVC is also responsible for Group policies and procedures for capturing and responding to whistleblowing reports. The CVC reports to the GAC where necessary in relation to allegations relating to accounting, internal controls over financial reporting or audit matters.

Principal activities and significant issues considered during 2017

Conduct

The Committee reviewed the Group's conduct approach and
how effectively global programmes were being implemented throughout the organisation. Deep dives were undertaken on the Singapore, China and Middle East operations and the Global Businesses to determine how effectively the conduct programme was embedding.

Sustainability

The Committee was responsible for reviewing how effectively the Group sought to satisfy itself that it was meeting its sustainability commitments.

Diversity

The Committee monitored the Group's refreshed approach to Diversity and Inclusion and the updating of the Group Diversity and Inclusion Policy.

Further information, including the Group's Statements on Conduct, the Group Diversity and Inclusion Policy and the Statement on Modern Slavery and Human Trafficking can be found at www.hsbc.com/our-approach/measuring-our-impact.

 

 



Group Remuneration Committee

Members

Pauline van der Meer Mohr (Chair)

Henri de Castries (appointed on 26 May 2017)

Sam Laidlaw (resigned on 28 April 2017)

John Lipsky

David Nish (appointed on 26 May 2017)

Paul Walsh (resigned on 21 April 2017)

Role and responsibilities

The Committee is responsible for setting the overarching principles, parameters and governance framework of the Group's remuneration policy, and the remuneration of executive Directors and other senior Group employees. The Committee regularly reviews the Group's remuneration policy in the context of consistent and effective risk management, and the regulatory requirements of multiple jurisdictions. No Directors are involved in deciding their own remuneration.

A full report on the role and activities of the Committee is set out on pages 141 to 164.



Nomination Committee

Members

Mark Tucker (Chairman - appointed on 1 September 2017)

Laura Cha

Sam Laidlaw (resigned on 28 April 2017)

John Lipsky

Rachel Lomax (resigned on 28 April 2017)

Pauline van der Meer Mohr

Jonathan Symonds (appointed as interim Chair from 28 April 2017 to 1 September 2017)

Paul Walsh (resigned on 21 April 2017)

Role and responsibilities

The Committee leads the Board appointment process, agrees the criteria for any appointments and engages independent external search consultants, as required. At the conclusion of this process, the Committee will nominate potential candidates for appointment to the Board. It is also responsible for succession planning for both senior executive roles, as well as executive and non-executive Directors, and for determining the membership of Board committees.

In the exercise of its responsibilities, the Committee regularly reviews the Board's structure, size and composition, including skills, knowledge, experience, independence and diversity.

Principal activities and significant issues considered during 2017

Succession planning

In 2016, a committee was established with specific responsibility for succession planning for the Group Chairman. The process was led by the Chairman of the Nomination Committee at the time, Sam Laidlaw, and the Senior Independent Director, Rachel Lomax. The committee, comprising all members of the Nomination Committee, including the chairs of the other principal Board committees, was assisted and advised by independent external search consultants. This process culminated on 12 March 2017 following a recommendation from the committee, and unanimous endorsement by the Board, with the announcement that Mark Tucker would be appointed as the new Group Chairman, with effect from 1 October 2017.

During 2017, the Nomination Committee led the succession process for the Group Chief Executive Officer. The Committee, chaired by Jonathan Symonds on an interim basis from April 2017

 




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(pending the appointment of Mark Tucker as Chair of this Committee on 1 September) included Jonathan Evans, Jackson Tai, Heidi Miller, David Nish and Joachim Faber, and led the succession process for the Group Chief Executive Officer. The process involved the engagement of independent external search consultants to advise on, and support, the Committee. It culminated in a recommendation from the Committee and unanimous support from the Board with an announcement made on 12 October 2017 that John Flint would be appointed as successor to Stuart Gulliver, to take effect from 21 February 2018.

Diversity

The Committee took responsibility for the implementation of the Board's diversity policy against two objectives: at least 30% of candidates being women, and only using external search consultants signed up to the Voluntary Code of Conduct for Executive Search Firms.



Philanthropic & Community Investment

Oversight Committee

Members

Laura Cha (Chair)

Lord Evans of Weardale

Sir Malcolm Grant (non-Director member)

Stephen Moss (non-Director member)

Lord Janvrin (non-Director member)

Role and responsibilities

The Committee has non-executive responsibility for HSBC's philanthropic and community investment activities in support of the Group's corporate sustainability objectives. The Committee oversees activity including both the Group's monetary contributions and employee volunteering.

Principal activities and significant issues considered during 2017

Charitable giving

The Committee was responsible for reviewing the Group's risk appetite for charitable donations, the budgets for future years and long-term committed funds.

Community investment

During the year, the Committee reviewed and endorsed the Group's annual community investment budget and the proposed allocation of this budget across agreed sustainability themes.



Chairman's Committee

The Chairman's Committee acts on behalf of the Board between scheduled Board meetings to facilitate ad hoc and other business requiring Board approval. It meets when necessary, with the required number of attendees determined by the nature of the proposed business to be discussed, as set out in its terms of reference.



Internal control

The Board is responsible for maintaining and reviewing the effectiveness of risk management and internal control systems, and for determining the aggregate level and types of risks the Group is willing to take in achieving its strategic objectives.

To meet this requirement and to discharge its obligations under the FCA Handbook and the PRA Handbook, procedures have been designed for safeguarding assets against unauthorised use or disposal; for maintaining proper accounting records; and for ensuring the reliability and usefulness of financial information used within the business or for publication.

These procedures can only provide reasonable assurance against material mis-statement, errors, losses or fraud. They are designed to provide effective internal control within the Group and accord

 

with the Financial Reporting Council's guidance for directors issued in 2014, internal control and related financial and business reporting. The procedures have been in place throughout the year and up to 20 February 2018, the date of approval of this Annual Report and Accounts 2017.

In 2014, the GAC endorsed the adoption of the COSO 2013 framework for the monitoring of risk management and internal control systems to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002.

The key risk management and internal control procedures include the following:



The Group's Global Standards Manual ('GSM') outlines the core principles within which the Group must operate wherever we conduct business. The GSM overlays all other policies and procedures throughout the Group. The requirements of the GSM are mandatory, apply to and must be observed by all businesses within the Group, regardless of the nature or location of their activities.



Delegation of authority within limits set by the Board: subject to certain matters reserved for the Board, the Group Chief Executive has been delegated authority limits and powers within which to manage the day-to-day affairs of the Group, including the right to sub-delegate those limits and powers. Each relevant group managing director or executive Director has delegated authority within which to manage the day-to-day affairs of the business or function for which he or she is accountable. Delegation of authority from the Board requires those individuals to maintain a clear and appropriate apportionment of significant responsibilities and to oversee the establishment and maintenance of systems of control that are appropriate to their business or function. Authorities to enter into credit and market risk exposures are delegated with limits to line management of Group companies. The concurrence of the appropriate global function is required, however, to credit proposals with specified higher risk characteristics. Credit and market risks are measured and reported at subsidiary company level and aggregated for risk concentration analysis on a Group-wide basis.



Risk identification and monitoring: systems and procedures are in place to identify, assess, control and monitor the material risk types facing HSBC. The Group's risk measurement and reporting systems are designed to help ensure that risks are comprehensively captured with all the attributes necessary to support well-founded decisions, that those attributes are accurately assessed and that information is delivered in a timely manner for those risks to be successfully managed and mitigated.



Changes in market conditions/practices: processes are in place to identify new risks arising from changes in market conditions/practices or customer behaviours, which could expose the Group to heightened risk of loss or reputational damage. The Group employs a top and emerging risks framework at all levels of the organisation, which enables it to identify current and forward-looking risks and to take action which either prevents them materialising or limits their impact.



Responsibility for risk management: all employees are responsible for identifying and managing risk within the scope of their role as part of the three lines of defence model, which is an activity-based model to delineate management accountabilities and responsibilities for risk management and the control environment. The second line of defence sets the policy and guidelines for managing specific risk areas, provides advice and guidance in relation to the risk, and challenges the first line of defence (the risk owners) on effective risk management.



Strategic plans: strategic plans are prepared for global businesses, global functions and geographical regions within the framework of the Group's overall strategy. Annual Operating Plans, informed by detailed analysis of risk appetite describing the types and quantum of risk that the Group is prepared to take in executing its strategy, are prepared and

 




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adopted by all major Group operating companies and set out the key business initiatives and the likely financial effects of those initiatives.



IT operations: centralised control is exercised over all IT developments and operations. Common systems are employed for similar business processes wherever practicable.



Subsidiary certifications to the GRC: half-yearly confirmations are provided to the GRC from the risk committees of principal subsidiary companies confirming that the committees have challenged management on the quality of the information provided, reviewed the actions proposed by management to address any emerging issues or trends indicating material divergence from the Group's risk appetite and that the risk management and internal control systems in place are operating effectively.

The key risk management and internal control procedures over financial reporting include the following:



Disclosure Committee: chaired by the Group Company Secretary, this Committee supports the discharge of the Group's obligations under relevant legislation and regulation including the UK and Hong Kong Listing Rules, the Market Abuse Regulation and SEC rules. In so doing the Committee is empowered to determine whether a new event or circumstances should be disclosed, including the form and timing of such disclosure, and review all material disclosures made or to be made by the Group. The membership of the Disclosure Committee includes the Group Finance Director, Group Chief Risk Officer, Chief Legal Officer, Group Chief Accounting Officer, Group Head of Communications, Global Head of Investor Relations, Group Head of Strategy and Planning and Group Financial Controller. The integrity of disclosures is underpinned by structures and processes within the Global Finance and Global Risk functions that support rigorous analytical review of financial reporting and the maintenance of proper accounting records.



Financial reporting: the Group's financial reporting process is controlled using documented accounting policies and reporting formats, supported by detailed instructions and guidance on reporting requirements, issued to all reporting entities within the Group in advance of each reporting period end. The submission of financial information from each reporting entity is subject to certification by the responsible financial officer, and analytical review procedures at reporting entity and Group levels.



Subsidiary certifications to the GAC: half-yearly confirmations are provided to the GAC from the audit committees of principal subsidiary companies regarding whether their financial statements have been prepared in accordance with Group policies, present fairly the state of affairs of the relevant principal subsidiary and are prepared on a going concern basis.

The internal control responsibilities of the GRC and GAC were complemented by the activities of the CVC and the FSVC which, respectively, oversaw conduct-related risk matters and financial crime compliance. Collectively, these controls are designed to provide effective internal control within the Group.

The GRC and the GAC have received confirmation that executive management has taken or is taking the necessary actions to remedy any failings or weaknesses identified through the operation of the Group's framework of controls. In 2017, deficiencies in the design and operational effectiveness of a number of controls were identified. Significant improvement in the control environment has been observed as a result of management's progress on the execution of the remediation programme.

The Directors, through the GRC and the GAC, have conducted an annual review of the effectiveness of the Group's system of risk management and internal control covering all material controls, including financial, operational and compliance controls, risk management systems, the adequacy of resources, qualifications and experience of staff of the accounting and financial reporting function and the Global Risk function, and their training

 

programmes and budget. The annual review of the effectiveness of the Group's system of risk management and internal control over financial reporting was conducted with reference to the COSO framework. The annual review of other controls was undertaken using the Group's risk management framework, further details of which can be found on pages 66 to 69. Based on the assessment performed, the Directors concluded that for the year ended 31 December 2017, the Group's internal controls were effective.



Internal audit

The Global Internal Audit function, which is centrally controlled, provides independent and objective assurance of the design and operating effectiveness of the Group's framework of risk management, control and governance processes, focusing on the areas of greatest risk. As mentioned previously, the Group Head of Internal Audit reports to the Chairman of the GAC and frequent meetings are held between them during the year. Executive management is responsible for ensuring that issues raised by the Global Internal Audit function are addressed within an appropriate and agreed timetable. Confirmation to this effect must be provided to Global Internal Audit.



Going concern and viability

The Directors considered it appropriate to prepare the financial statements on the going concern basis.

Under the UK Corporate Governance Code, the Directors must also provide a viability statement. They must state whether the Group will be able to continue in operation and meet its liabilities, taking into account its current position and the principal risks it faces. They must also specify the period covered by, and the appropriateness of, this statement.

The Directors have specified a period of three years to 31 December 2020. They are satisfied that a forward-looking assessment of the Group for this period is sufficient to enable a reasonable statement of viability. In addition, this period is covered by the Group's stress testing programmes, and its internal projections for profitability, key capital ratios and leverage ratios. Notwithstanding this, our stress testing programmes also cover scenarios out to five years and our assessment of risks are beyond three years where appropriate.

Based upon their assessment, the Directors have a reasonable expectation that the Group will be able to continue in operation and meet liabilities as they fall due over the next three years.

In making their going concern and viability assessments, the Directors have considered a wide range of detailed information relating to present and potential conditions, including projections for profitability, cash flows, capital requirements and capital resources.

The Directors have carried out a robust assessment of each risk facing the Group to determine the principal risks to its long-term viability, including those that would threaten its solvency and liquidity. They have determined that the principal risks are the Group's top and emerging risks as set out on pages 63 to 66.

The Directors have assessed that all of the top and emerging risks identified are considered to be material and, therefore, appropriate to be classified as the principal risks to be considered in the assessment of viability. They also appraised the impact that these principal risks could have on the Group's risk profile, taking account of mitigating actions planned or taken for each, and compared this with the Group's risk appetite as approved by the Board. At 31 December 2017, there were four heightened top and emerging risks: economic outlook and capital flows, geopolitical risk, cyber-threat and unauthorised access to systems and data management.

 




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In carrying out their assessment of the principal risks, the Directors considered a wide range of information including:



Details of the Group's business and operating models, and strategy.



Details of the Group's approach to managing risk and allocating capital.



A summary of the Group's financial performance, and its capital position and annual operating plan.



Enterprise risk reports, including the Group's risk appetite profile see page 63, top and emerging risks see page 63 and risk map see page 69.



Reports and updates regarding regulatory and internal stress testing exercises see page 69. In 2017, the published Bank of England ('BoE') stress test results for HSBC showed that our capital ratios after taking account of CRD IV restrictions and strategic management actions exceeded the BoE's requirements. The results for HSBC assumed no dividend payments in the first two years of the severe stress projection period.



Reports and updates from management on risk-related issues selected for in-depth consideration.



Reports and updates on the Group's compliance-related initiatives connected to the resolution of the investigations by US and UK regulatory and law enforcement authorities in December 2012.

 



Reports and updates on regulatory developments.



Legal reports.



Share capital and other disclosures

Share buy-back programme

On 22 February 2017, HSBC Holdings commenced a share buy-back programme to purchase its ordinary shares of $0.50 each
up to a maximum consideration of $1.0bn. This programme concluded on 12 April 2017. 122,599,324 ordinary shares were purchased and cancelled. On 1 August 2017, HSBC Holdings announced a further share buy-back programme for the purchase of up to a maximum of $2.0bn of its ordinary shares of $0.50. This programme concluded on 20 November 2017 and 205,624,077 ordinary shares were purchased and cancelled. The purpose of both buy-back programmes was to reduce HSBC's number of outstanding ordinary shares.

The nominal value of shares purchased during 2017 was $164,111,701 and the aggregate consideration paid by HSBC was £2,326,610,093.

The table that follows outlines details of the shares purchased on a monthly basis during 2017. At 31 December 2017, the total number of shares purchased was 328,223,401, representing 1.62% of the shares in issue and 1.64% of the shares in issue excluding treasury shares.









Month

Number

of shares


Highest price

paid per share

Lowest price

paid per share

Average price paid per share

Aggregate

price paid

 

 

£

£

£

£

First share buy-back of 2017

 

 

 

 

 

Feb-17

20,682,000


6.8080

6.4500

6.5677

135,833,224

Mar-17

77,853,860


6.7800

6.4070

6.5977

513,656,572

Apr-17

24,063,464


6.6360

6.4610

6.5390

157,350,841

 

122,599,324


 

 

 

806,840,637

Second share buy-back of 2017

 

 

 

 

 

Aug-17

49,649,445


7.7090

7.3010

7.4789

371,323,631

Sep-17

55,482,328


7.5260

7.0530

7.2806

403,943,040

Oct-17

53,192,769


7.6880

7.3400

7.4595

396,791,032

Nov-17

47,299,535


7.4650

7.2730

7.3513

347,711,753

 

205,624,077


 

 

 

1,519,769,456

Dividends

Dividends for 2017

First, second and third interim dividends for 2017, each of $0.10 per ordinary share, were paid on 5 July 2017, 20 September 2017 and 22 November 2017, respectively. Note 8 on the Financial Statements gives more information on the dividends declared in 2017. On 20 February 2018, the Directors declared a fourth interim dividend for 2017 of $0.21 per ordinary share in lieu of a final dividend, which will be payable on 6 April 2018 in cash in US dollars, or in sterling or Hong Kong dollars at exchange rates to be determined on 26 March 2018, with a scrip dividend alternative. As the fourth interim dividend for 2017 was declared after
31 December 2017 it has not been included in the balance sheet of HSBC as a liability. The reserves available for distribution at
31 December 2017 were $38.0bn.

A quarterly dividend of $15.50 per 6.20% non-cumulative US dollar preference share, Series A ('Series A dollar preference share'), (equivalent to a dividend of $0.3875 per Series A American Depositary Share ('ADS'), each of which represents one-fortieth of a Series A dollar preference share), and £0.01 per Series A sterling preference share was paid on 15 March, 15 June, 15 September and 15 December 2017.

Dividends for 2018

Quarterly dividends of $15.50 per Series A dollar preference share (equivalent to a dividend of $0.3875 per Series A American Depositary Share, each of which represents one-fortieth of a Series A dollar preference share) and £0.01 per Series A sterling

 

preference share was declared on 6 February 2018 for payment on 15 March 2018.

Share capital

Issued share capital

The nominal value of HSBC Holdings' issued share capital paid up at 31 December 2017 was $10,160,372,629 divided into 20,320,716,258 ordinary shares of $0.50 each, 1,450,000 non-cumulative preference shares of $0.01 each and one non-cumulative preference share of £0.01, representing approximately 99.9999%, 0.0001%, and 0% respectively of the nominal value of HSBC Holdings' total issued share capital paid up at 31 December 2017.

Rights, obligations and restrictions attaching to shares

The rights and obligations attaching to each class of ordinary and non-cumulative preference shares in our share capital are set out in full in our Articles of Association. The Articles of Association may be amended by special resolution of the shareholders and can be found on our website at www.hsbc.com/about-hsbc/corporate-governance/board-responsibilities.

Ordinary shares

HSBC Holdings has one class of ordinary share, which carries no right to fixed income. There are no voting restrictions on the issued ordinary shares, all of which are fully paid. On a show of hands, each member present has the right to one vote at general meetings. On a poll, each member present or voting by proxy is entitled to one vote for every $0.50 nominal value

 




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of share capital held. There are no specific restrictions on transfers of ordinary shares, which are governed by the general provisions of the Articles of Association and prevailing legislation.

At the 2016 AGM, shareholders gave authority to the Directors to offer a scrip dividend alternative on any dividend (including interim dividends) declared up to the conclusion of the AGM in 2019.

Information on the policy adopted by the Board for paying interim dividends on the ordinary shares may be found on page 262, under the heading 'Shareholder Information'.

Dividend waivers

HSBC Holdings employee benefit trusts, holding shares in HSBC Holdings in connection with the operation of its share plans, have lodged standing instructions to waive dividends on shares held by them that have not been allocated to employees. The total amount of dividends waived during 2017 was $3.6m.

 

Preference shares

The preference shares, which have preferential rights to income and capital, do not, in general, confer a right to attend and vote at general meetings.

There are three classes of preference shares in the share capital of HSBC Holdings: non-cumulative preference shares of $0.01 each ('dollar preference shares'); non-cumulative preference shares of £0.01 each ('sterling preference shares'); and non-cumulative preference shares of €0.01 ('euro preference shares'). The dollar preference shares in issue are Series A dollar preference shares and the sterling preference share in issue is a Series A sterling preference share. There are no euro preference shares in issue.

Information on dividends declared for 2017 and 2018 may be found on page 206, under the heading 'Dividends' and in Note 8 on the Financial Statements.

Further details of the rights and obligations attaching to the HSBC Holdings' issued share capital may be found in Note 31 on the Financial Statements.

Share capital changes in 2017

The following events occurred during the year in relation to the ordinary share capital of HSBC Holdings:  










Scrip dividends

 

HSBC Holdings

ordinary shares issued

Aggregate

nominal value


Market value per share

 

on

number


$


$

£

Issued in lieu of

 

 

 

 

 

Fourth interim dividend for 2016

6 Apr 2017

241,151,585


120,575,793


8.0636

6.5160

First interim dividend for 2017

5 Jul 2017

95,501,245


47,750,623


8.6500

6.6610

Second interim dividend for 2017

20 Sep 2017

19,315,343


9,657,672


9.9680

7.6606

Third interim dividend for 2017

22 Nov 2017

24,684,023


12,342,012


9.8000

7.4434












All-employee share plans

 

Number


Aggregate

nominal

value


 

Exercise price

from


to


 

 

$


 

 

 

HSBC Holdings savings-related share option plans

 

 

 

 

 

HSBC ordinary shares issued in £

8,935,312


4,467,656


£

4.0472


5.964


HSBC ordinary shares issued in HK$

377,804


188,902


HK$

55.4701


63.9864


HSBC ordinary shares issued in $

125,058


62,529


$

7.1456


8.2094


HSBC ordinary shares issued in €

64,712


32,356


5.3532


5.7974


Options over HSBC ordinary shares lapsed

6,301,579


3,150,790


 

 

 

Options over HSBC ordinary shares granted in response to approximately 14,932 applications from HSBC employees in the UK on 21 Sep 2017

10,447,272


 

 

 

 

HSBC International Employee Share Purchase Plan

693,152


346,576


£

6.2620


7.6950












HSBC share plans

 

HSBC Holdings

ordinary shares issued


Aggregate

nominal

value


Market value per share

 

from


to


 

 

$


£


£


Vesting of awards under the HSBC Share Plan and HSBC Share Plan 2011

66,505,211


33,252,606


6.4600


7.6880


Compliance with Hong Kong Listing Rule 13.25A(2)

HSBC Holdings has been granted a waiver from strict compliance with Rule 13.25A(2) of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong.

Under this waiver, HSBC's obligation to file a Next Day Return following the issue of new shares pursuant to the vesting of share awards granted under its share plans to persons who are not Directors, would only be triggered where it falls within one of the circumstances set out under Rule 13.25A(3).

Authorities to allot and to purchase shares and
pre-emption rights

At the AGM in 2017, shareholders renewed the general authority for the Directors to allot new shares up to 13,244,610,940 ordinary shares, 15,000,000 non-cumulative preference shares of £0.01 each, 15,000,000 non-cumulative preference shares of $0.01 each and 15,000,000 non-cumulative preference shares of €0.01 each.

 

Shareholders also renewed the authority for the Directors to make market purchases of up to 1,986,691,641 ordinary shares. The Directors exercised this authority during the year and purchased 328,223,401 ordinary shares.

In addition, shareholders gave authority for the Directors to grant rights to subscribe for, or to convert any security into, no more than 3,973,383,282 ordinary shares in relation to any issue by HSBC Holdings or any member of the Group of contingent convertible securities that automatically convert into or are exchanged for ordinary shares in HSBC Holdings in prescribed circumstances. Further details about the issue of contingent convertible securities may be found in Note 31 on the Financial Statements.

Other than as disclosed in the tables above headed 'Share capital changes in 2017', the Directors did not allot any shares during 2017.

 




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Debt securities

In 2017, following its capital plan, HSBC Holdings issued the equivalent of $16.8bn of debt securities in the public capital markets in a range of currencies and maturities, including $5.1bn of contingent convertible and $11.7bn of senior securities to ensure it meets the current and proposed regulatory rules, including those relating to the availability of adequate total loss-absorbing capacity. For additional information on capital instruments and bail-inable debt, refer to Notes 27 and 31 on pages 232 and 241.

Treasury shares

In accordance with the terms of a waiver granted by the Hong Kong Stock Exchange on 19 December 2005, HSBC Holdings will comply with the applicable law and regulation in the UK in relation to the holding of any shares in treasury and with the conditions of the waiver in connection with any shares it may hold in treasury. Pursuant to Chapter 6 of the UK Companies Act 2006, 325,273,407 ordinary shares are currently held in treasury. This was the maximum number of shares held at any time during 2017; representing 1.60% of the shares in issue. The nominal value of shares held in treasury is $162,636,704.

Notifiable interests in share capital

At 31 December 2017, HSBC Holdings had received the following notification of major holdings of voting rights pursuant to the requirements of Rule 5 of the Disclosure, Guidance and Transparency Rules:



BlackRock, Inc. gave notice on 18 October 2017 that on 16 October 2017 it had the following: an indirect interest in HSBC Holdings ordinary shares of 1,214,807,412; qualifying financial instruments with 52,830,499 voting rights that may be acquired if the instruments are exercised or converted; and financial instruments with a similar economic effect to qualifying financial instruments which refer to 6,978,758 voting rights, representing 6.06%, 0.26% and 0.03%, respectively, of the total voting rights at that date.



Ping An Asset Management Co., Ltd. gave notice on 6 December 2017 that on 4 December 2017 it had an indirect interest in HSBC Holdings ordinary shares of 1,007,946,172, representing 5.04% of the total voting rights at that date.

At 31 December 2017, according to the register maintained by HSBC Holdings pursuant to section 336 of the Securities and Futures Ordinance of Hong Kong:



BlackRock, Inc. gave notice on 30 December 2017 that on 28 December 2017 it had the following interests in HSBC Holdings ordinary shares: a long position of 1,424,882,481 shares and a short position of 6,642,872 shares, representing 7.01% and 0.03%, respectively, of the ordinary shares in issue at that date. Since 31 December 2017 and following interim notifications on 6 January and 15 January, BlackRock Inc. gave notice on 2 February 2018 that on 30 January 2018 it had the following interests in HSBC Holdings ordinary shares: a long position of 1,434,324,764 shares and a short position of 5,356,892 shares, representing 7.06% and 0.03%, respectively, of the ordinary shares in issue at that date; and

 



Ping An Asset Management Co., Ltd. gave notice on 6 December 2017 that on 5 December 2017 it had a long position of 1,017,946,172 in HSBC Holdings ordinary shares, representing 5.01% of the ordinary shares in issue at that date. Since 31 December 2017, Ping An Asset Management Co., Ltd. gave notice on 13 February 2018 that on 9 February 2018 it had a long position of 1,253,254,972 in HSBC Holdings ordinary shares, representing 6.17% of the ordinary shares in issue at that date.

Sufficiency of float

In compliance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited at least 25% of the total issued share capital has been held by the public at all times during 2017 and up to the date of this report.

Dealings in HSBC Holdings listed securities

HSBC Group has policies and procedures that, except where permitted by statute and regulation, prohibit specified transactions in respect of its securities listed on The Stock Exchange of Hong Kong Limited. Except for dealings as intermediaries or as trustees by subsidiaries of HSBC Holdings, neither HSBC Holdings nor any of its subsidiaries has purchased, sold or redeemed any of its securities listed on The Stock Exchange of Hong Kong Limited during the year ended 31 December 2017.

Directors' interests

Pursuant to the requirements of the UK Listing Rules and according to the register of Directors' interests maintained by HSBC Holdings pursuant to section 352 of the Securities and Futures Ordinance of Hong Kong, the Directors of HSBC Holdings at 31 December 2017 had certain interests, all beneficial unless otherwise stated, in the shares or debentures of HSBC Holdings and its associated corporations. Save as stated in the below table, no further interests were held by Directors, and no Directors or their connected persons were awarded or exercised any right to subscribe for any shares or debentures in any HSBC corporation during the year.

No Directors held any short position as defined in the Securities and Futures Ordinance of Hong Kong in the shares or debentures of HSBC Holdings and its associated corporations.

 




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Directors' interests - shares and debentures

 

 

 

At 31 Dec 2017

 

Footnotes

At 1 Jan

2017


Beneficial

owner


Child

under 18

or spouse


Jointly with another person


Trustee


Total

interests


HSBC Holdings ordinary shares

 

 

 

 

 

 

 

Phillip Ameen

1

5,000


5,000


-


-


-


5,000


Kathleen Casey

1

8,620


9,125


-


-


-


9,125


Laura Cha

2

13,200


10,200


8,000


-


-


18,200


Henri de Castries

 

16,165


17,116


-


-


-


17,116


Lord Evans of Weardale

 

9,170


12,892


-


-


-


12,892


Joachim Faber

 

66,605


66,605


-


-


-


66,605


Stuart Gulliver

3

3,344,208


3,534,284


176,885


-


-


3,711,169


Irene Lee

 

10,000


10,588


-


-


-


10,588


John Lipsky

1

16,165


16,165


-


-


-


16,165


Iain Mackay

3

345,469


442,118


-


-


-


442,118


Heidi Miller

1

3,975


4,200


-


-


-


4,200


Marc Moses

3

824,241


1,207,068


-


-


-


1,207,068


David Nish

 

50,000


-


50,000


-


-


50,000


Jonathan Symonds

 

21,771


37,936


4,885


-


-


42,821


Jackson Tai

1, 4

31,605


12,900


10,350


21,575


-


44,825


Mark Tucker

 

-


276,000


-


-


-


276,000


Pauline van der Meer Mohr

 

15,000


15,000


-


-


-


15,000




1

Phillip Ameen has an interest in 1,000, Kathleen Casey has an interest in 1,825, John Lipsky has an interest in 3,233, Heidi Miller has an interest in 840 and Jackson Tai has an interest in 8,965 listed ADS, which are categorised as equity derivatives under Part XV of the Securities and Futures Ordinance of Hong Kong. Each ADS represents five HSBC Holdings ordinary shares.



2

HSBC Holdings was advised on 23 January 2018 that Laura Cha's spouse acquired 8,000 shares on 24 August 2015.



3

Executive Directors' other interests in HSBC Holdings ordinary shares arising from the HSBC Holdings savings-related share option plans and the HSBC Share Plan 2011 are set out in the Scheme interests in the Directors' Remuneration Report on page 141. At 31 December 2017, the aggregate interests under the Securities and Futures Ordinance of Hong Kong in HSBC Holdings ordinary shares, including interests arising through employee share plans and the interests above were: Stuart Gulliver - 6,742,739; Iain Mackay - 2,140,600; and Marc Moses - 2,920,384. Each Director's total interests represents less than 0.04% of the shares in issue and 0.04% of the shares in issue excluding treasury shares.



4

Jackson Tai has a non-beneficial interest in 10,350 shares of which he is custodian.

There have been no changes in the shares or debentures of the Directors from 31 December 2017 to the date of this report.

Listing Rule 9.8.4

The information to be disclosed in the Annual Report and Accounts pursuant to UK Listing Rule 9.8.4 is contained within the Corporate Governance Report.



Employees

At 31 December 2017, HSBC had a total workforce of 229,000 full- and part-time employees compared with 241,000 at the end of 2016 and 264,000 at the end of 2015. Our main centres of employment were the UK with approximately 40,000 employees, India 36,000, Hong Kong 30,000, mainland China 24,000, Mexico 16,000, the US 11,000 and France 8,000.

We encourage employees to perform at their best, and create an environment to make that possible. We also encourage employees to speak up, and reflect our purpose and values in the decisions we make and how we make them, as these decisions shape the future of our customers and colleagues.

Employee relations

We consult with and, where appropriate, negotiate with employee representative bodies. It is our policy to maintain well-developed communications and consultation programmes with all employee representative bodies and there have been no material disruptions to our operations from labour disputes during the past five years.

Diversity and inclusion

We are committed to enabling a thriving environment where people are valued, respected and supported; where different ideas, backgrounds, styles and perspectives are actively sought out to create business value; and where career advancement is based on objective criteria. We are focusing on the diversity profile of our workforce to make it more reflective of the communities we operate in and the customers we serve.

Everyone has a role to play in building our inclusive workplace. Our Global Diversity and Inclusion Policy is clear that all employees and workers are responsible for treating colleagues with dignity and respect, and for creating an inclusive environment free from

 

discrimination, bullying, harassment or victimisation, irrespective of their age, colour, disability, ethnic or national origin, gender, gender expression, gender identity, marital status, pregnancy, race, religion or belief, or sexual orientation. Our employees are expected to demonstrate openness by listening and valuing different backgrounds, perspectives and cultures.

Diversity and Inclusion carries the highest level of executive support. It was governed by the Conduct and Values Committee in 2017, and will be governed by the Group People Committee from 2018.



Gender diversity statistics

 






 

Male

 

Female

*Combined Executive Committee and Direct Reports was reported as at 30 June 2017 to the UK's Hampton Alexander Review and includes HSBC's Executive Directors, Group Managing Directors and their direct reports (excluding administrative staff).

**Senior employees refers to employees performing roles classified as 0, 1, 2 or 3 in our Global Career Band structure.

 




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Employee development

The development of our employees is essential to the future strength of our business. We continue to develop employee capability. We identify, develop and deploy talented employees to ensure an appropriate supply of high calibre individuals with the values, skills and experience for current and future senior management positions.

In 2017, we introduced HSBC University, the new home of learning at HSBC. HSBC University brings new programmes, training facilities, and technologies with a particular focus on Leadership, Risk Management, Strategy and Performance, as well as business-specific technical training. Its new leadership programmes are designed to support our leaders at all levels, encouraging collaboration and future thinking across HSBC's businesses, functions and geographies. In 2018 HSBC University will bring colleagues together to learn, develop and connect through new dedicated classroom space at our offices in Dubai, Mexico City, and the new HSBC UK Head Office in Birmingham.

Employment of people with a disability

We believe in providing equal opportunities for all employees.
The employment of people with a disability is included in this commitment. The recruitment, training, career development and promotion of people with a disability are based on the aptitudes and abilities of the individual. Should employees become disabled during their employment with us, efforts are made to continue their employment and, if necessary, appropriate training and reasonable equipment and facilities are provided.

Health and safety

The Group is committed to providing a healthy and safe working environment for our employees, contractors, customers and visitors on HSBC premises and where impacted by our operations. We aim to be compliant with all applicable health and safety legal requirements, and to ensure that best practice health and safety management standards are implemented and maintained across the HSBC Group.

Everyone at HSBC has a responsibility for helping to create a healthy and safe working environment. Employees are expected to take ownership of their safety and are encouraged and empowered to report any concerns.

Chief Operating Officers have overall responsibility for ensuring that the correct policies, procedures and safeguards are put into practice. This includes making sure that everyone in HSBC has access to appropriate information, instruction, training and supervision.

Putting our commitment into practice, in 2017 the Group delivered a health and safety education and information training programme to every one of our employees, and the Group implemented a range of programmes to help us understand the risks we face and improve the buildings in which we operate:



We completed fire risk assessments in over 2,000 properties worldwide, and addressed areas of concern.



We completed a health and safety inspection and remediation programme in 97% of our premises across the globe.



The application of our health and safety policies and procedures continues to be integrated throughout our supply chain, particularly in developing markets, with audit and inspection programmes demonstrating continued improvements in health and safety performance.



We developed and implemented an improved risk assurance and oversight function to ensure our health and safety management system was performing appropriately, including conducting full reviews of health and safety management in
12 countries.

 

 









Employee health and safety

 

Footnotes

2017


2016


2015

Number of workplace fatalities

1

2


1


0

Number of major injuries to employees

2

31


44


n/a

All injury rate per 100,000 employees

 

205


246


n/a



1

Customer death on branch premises; contractor involved in road traffic accident on bank business.



2

Fractures, dislocation, concussion.



n/a

Comparable data not available at global level for 2015 following change in reporting procedure for 2016.

Remuneration policy

The quality and commitment of our employees is fundamental to our success and accordingly the Board aims to attract, retain and motivate the very best people. As trust and relationships are vital in our business our goal is to recruit those who are committed to making a long-term career with the Group.

HSBC's reward strategy supports this objective through balancing both short-term and sustainable performance. Our remuneration strategy is designed to reward competitively the achievement of long-term sustainable performance and attract and motivate the very best people who are committed to maintaining a long-term career with the Group while performing their role in the long-term interests of our stakeholders.

In order to ensure alignment between remuneration and our business strategy, individual remuneration is determined through assessment of performance delivered against both annual and long-term objectives summarised in performance scorecards, and adherence to the HSBC Values of being 'open, connected and dependable' and acting with 'courageous integrity'. Altogether, performance is judged, not only on what is achieved over the short and long term, but also on how it is achieved, as the latter contributes to the sustainability of the Group.

The financial and non-financial measures incorporated in the annual and long-term scorecards are carefully considered to ensure alignment with the long-term strategy of the Group.

Further information on the Group's approach to remuneration is given on page 141.

Employee share plans

Share options and discretionary awards of shares granted under HSBC share plans align the interests of employees with the creation of shareholder value. The following table sets out the particulars of outstanding options, including those held by employees working under employment contracts that are regarded as 'continuous contracts' for the purposes of the Hong Kong Employment Ordinance. The options were granted at nil consideration. No options have been granted to substantial shareholders and suppliers of goods or services, nor in excess of the individual limit for each share plan. No options were cancelled by HSBC during the year.

A summary for each plan of the total number of the options which were granted, exercised or lapsed during 2017 is shown in the following table. Further details required to be disclosed pursuant to Chapter 17 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited are available on our website at www.hsbc.com/about-hsbc/corporate-governance/employee-share-plans and on the website of The Stock Exchange of Hong Kong Limited at www.hkex.com.hk, or can be obtained upon request from the Group Company Secretary,
8 Canada Square, London E14 5HQ.

Particulars of options held by Directors of HSBC Holdings are set out on
page 153.

Note 5 on the Financial Statements gives details of share-based payments, including discretionary awards of shares granted under HSBC share plans.

 




HSBC Holdings plc  Annual Report and Accounts 2017

139

 

 

Report of the Directors | Corporate Governance | Directors' Remuneration Report

 

All-employee share plans

HSBC operates all-employee share option plans under which options are granted over HSBC ordinary shares. Subject to leaver provisions, options are normally exercisable after three to five years. During 2017, options were granted at the mid-market closing price for HSBC Holdings ordinary shares quoted on the London Stock Exchange which, as derived from the Daily Official List on 20 September 2017, the day before the options were granted, was £7.23.

 

The UK Sharesave will terminate on 23 May 2025 unless the Directors resolve to terminate the plans at an earlier date. There will be no further grants under the HSBC Holdings Savings-Related Share Option Plan: International.

The HSBC International Employee Share Purchase Plan was introduced in 2013 and now includes employees based in 27 jurisdictions.





















HSBC Holdings All-employee Share Option Plans

 

 

 

 

HSBC Holdings ordinary shares

Dates of awards

Exercise price

 

Exercisable

 

At


Granted


Exercised


Lapsed


At


from

to

from


to


from

to

Footnotes

1 Jan 2017


during year


during year


during year


31 Dec 2017


Savings-Related Share Option Plan

1

 

 

 

 

 

21 Apr

2011

21 Sep

2017

(£)


(£)


1 Aug 2016

30 Apr 2023

 

 

 

 

 

 

4.0472


5.9640


 

68,777,416


10,447,272


8,580,981


6,077,604


64,566,103


Savings-Related Share Option Plan: International

2

 

 

 

 

 

21 Apr

2011

24 Apr

2012

(£)


(£)


1 Aug 2016

31 Jan

2018

 

 

 

 

 

 

4.4621


5.0971


 

440,309


-


354,331


47,149


38,829


21 Apr

2011

24 Apr

2012

($)


($)


1 Aug 2016

31 Jan

2018

 

 

 

 

 

 

7.1456


8.2094


 

217,738


-


125,058


74,807


17,873


21 Apr

2011

24 Apr

2012

(€)


(€)


1 Aug 2016

31 Jan

2018

 

 

 

 

 

 

5.3532


5.7974


 

86,916


-


64,712


11,665


10,539


21 Apr

2011

24 Apr

2012

(HK$)


(HK$)


1 Aug 2016

31 Jan

2018

 

 

 

 

 

 

55.4701


63.9864


 

504,467


-


377,804


90,354


36,309




1

The weighted average closing price of the shares immediately before the dates on which options were exercised was £7.32.



2

The weighted average closing price of the shares immediately before the dates on which options were exercised was £7.48.



Statement of compliance

The statement of corporate governance practices set out on pages 121 to 174 and the information referred to therein constitutes the Corporate Governance Report of HSBC Holdings. The websites referred to do not form part of this Report. 




Relevant corporate governance codes

UK Corporate Governance Code

www.frc.org.uk

Hong Kong Corporate Governance Code (set out in Appendix 14 to the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited)

www.hkex.com.hk

Descriptions of the roles and responsibilities of the:

- Group Chairman

- Group Chief Executive

- Senior Independent Director

www.hsbc.com/about-hsbc/corporate-governance/board-committees

Board and senior management

www.hsbc.com/about-hsbc/leadership

Roles and responsibilities of the Board and its committees

www.hsbc.com/about-hsbc/corporate-governance/board-committees

Board's policies on:

- Diversity

- Shareholder communication

www.hsbc.com/investor-relations/governance/corporate-governance-codes

Global Internal Audit Charter

www.hsbc.com/investor-relations/governance/internal-control

HSBC is subject to corporate governance requirements in both the UK and Hong Kong. During 2017, HSBC complied with the applicable provisions of the UK Corporate Governance Code, and also the requirements of the Hong Kong Corporate Governance Code.

Under the Hong Kong Code the audit committee should be responsible for the oversight of all risk management and internal control systems. HSBC's Group Risk Committee is responsible for oversight of internal control, other than internal control over financial reporting, and risk management systems. This is permitted under the UK Corporate Governance Code.

 

 

The Board has codified obligations for transactions in HSBC Group securities in accordance with the requirements of the Market Abuse Regulation and the rules governing the listing of securities on The Stock Exchange of Hong Kong Limited ('HKEx'), save that the HKEx has granted waivers from strict compliance with the rules that take into account accepted practices in the UK, particularly in respect of employee share plans. HSBC is in discussion with the HKEx to update these waivers. Following specific enquiry, all Directors have confirmed that they have complied with their obligations in respect of transacting in Group securities during the year.

 

 

 

On behalf of the Board

Mark E Tucker

Group Chairman

HSBC Holdings plc

Registered number 617987

20 February 2018

 

 




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Directors' Remuneration Report

 

Page

Annual Statement from the Group Remuneration Committee Chair

141

Directors' remuneration policy

143

Annual report on remuneration

144

Additional remuneration disclosures

156

Pillar 3 remuneration disclosures

158

All disclosures in the Directors' Remuneration Report are unaudited unless otherwise stated.

Disclosures marked as audited should be considered audited in the context of financial statements taken as a whole.



Annual Statement from the Group

Remuneration Committee Chair

Dear Shareholder,

I am delighted to present our 2017 Directors' Remuneration Report. I have been a member of the Committee since 1 January 2016 and took over the role of Chair from 28 April 2017.

2017 was the second year under our current remuneration policy, and I was pleased to note that at the last Annual General Meeting ('AGM') we received strong support for how the policy was implemented, with over 96% of shareholders voting in favour of the 2016 remuneration report.

I have set out below a summary of our 2017 performance, key decisions made during the year and the areas of focus envisaged for 2018.

Performance achieved during 2017

During 2017, the Group made good financial and strategic progress. The Group 2017 reported profit before tax was $17.2bn, up 141% from $7.1bn in 2016. On an adjusted basis, profit before tax was $21.0bn, up 11% from $18.9bn in 2016.

2017 was the final year to implement the Group's planned strategic actions and to achieve the targets we had set out to our investors in 2015. The scorecards of our executive Directors incorporated measures that were aligned to the delivery of these strategic actions.

We exceeded our risk-weighted assets ('RWA') reduction target, extracting a total of $338bn of RWA's from the business since the start of 2015, in excess of the $290bn target we had set out in our strategic actions. We achieved annualised run-rate savings of $6.1bn and delivered positive adjusted jaws for 2017.

We missed our targets for NAFTA profitability and RMB internationalisation although we made good progress on actions to deploy capital and deliver revenue growth. The set-up of the UK ring-fenced bank is nearly complete, with 91% of head office roles resourced, and we expect to have a fully functioning team by the end of the first quarter of 2018. Details of performance against each of the strategic actions is set out on page 13 of the Strategic Report.

In December we launched HSBC Qianhai Securities, the first securities joint venture in mainland China to be majority-owned by an international bank. We will be offering a range of services to our customers, including equity research and brokerage, equity and debt underwriting and cross-border M&A advisory, and emphasising our commitment in pivoting our business to Asia.

The Group announced a dividend of $0.51 per ordinary share and in 2017, we returned a total of $3bn to shareholders through share buy-backs. A total shareholder return of 24% was achieved in 2017, which outperformed the FTSE 100 index over the year. We remain a well-funded business with a strong capital generation and a diversified balance sheet. We received the 'World's Best Bank' award at the Euromoney Awards for Excellence 2017 in July, showcasing our devotion to customers and our strong market position.

 

Over the past five years, we significantly strengthened our ability to combat financial crime through our Global Standards programme and the five-year deferred prosecution agreement ('AML DPA') with, among others, the US Department of Justice ('DoJ'), has expired.

In January 2018, HSBC Holdings entered into a three-year deferred prosecution agreement with the DoJ ('FX DPA'), regarding fraudulent conduct in connection with two particular transactions in 2010 and 2011. This concluded the DoJ's investigation into HSBC's historical foreign exchange activities. Under the terms of the FX DPA, HSBC has a number of ongoing obligations, including continuing to cooperate with authorities and implementing enhancements to its internal controls and procedures in its Global Markets business which will be the subject of annual reports to the DoJ. In addition, HSBC agreed to pay a financial penalty and restitution.

This agreement acts as a reminder of the necessity of pursuing the highest standards of conduct in our business.

Group variable pay pool and risk adjustments

The Committee's decision on the Group variable pay pool took into consideration our performance against metrics set out in the Group risk appetite statement and an assessment against our global conduct outcomes for our global businesses. The Committee also took into consideration the Group's financial performance, and fines, penalties and customer redress costs.

The total variable pay pool for 2017 was $3,303m, representing a 8.8% increase on the 2016 variable pay pool.

In setting the pool, the Committee used its discretion to apply the following reductions:



$84m for the fines, penalties and cost of customer redress faced by the Group; and



$383m for:



-

financial performance based on certain metrics, in particular, return on equity;



-

performance against certain metrics in our Group risk appetite profile; and



-

continued work required to address financial crime compliance issues.

The Committee also strongly believes that individual performance should be judged not only on what is achieved over the period but more importantly on how it is achieved, as we believe the latter contributes to the long-term sustainability of the business. To further reinforce this in our culture, we continue our workstream on incentivising compliance through:



the use of behaviour and performance ratings for all employees, which directly influence pay outcomes;



variable pay adjustments:



-

positive adjustments to variable pay outcomes for individuals who have exhibited positive behaviour and consistent adherence to the HSBC Values and go the extra mile to courageously do the right thing. During 2017, we made positive adjustments totalling $14.9m of variable pay awards; and



-

we reduced variable pay awards to certain individuals by $2.9m in aggregate to reflect individual conduct and behaviours; and



the global recognition programme where our employees can recognise peers and reward positive behaviours in a real-time, visible way.

Fixed pay for executive Directors

No fixed pay increases were made in 2017 for executive Directors and no increase in fixed pay is proposed for executive Directors for 2018. Across the UK employee population the average base salary increase in 2017 was 5%.

 




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141

 

 

Directors' Remuneration Report

 

Executive Directors' 2017 variable pay awards

The 2017 annual incentive scorecard outcome was 80.0% for Stuart Gulliver, 89.5% for Iain Mackay and 91.2% for Marc Moses, reflecting the performance achieved against their individual scorecards. Details of the annual incentive scorecard outcome are provided on page 146.

Iain Mackay and Marc Moses will be awarded a long-term incentive award ('LTI') in respect of 2017 performance. In granting these awards, the Committee took into consideration the performance achieved for the financial year ended 31 December 2017 and the achievements against the strategic actions announced in June 2015. These awards will also be subject to a three-year forward-looking performance period ending on
31 December 2020. Details of the performance measures are set out on page 151. At the end of the three-year performance period, subject to the outcome of the performance conditions, awards will vest in five equal annual instalments commencing from the third anniversary of the award date. This gives a total deferral period of seven years and links a significant portion of our executive Directors' pay to the achievement of long-term objectives, and the long-term interests of shareholders and other stakeholders.

Following Stuart Gulliver's announcement of his retirement, the Committee considered that it would not be appropriate for him to receive a LTI award for 2017. To meet regulatory deferral requirements for 2017, 60% of his 2017 annual incentive award will be deferred over a period of seven years, vesting in five equal annual tranches commencing from the third anniversary of the grant date.

In accordance with regulatory requirements, the post-vesting retention period for all shares awarded to executive Directors has been increased from six months to one year.

Director changes and implementation of policy
for 2018

Mark Tucker joined the Board on 1 September 2017 as a non-executive Director and Group Chairman designate, and succeeded Douglas Flint as Group Chairman with effect from 1 October 2017. He will receive a fee of £1,500,000 per annum in respect of his chairmanship and was paid a one-time relocation benefit of £300,000.

In line with our remuneration policy, Douglas Flint was paid his salary and pension allowance and received contractual benefits in respect of his contractual notice period. Full details are provided on page 151.

Stuart Gulliver will step down as executive Director and Group Chief Executive on 20 February 2018 and John Flint will succeed Stuart Gulliver as Group Chief Executive from 21 February 2018. Stuart Gulliver will remain as an employee until 11 October 2018, working on key strategic projects and supporting the smooth transition of the Group Chief Executive role to John Flint. Up until retirement, Stuart Gulliver will continue to receive his current
fixed pay and benefits. In accordance with the terms of our remuneration policy, the Committee has agreed that Stuart Gulliver will remain eligible to be considered for an annual incentive award for the period up to 11 October 2018, based on his contribution during 2018. Further details on Stuart Gulliver's annual incentive opportunity and performance measures for 2018 can be found on page 156.

John Flint's salary as Group Chief Executive is set at £1,200,000 and will be reviewed on an annual basis. He will also receive a fixed pay allowance of £1,700,000 per annum and a cash in lieu of pension at 30% of salary, consistent with the approved policy. His maximum annual incentive and LTI opportunity will be set at 215% and 320% of salary, respectively, as per our approved policy.

 

Employee remuneration policy

Our wider employee remuneration policy is driven by the Group reward strategy, which has evolved over time to reflect changes in our operating environment, including ongoing regulatory and governance changes. The Committee reviewed and agreed updates to the Group reward strategy during 2017 to ensure that it continues to support HSBC's overall employment proposition to attract, retain and motivate the best people, who are aligned to HSBC's values and committed to maintaining a long-term career within the Group.

Our 2017 employee survey feedback indicated that employees needed more support in understanding the objectives of the different components of total compensation. To address this, the Committee reviewed and supported management's proposals to streamline the parameters and principles which managers are asked to consider and apply when making fixed and variable pay recommendations, with a view to ensuring employees have more visibility and clarity on the factors that influence their total remuneration. Details of the Group's remuneration policy for all employees are set out on page 158.

Gender pay

Gender pay is an area of focus in the UK with the introduction of the Gender Pay Gap Reporting regulations. We will be complying with those regulations and reporting accordingly.

Our global pay strategy is designed to attract and motivate the very best people regardless of any factor unrelated to their performance or experience.

Pay recommendations consider internal and external market comparisons and reflect the employee's performance during the year. Recommendations are reviewed during a robust annual process, involving business and function heads, senior management and Human Resources.

Review of our policy

The Group's remuneration policy is due to expire at the 2019 AGM. During the course of this year, we will be reviewing our current approach to Directors' remuneration and will consult with our large shareholders and proxy advisory bodies with the aim of introducing a policy in 2019.

Our annual report on remuneration

The next section provides an overview of our remuneration policy for executive Directors, which was approved by shareholders at the 2016 AGM. In the annual report section, we provide details of remuneration decisions made for executive Directors in 2017. In the additional remuneration disclosure section of this report, we provide additional remuneration-related disclosures, including an overview of the policy that applies to our employees.

As Chair of the Committee, I hope you will support the report.

 

 

 

Pauline van der Meer Mohr

Chair

Group Remuneration Committee

20 February 2018

 




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Directors' remuneration policy

The tables below summarise our remuneration policy for executive and non-executive Directors. The policy was approved at the AGM on 22 April 2016 and is intended to apply for three performance

 

years until the AGM in 2019. The full remuneration policy can be found on pages 288 to 299 of our Annual Report and Accounts 2015 and in the Directors' Remuneration Policy Supplement, which is available under group results and reporting in the Investor Relations section of www.hsbc.com.





Remuneration policy summary - executive Directors

Base salary

To attract and retain key talent by being market competitive and rewarding ongoing contribution to role.

Paid in cash on a monthly basis.

Base salary increases will not exceed 15% in total during the three-year term of the policy.

No change from 2017.

Stuart Gulliver: £1,250,000

John Flint: £1,200,000

Iain Mackay: £700,000

Marc Moses: £700,000

Fixed pay allowance

To deliver fixed pay required to reflect the role, skills and experience of the Directors and to maintain a competitive total remuneration package for retention of key talent.

Non-pensionable and paid in shares.

Released annually on a pro-rata basis over five years, starting from March following the end of the financial year in which the shares were granted.

Dividends paid on the vested shares held during the retention period.

No change from 2017.

Stuart Gulliver: £1,700,000

John Flint: £1,700,000

Iain Mackay: £950,000

Marc Moses: £950,000

Pension

To attract and retain key talent by being market competitive.

Directors receive cash in lieu of a pension equal to 30% of base salary.

No change from 2017.

Benefits

To provide benefits in accordance with local market practice.

Include, for example, medical insurance, income protection insurance, health assessment, life assurance, club membership, tax return assistance, car benefit and travel assistance, including any tax due on the benefit.

Additional benefits may also be provided where an executive Director is relocated or spends a substantial proportion of their time in more than one jurisdiction for business purposes.

No change from 2017.

Annual incentive

To drive and reward performance against annual financial and non-financial objectives which are consistent with the strategy and align to shareholder interests.

Maximum opportunity for annual incentive award is 215% of base salary.

Performance is measured against an annual scorecard, which varies by individual.

On vesting, shares are subject to a retention period of at least six months.

Number of shares to be awarded can be determined taking into consideration a share price discounted for expected dividend yield.

See page 156 for details of performance measures.

Shares issued are subject to a retention period of one year after vesting in accordance with new regulatory requirements.

Long-term incentive ('LTI')

To incentivise sustainable long-term alignment with shareholder interests.

Maximum opportunity for LTI award is 320% of base salary.

Award is subject to a three-year forward-looking performance period.

Performance is measured against a long-term scorecard. 60% is based on financial outcomes and 40% is based on non-financial outcomes, including risk and strategy-related measures.

Awards vest in five equal instalments with the first vesting on or around the third anniversary of the grant date, and the last vesting on or around the seventh anniversary of the grant date.

On vesting, shares are subject to a retention period of at least six months.

Awards are discretionary and subject to malus during the vesting period and clawback for a period of seven to 10 years from the date of award.

Number of shares to be awarded can be determined taking into consideration a share price discounted for expected dividend yield.

Details of the performance measures and targets for awards to be made in 2018 (in respect of 2017) are set out on page 151.

For awards to be made in respect of 2018, the measures and targets will be determined at the end of 2018 for the performance period commencing on
1 January 2019.

On vesting, awards are subject to a retention period of one year in accordance with new regulatory requirements.

Awards are not entitled to dividend equivalents during the performance and deferral period in accordance with new regulatory requirements.

Shareholding guideline

To ensure appropriate alignment with the interest of our shareholders.

The shareholding guidelines as a percentage of base salary are:

Group Chief Executive: 400%

Group Finance Director and Group Chief Risk Officer: 300%

 

No change from 2017.



1

John Flint will succeed Stuart Gulliver as executive Director and Group Chief Executive with effect from 21 February 2018. Stuart Gulliver will step down as executive Director and Group Chief Executive on 20 February 2018.

Executive Directors are also entitled to participate in all employee share plans, such as HSBC Sharesave, on the same basis as all other employees. The policy on payment for loss of office is detailed online in the Directors' Remuneration Policy Supplement.

 




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Directors' Remuneration Report

 

Remuneration policy summary - non-executive Directors

Non-executive Directors are not employees and receive a fee for their services, as follows:



base fee; and



further fees for the role of Senior Independent Director ('SID') and additional Board duties such as chairmanship or membership of a committee.

 

Expenses incurred in performing their roles and any related tax due are also reimbursed.

All non-executive Directors have a shareholding guideline of 15,000 shares, which has to be achieved by 2019 or within five years of their appointment if later.

A travel allowance of £4,000 is provided to non-UK based non-executive Directors to reflect the additional time commitment required for travel.





 

 

2018 fees

 

 

£

Category

 

 

Non-executive Group Chairman1

 

1,500,000

Base fee

 

110,000

SID

 

54,000

Audit, Risk, Remuneration, Financial System Vulnerabilities and Conduct & Values Committees

Chairman

60,000

 

Member

30,000

Nomination Committee

Chairman

 

40,000

 

Member

25,000

Philanthropic & Community Investment Oversight Committee

Chairman

25,000

 

Member

15,000



1

Group Chairman does not receive a base fee or any other fees in respect of chairmanship of any other committee. The Committee has exercised its discretion to provide Mark Tucker with life assurance and healthcare insurance with effect from 1 February 2018, taking into consideration that he is performing the role with a time commitment of not less than four days per week, and holds no other offices outside of HSBC Holdings plc.

Service contracts

Executive Directors








 

Douglas Flint1

John

Flint

Stuart Gulliver

Iain

Mackay

Marc Moses

Contract date (rolling)

14 Feb 2011

21 Feb 2018

10 Feb 2011

4 Feb

2011

27 Nov 2014

Notice period

(Director & HSBC)

12 months

12 months

12 months

12 months

12 months



1

Douglas Flint stepped down from the Board on 30 September 2017.

Letters setting out the terms of appointment of each executive Director are available for inspection at HSBC Holdings' registered office. Consistent with the best interests of the Group, the

 

Committee will seek to minimise termination payments. Directors may be eligible for a payment in relation to statutory rights.

The Directors' biographies are set out on pages 122 to 125, and include those directorships provided for under Capital Requirement Directive IV ('CRD IV').

Non-executive Directors

Non-executive Directors are appointed for fixed terms not exceeding three years, which may be renewed subject to their re-election by shareholders at AGMs. Non-executive Directors do not have service contracts, but are bound by letters of appointment issued for and on behalf of HSBC Holdings. There are no obligations in the non-executive Directors' letters of appointment that could give rise to remuneration payments or payments for loss of office.

Non-executive Directors' current terms of appointment will expire as follows:






2018 AGM

2019 AGM

2020 AGM

2021 AGM

Phillip Ameen

Henri de Castries

Kathleen Casey

Mark Tucker

Joachim Faber

Irene Lee

Laura Cha

 

John Lipsky

Pauline van der Meer Mohr

David Nish

 

Heidi Miller

 

Jonathan Symonds

 

 

 

Jackson Tai

 

 

 

Lord Evans of Weardale

 



Annual report on remuneration

Remuneration Committee

Details of the roles, responsibilities and membership of the Committee are set out on page 132. During 2017, members of the Committee included Pauline van der Meer Mohr (Chair from
28 April 2017), Henri de Castries (appointed on 26 May 2017), John Lipsky, David Nish (appointed on 26 May 2017), Sam Laidlaw (Chairman and member until 28 April 2017) and Paul Walsh (until 21 April 2017).

 

 

Activities

The Committee met seven times during 2017. The following is a summary of the Committee's key activities during 2017. A copy of the Committee's terms of reference can be found on our website at www.hsbc.com/about-hsbc/corporate-governance/board-committees.

 




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HSBC Holdings plc  Annual Report and Accounts 2017

 

 




Details of the Committee's key activities

 

Approved Directors' Remuneration Report and Strategic Report.

Considered executive Director remuneration policy matters for shareholder consultation.

Consulted with key shareholders and proxy advisory bodies on executive Director remuneration matters.

Reviewed and approved executive Director remuneration matters.

Reviewed and approved executive Directors' scorecards and pay proposals.

Approved 2016/2017 performance year pay review matters and high-priority programmes progress.

Reviewed remuneration policy effectiveness.

Considered progress update on Monitor recommendations.

Received updates on notable events and regulatory and corporate governance matters.

Reviewed and approved 2017 Material Risk Taker ('MRT') identification approach and MRT list.

Approved 2017 regulatory submissions.

 

Advisers

The Committee received input and advice from different advisers on specific topics during 2017. Deloitte LLP ('Deloitte') was appointed by the Committee in 2015 as an objective, independent adviser to support the Committee on specific remuneration matters for executive Directors. The Committee made the appointment in 2015 after considering invited proposals from a number of consultancy firms. In 2017, the Committee agreed to extend Deloitte's appointment for a further period of one year. Deloitte provided benchmarking data on remuneration policy matters and independent advice to the Committee. The Committee may request ad-hoc assistance from Deloitte.

Deloitte also provided tax compliance and other advisory services to the Group. To ensure the advice from Deloitte was objective, the Committee required the advice to be independent and distinct from any internal review and analysis on remuneration policy matters. The Committee was satisfied the advice provided by Deloitte was objective and independent in 2017. Deloitte is a founding member of the Remuneration Consultants Group, and voluntarily operates under the Code of Conduct in relation to executive remuneration consulting in the UK.

For 2017, total fees of £109,350 were incurred in relation to remuneration advice provided by Deloitte. This was based on pre-agreed fees and a time-and-materials basis.

During the year, the Group Chief Executive provided regular briefings to the Committee. No executive Directors are involved in deciding their own remuneration. In addition, the Committee engaged with and received updates from the following employees:

 



Iain Mackay, Group Finance Director;



Marc Moses, Group Chief Risk Officer;



Stuart Levey, Chief Legal Officer;



John Flint, Chief Executive, Retail Banking and Wealth Management;



Elaine Arden, Group Head of Human Resources (from June 2017);



Donna Wong, Acting Group Head of Human Resources (until May 2017);



Alexander Lowen, Group Head of Performance and Reward;



Colin Bell, Group Head of Financial Crime Risk;



Ralph Nash, Global Head of Financial Crime Compliance and Group Money Laundering Reporting Officer;



Andy Maguire, Group Chief Operating Officer; and



Ben Mathews, Group Company Secretary.

The Committee also received feedback and input from the Group Risk Committee, the Financial System Vulnerabilities Committee and the Conduct & Values Committee on risk, conduct and compliance-related matters relevant to remuneration. This included input from the Financial System Vulnerabilities Committee in relation to progress on enhancing the anti-money laundering ('AML') and sanctions compliance programmes, for the purposes of the Committee's determination on any adjustments to be made under the downward override policy.

Single figure of remuneration

(Audited)

The following table shows the single figure total remuneration of each executive Director for 2017, together with comparative figures
for 2016.
























Single figure of remuneration

 

 

Base
salary


Fixed pay allowance


Cash in lieu of pension


Annual incentive


LTI1


Sub-total


Taxable benefits


Non-taxable benefits


Notional returns


Total


 

 

(£000)

 


(£000)

 


(£000)

 


(£000)

 


(£000)

 


(£000)

 


(£000)

 


(£000)

 


(£000)

 


(£000)

 


Douglas Flint2

2017

1,125


-


338


-


-


1,463


83


64


-


1,610


2016

1,500


-


450


-


-


1,950


100


86


-


2,136


Stuart Gulliver3

2017

1,250


1,700


375


2,127


-


5,452


500


71


63


6,086


2016

1,250


1,700


375


1,695


-


5,020


557


71


27


5,675


Iain Mackay

2017

700


950


210


1,334


-


3,194


64


37


42


3,337


2016

700


950


210


987


-


2,847


52


37


17


2,953


Marc Moses

2017

700


950


210


1,358


-


3,218


16


38


42


3,314


2016

700


950


210


1,005


-


2,865


15


38


18


2,936




1

The first LTI award was made in February 2017, with a performance period ending in 2019. Vesting of the first LTI award will be included in the single figure table for the financial year ending on 31 December 2019.



2

Douglas Flint stepped down from the Board on 30 September 2017 and his remuneration reflects time served as an executive Director. Details on retirement arrangements are provided on page 151.



3

To meet regulatory deferral requirements for 2017, 60% of the annual incentive award of Stuart Gulliver has been deferred in shares and will vest in five equal instalments between the third and seventh anniversary of the grant date.

 




HSBC Holdings plc  Annual Report and Accounts 2017

145

 

 

Directors' Remuneration Report

 

Illustration of release profile

The following chart provides an illustrative release profile for executive Directors.















































Illustration of release profile

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

 

u

Fixed pay allowance

Released in five equal annual instalments starting from March 2018.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

u

 

 

 

u

 

 

 

u

 

 

 

u

 

 

 

u

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Annual incentive

Paid in immediately vested shares subject to a retention period of one year.

Subject to clawback provisions for seven years from grant, which may be extended to 10 years in the event of an ongoing internal/regulatory investigation.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Perform-ance period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

u

 

 

u

 

u

 

 

u

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Malus/Clawback provisions1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

u

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term incentive

Award subject to a three-year forward-looking performance period.

Subject to performance outcome, awards will vest in five equal annual instalments starting from the third anniversary of the grant date.

On vesting, shares are subject to a retention period of one year.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performance period

 

 

 

 

 

 

 

Vesting period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

u

 

 

 

 

 

 

 

 

 

 

u

 

u

 

 

 

u

 

 

 

u

 

 

 

u

 

 

 

u

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retention period

u

 

 

 

u

 

 

 

u

 

 

 

u

 

 

 

u

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



1

Applies to both annual incentive and long-term incentive.

Notes to the single figure of remuneration

(Audited)

Benefits

In the single figure of remuneration table, 'benefits'
refers to:



all taxable benefits (gross value before payment of tax) including provision of medical insurance, accommodation and

 

car, club membership, including any tax gross-up; and non-taxable benefits including the provision of life assurance and other insurance coverage.

The values of the significant benefits in the single figure table are set out in the following table.












(Audited)

 

 

 

 

 

 

 

Car benefit

(UK and Hong Kong)1


Hong Kong bank-owned

accommodation2


Tax expense on car benefit and Hong Kong bank-owned accommodation


Insurance benefit

(non-taxable)1


 

 

(£000)

 


(£000)

 


(£000)

 


(£000)

 


Douglas Flint

2017

-


-


-


56


2016

-


-


-


75


Stuart Gulliver

2017

-


282


164


63


2016

64


263


211


63




1

The car benefit, tax on car benefit and insurance benefits for Iain Mackay and Marc Moses are not included in the above table as they were not significant.



2

Taxable value determined based on the current market rental value of the bank-owned property in Hong Kong, as estimated by an external lease service provider, plus utility costs, rates, the taxable value of furniture and taking into account the business use of the property.

Notional returns

In the single figure of remuneration table above, 'notional returns' refers to the notional return on deferred cash for awards made prior to 2017.

The deferred cash portion of the annual incentive granted prior to 2017 includes a right to receive notional returns for the period between grant date and vesting date, which is determined by reference to the dividend yield on HSBC shares, calculated annually.

A payment of notional return is made annually in the same proportion as the vesting of the deferred awards on each vesting date. The amount is disclosed on a paid basis in the year in which the payment is made. No deferred cash awards have been made to executive Directors under the current policy that has been operated from the 2016 financial year.

 

 

Determining executive Directors' annual performance

(Audited)

Executive Director's awards reflected the Committee's assessment of their performance against the personal and corporate objectives in their scorecards, which were agreed at the start of the year and reflect the Group's strategic priorities and risk appetite. In accordance with the downward override policy, the Committee also consulted the Financial System Vulnerabilities Committee and took into consideration its feedback in relation to progress on enhancing AML and sanctions compliance, along with progress in meeting the Group's obligations under the AML DPA and other relevant orders. The Committee also took into consideration the report of the independent Monitor in determining the scorecard outcomes.

In order for any annual incentive award to be made, each executive Director must achieve a required behaviour rating,
which is assessed by reference to the HSBC Values. For 2017,
all executive Directors achieved the required behaviour rating.

 




146

HSBC Holdings plc  Annual Report and Accounts 2017

 

 

 

The performance achieved by executive Directors in the year is shown in the table below.












Annual assessment

 

Stuart Gulliver

Iain Mackay

Marc Moses

Weighting (%)

Assessment (%)

Outcome (%)

Weighting (%)

Assessment (%)

Outcome (%)

Weighting (%)

Assessment (%)

Outcome (%)

Profit before tax1

20.00

100.00

20.00

10.00

100.00

10.00

10.00

100.00

10.00

Capital management

-

-

-

25.00

100.00

25.00

-

-

-

Deliver cost savings

20.00

25.00

5.00

10.00

25.00

2.50

-

-

-

Reduce Group RWAs

10.00

100.00

10.00

10.00

100.00

10.00

15.00

100.00

15.00

Strategic growth

10.00

90.19

9.02

-

-

-

-

-

-

Global Standards including

risk and compliance

25.00

85.00

21.25

25.00

90.00

22.50

50.00

86.25

43.13

Personal objectives

15.00

97.92

14.69

20.00

97.70

19.54

25.00

92.18

23.04

Total

100.00

 

79.96

100.00

 

89.54

100.00

 

91.17

Maximum annual incentive opportunity (£000)

 

 

£2,660

 

 

£1,490

 

 

£1,490

Annual incentive (£000)

 

 

£2,127

 

 

£1,334

 

 

£1,358

Financial performance  














Annual assessment

 

 

Minimum

(25% payout)


Maximum

(100% payout)


Performance


Assessment


Measure

 

 

 

 

Profit before tax ($bn)1


$16.0



$19.0



$21.2


100.00

%

Deliver cost savings ($bn) 2


$30.2



$29.6



$30.2


25.00

%

Reduce Group RWAs ($bn)


$63.4



$70.5



$70.7


100.00

%

Strategic growth3

Various


Various


Fully met targets for six measures and partly met targets for three measures.


90.19

%



1

Profit before tax, as defined for Group annual bonus pool calculation. This definition excludes business disposal gains and losses, debt valuation adjustments, restructuring and write-off costs included in 'Costs to Achieve' and variable pay expense. It does, however, take into account fines, penalties and costs of customer redress, which are excluded from the adjusted profit before tax. The adjusted profit before tax as per adjusted results is found on page 2.



2

Measured by reference to the 2017 exit run-rate for adjusted costs compared with our 2014 cost base.



3

Strategic growth measures include optimising global network, rebuilding NAFTA region profitability, delivering growth above GDP from our international network, pivot to Asia and Renminbi internationalisation.

 




HSBC Holdings plc  Annual Report and Accounts 2017

147

 

 

Directors' Remuneration Report

 

Non-financial performance

The table below provides an overview of the non-financial performance achieved by each executive Director.






Stuart Gulliver

 


Global Standards including risk and compliance

Achieve and sustain compliance with global financial crime compliance policies and procedures, and/or have approved dispensations in place.

Implementation of the operational risk management framework.

Implementation of global conduct programme and maturity level achieved against the required conduct outcomes.

Effective risk management with AML, sanctions, anti-bribery and corruption policies and Global Standards.

The financial crime risk management agenda has continued to be pursued rigorously resulting in key compliance action plan deliverables being met and strong progress made on Global Standards programme. This has been reinforced by a strong tone from the top, active engagement at relevant governance forums and full commitment to the ongoing development of the Financial Crime Risk ('FCR') function. Risk management practices materially strengthened across regions and businesses. However, further improvement is needed before sustainable maturity is achieved.

Implemented the operational risk management framework with key milestones met.

The conduct programme consistently delivered against the committed plan, including high priority conduct gaps closed and action plans implemented in respect of remaining gaps as well as the production and embedding of conduct management information. Achieved consistent management, oversight and delivery of conduct outcomes across all global businesses and significant global functions, including the effective transition to business as usual activities.

The AML DPA expired on 11 December 2017, and at the DoJ's request, the charges deferred by the AML DPA have been dismissed by the US district court that oversaw the agreement.

85.0

%

Personal objectives

Ensure climate change is reflected across the Group's activities.

Optimise global network and reduce complexity.

Set up UK ring-fenced bank headquartered in Birmingham and move the business to be ready for UK departure from the EU.

Delivery of high-priority projects.

Improve customer satisfaction and employee diversity.

Complete succession and transition planning.

HSBC scored 'A-' (leadership level) in the Climate Disclosure Project 2017 climate change rankings. In 2017, HSBC developed and published its sustainability strategy and announced five commitments to support the transition to a low-carbon economy. These include a commitment to provide $100bn of sustainable finance, demonstrating HSBC's ambition to be a leading global partner to the public and private sectors in the transition to a low carbon economy.

The Group's geographic coverage has been reduced to 67 countries and territories and previously announced transactions/closures are being progressed.

Establishment of the UK ring-fenced bank is on track, with the provisional banking licence approved by the Prudential Regulation Authority ('PRA'). 91% of Birmingham head office roles resourced, and the majority of technology deployments complete.

Implementation plan for a UK departure from the EU is on track.

The high-priority programmes, including digital transformation and cybersecurity have been assessed as fully met.

Achieved customer recommendation of 82% (target 75%) by retail customers. Good progress has been made in 2017, notably establishing the 'Moments Of Truth' survey in key markets.

Achieved target (26.3%) for female representation at senior management level.

Group succession plan is in place for key management personnel.

Stuart Gulliver was awarded 'Order of the Aztec Eagle', Mexico's highest distinction for foreign citizens and was the first banking executive ever to receive this award.

97.9

%

 




148

HSBC Holdings plc  Annual Report and Accounts 2017

 

 






Iain Mackay

 

Capital management

Implement consistent capital management framework across the Group for internal and external reporting.

Capital management framework fully implemented with capital actions enabled and return on tangible equity introduced as the revised capital management measure in internal and external reporting.

100.0

%

Global Standards including risk and compliance

Effective management of material operational risks.

Implementation of the operational risk management framework.

Proactively review and challenge the first line of defence to assess the adequacy of risk management activities relating to accounting and tax.

Implementation of global conduct programme and maturity level achieved against the required conduct outcomes.

Successful delivery of regulatory and internal stress tests in 2017.

Significant effort undertaken during 2017 to strengthen the self-identification, recording and remediation of audit issues through the implementation, training and awareness of the enhanced control framework. There were a small number of residual risks, all of which are appropriately managed.

Largely implemented the operational risk transformation programme and operational risk management framework.

Strong progress made towards the implementation of risk steward responsibilities for accounting and tax risk. Oversight of these risks within business areas is being progressed through the controls optimisation project.

Completed implementation of the global conduct programme milestones including the production and embedding of conduct management information.

Successfully delivered stress test submissions; including Comprehensive Capital Analysis and Review ('CCAR'), Annual Stress Testing and PRA stress tests. Largely completed delivery of IFRS 9 programme.

90.0

%

Personal objectives

Enhanced environmental, social and governance ('ESG') disclosures.

Deliver Global Finance transformation.

Set-up UK ring-fenced bank headquartered in Birmingham and move the business to be ready for a UK departure from the EU.

Improve employee diversity.

Complete succession and transition planning.

First ESG report published in April 2017. Updated ESG report published in November 2017.

Significant cost and headcount saves achieved through the Global Finance transformation together with substantial strengthening of the Global Finance centres. Progress achieved in enhancing efficiency through process re-engineering and technology deployment with improvements in timing and quality of delivery.

UK ring-fenced bank financial and regulatory reporting infrastructure on track to support employees and product systems migrations and to start trading as HSBC UK on 1 July 2018, subject to ring-fencing transfer scheme approval by court. 91% of Birmingham head office roles resourced.

Finance Steering Committee established for dealing with UK's departure from the EU and implementation plan is on track.

Achieved 26.7% (target = 28.5%) for female representation at senior management in the Finance function.

Global people & talent programme established across the Global Finance function, focusing on the identification, development and leverage of talent at all levels to strengthen capability, quality and diversity of leadership succession across the function. Top 100 Programme launched in partnership with Duke Corporate Education.

Succession plans in place for key management personnel.

97.7

%

 




HSBC Holdings plc  Annual Report and Accounts 2017

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Directors' Remuneration Report

 






Marc Moses

 


Global Standards including risk and compliance

Ensure the Global Risk function enables and supports the FCR function to achieve and sustain compliance with global financial crime compliance policies and procedures.

Implementation of the operational risk management framework.

Effective management of material operational risks.

Proactively review and challenge the first line of defence to assess the adequacy of risk management activities and fulfil risk steward responsibilities.

Manage credit and market risk, and oversee liquidity risk within the Board approved risk appetite.

Implementation of global conduct programme and maturity level achieved against the required conduct outcomes.

Successful delivery of regulatory and internal stress tests in 2017.

Enabled effective FCR management through the enterprise wide and operational risk management frameworks, provision of risk analytics support to FCR management and the completion of FCR model.

Implementation of operational risk management framework and the delivery of risk management system of record on time and within budget. Material operational risks are being actively managed and remediation actions relating to high and very high residual risks are being completed.

Completed the delivery of the US risk management measures to enable compliance with regulations; largely completed the delivery of IFRS 9 and Dodd-Frank programmes.

Successfully delivered the 2017 Annual Cyclical Scenario: Biennial Exploratory Scenario submissions to the PRA and the CCAR submissions to the Federal Reserve Board.

Credit, market and liquidity metrics effectively managed through the Group Risk Management Meeting and within Group risk appetite profile.

Successfully completed all 2017 conduct programme milestones including the production and embedding of conduct management information, and enabling compliance with conduct regulations. Maturity levels across conduct outcomes largely met expectations.

86.3

%

Personal objectives

Develop processes to measure exposure to carbon-intensive and low-carbon-intensive activities.

Define opportunities to develop risk management policies and procedures consistent with Group risk appetite to protect the Group from climate change risk, and enable business activities supporting a transition to a low-carbon economy.

Pivot to Asia and support growth of customer lending.

Deliver Global Risk function transformation.

Improve RWA effectiveness and efficiency.

Improve employee diversity.

Complete succession and transition planning.

Enabled the embedding of effective client and sustainability risk management; engaged constructively with non-governmental organisations and participated actively in the Global Climate Change Disclosure taskforce. Actively applied revised sustainability policies and frameworks to support the successful launch of Green and Social Bonds, the risk management of our environmentally-sensitive exposures such as incorporating new standards for the palm oil sector to protect high carbon stock forests and peat, and delivery of actions to reduce client sensitivity to risks associated with the transition from a high-carbon to low-carbon economy through the financing of green initiatives.

Pivot to Asia with ongoing RBWM expansion and launch of China Cards has driven higher returns and lending growth, particularly in Hong Kong and the Pearl River Delta. Regulatory approval obtained to establish HSBC Qianhai Securities Limited will increase access to China's markets for domestic and international clients.

Effectively managed costs and headcount of the Global Risk function through rigorous monitoring of performance and implementation of transformation activities including process re-engineering, and location optimisation.

Strengthened RWA effectiveness and efficiency within CMB and GBM supporting overall reduction in Group RWAs.

Delivered Global Risk function people initiatives including succession plans and achieved 27.1% (target = 27.7%) for female representation at senior management in the Risk function.

92.2

%

 




150

HSBC Holdings plc  Annual Report and Accounts 2017

 

 

Long-term incentive awards

(Audited)

For the 2017 performance year, the Committee determined to grant Iain Mackay and Marc Moses an LTI award equivalent to 319% of base salary after taking into consideration performance achieved for the financial year ended 31 December 2017 and the achievements against the strategic actions announced in June 2015. The awards will be subject to a three-year performance period starting 1 January 2018. As the awards are not entitled to

 

dividend equivalents per regulatory requirements, the number of shares to be awarded to executive Directors will be adjusted to reflect the expected dividend yield of the shares over the vesting period. The measures that will be used to assess performance and payout are described below. To the extent performance conditions are satisfied at the end of the three-year performance period, the awards will vest in five equal annual instalments commencing from around the third anniversary of the grant date. On vesting, awards are subject to a retention period of one year.







Performance conditions for LTI awards in respect of 2017

Average return on equity (with CET1 underpin)1

9.0%

10.0%

11.0%

20

Cost-efficiency ratio

60.0%

58.0%

55.5%

20

Relative total shareholder return2

At median of the peer group.

Straight-line vesting between minimum and maximum.

At upper quartile of the peer group.

20

Risk and compliance

Achieve and sustain compliance with Global Financial Crime Compliance policies and procedures.

Achieve a sustainable adoption of Group operation risk management framework, along with its policies and practices.

Achieve and sustain delivery of global conduct outcomes and compliance with conduct of business regulatory obligations.

Performance will be assessed by the Committee based on a number of qualitative and quantitative inputs such as feedback from the Financial System Vulnerabilities Committee, Group Financial Crime Risk assessment against Financial Crime Compliance objectives, outcome of assurance and audit reviews, and achievement of the long-term Group objectives and priorities during the performance period.

 

25

Strategy

 

 

 

15

Sustainable finance3

$30bn

$34bn

$37bn


Employee confidence4

65%

67%

70%

 

Customer

(Based on customer recommendation in top five markets by revenue)

Improvement in recommendation in three of top five markets for CMB, GBM and RBWM.

Improvement in recommendation in four of top five markets for CMB, GBM and RBWM.

Improvement in recommendation in all of top five markets for CMB, GBM and RBWM.

 

Total

 

 

 

100



1

Significant items are excluded from the profit attributable to ordinary shareholders of the company for the purpose of computing adjusted return on equity. If the CET1 ratio at the end of performance period is below the CET1 risk tolerance level set in the RAS then, the assessment for this measure will be reduced to nil.



2

The peer group for the 2017 award is: Bank of America, Barclays, BNP Paribas, Citigroup, Credit Suisse Group, DBS Group Holdings, Deutsche Bank, JPMorgan Chase & Co., Lloyds Banking Group, Standard Chartered and UBS Group.



3

To be assessed based on cumulative financing and investment made to develop clean energy, lower-carbon technologies and projects that contribute to the delivery of the Paris Agreement and the UN sustainable development goals.



4

Assessed based on results of the latest employee snapshot survey question 'I am seeing the positive impact of our strategy'.

Payments to past Directors

(Audited)

No payments were made to or in respect of former Directors in the year in excess of the minimum threshold of £50,000 set for this purpose.

Total pension entitlements

(Audited)

No employees who served as executive Directors during the year have a right to amounts under any HSBC final salary pension scheme for their services as executive Directors or are entitled to additional benefits in the event of early retirement. There is no retirement age set for Directors, but the normal retirement age for employees is 65.

External appointments

Douglas Flint received £31,500 in fees from Chairman Mentors International in the period to 30 September 2017.

During 2017, Stuart Gulliver received SGD10,000 in fees as a member of the Monetary Authority of Singapore International Advisory Panel, which was donated to charity.

 

 

Retirement arrangements for Douglas Flint

(Audited)

Douglas Flint retired from the Board on 30 September 2017. In line with the remuneration policy, he is not entitled to be considered for any variable pay awards in respect of 2017. In accordance with his contractual entitlements and the approved policy, he received the following payments and benefits until he ceased to be an employee on 31 December 2017.



Salary and cash in lieu of pension: £487,500; and



Contractual benefits valued at: £24,068.

In December 2017, Douglas Flint received a payment of £377,500 in lieu of his salary and cash in lieu of pension for the period from 1 January 2018 to 11 March 2018 and a payment of £180,000 in lieu of unused holiday entitlement. He received no compensation payment for ceasing to be an executive Director.

As disclosed in our approved remuneration policy, he is also eligible to receive medical coverage for a period of seven years from 1 January 2018.

Scheme interests awarded during 2017

(Audited)

The table below sets out the scheme interests awarded to Directors in 2017, for performance in 2016, as disclosed in the 2016 Directors' Remuneration Report. No non-executive Directors received scheme interests during the financial year.

 




HSBC Holdings plc  Annual Report and Accounts 2017

151

 

 

Directors' Remuneration Report

 













Scheme awards in 2017

(Audited)

 

Type of interest awarded

Basis on which
award made

Date of award

Face value awarded1,2

£000

Percentage receivable for minimum performance1,2

Number of

shares

awarded

Share price

on date

of grant3


End of performance period

Stuart Gulliver

Deferred shares

Long-term incentive 2016

27 Feb 2017

3,990

25

613,562


£6.5030


31 Dec 2019

Iain Mackay

Deferred shares

Long-term incentive 2016

27 Feb 2017

2,232

25

343,226


£6.5030


31 Dec 2019

Marc Moses

Deferred shares

Long-term incentive 2016

27 Feb 2017

2,232

25

343,226


£6.5030


31 Dec 2019



1

For annual incentive, awards were determined based on performance achieved during the period to 31 December 2016 and were subject to a six-month retention period on vesting. These awards are also subject to clawback for a maximum period of 10 years from the date of the award. The overall award level could have been 0% of the maximum opportunity if minimum performance was not achieved at the end of the performance period.



2

For LTI, awards are subject to a three-year forward-looking performance period and awards vest in five equal instalments subject to performance achieved. On vesting, awards will be subject to a six-month retention period. Awards are subject to malus during the vesting period and clawback for a maximum period of 10 years from the date of the award. Details of performance conditions applicable during the forward-looking performance period are set out below.



3

Share price used is the closing mid-market price on the last working day preceding the date of grant.

The above table does not include details of shares issued as part of the fixed pay allowances, as those shares vested immediately and are not subject to any service or performance conditions.

 

Details of the performance measures and targets for the LTI award in respect of 2016 are detailed below.







Performance conditions for LTI awards in respect of 2016

Average return on equity1

7.0%

8.5%

10.0%

20

Cost efficiency (adjusted jaws)

Positive

1.5%

3.0%

20

Relative total shareholder return2

At median of the peer group.

Straight-line vesting between minimum and maximum.

At upper quartile of the peer group.

20

Global Standards including risk and compliance

Status of AML DPA.

Not applicable

 

Not applicable

Met all commitments to achieve closure of the AML DPA and protect HSBC from further regulatory censure for financial crime compliance failings.

25

Achieve and sustain compliance with Global Financial Crime Compliance policies and procedures.

Performance will be assessed by the Committee based on a number of qualitative and quantitative inputs such as feedback from the Financial System Vulnerabilities Committee, Group Financial Crime Risk assessment against Financial Crime Compliance objectives, outcome of assurance and audit reviews, and achievement of the long-term Group objectives and priorities during the performance period.

 

 

Strategy

International client revenues

(Share of revenues supported by international network)

 

50%

51%

52%

15

Revenue synergies

(Share of revenues supported by universal banking model)

22%

23%

24%

 

Employee3

(Results of employee survey)

65%

67%

70%

 

Customer

(Based on customer recommendation in home country markets)

Rank within top three in at least two of the four RBWM and CMB customer segments in home country markets.

Rank within top three in three of the four RBWM and CMB customer segments in home country markets.

Rank within top three in all four RBWM and CMB customer segments in home country markets.

 

Total

 

 

 

100



1

Significant items are excluded from the profit attributable to ordinary shareholders of the company for the purpose of computing adjusted return on equity.



2

The peer group for the 2016 award is: Australia and New Zealand Banking Group, Bank of America, Barclays, BNP Paribas, Citigroup, Credit Suisse Group, DBS Group Holdings, Deutsche Bank, JPMorgan Chase & Co., Lloyds Banking Group, Standard Chartered and UBS Group.



3

Assessed based on results of the latest employee snapshot survey question 'I am seeing the positive impact of our strategy'.

 

 




152

HSBC Holdings plc  Annual Report and Accounts 2017

 

 

Directors' interests in shares

(Audited)

The shareholdings of all persons who were Directors in 2017, including the shareholdings of their connected persons, at 31 December 2017, or date of retirement from the Board, if earlier,

 

are set out below. The table below shows the comparison of shareholdings to the company shareholding guidelines. There
have been no changes in the shareholdings of the Directors from 31 December 2017 to the date of this report.















Shares

(Audited)

 

Shareholding guidelines2

(% of salary)


Shareholding at

31 Dec 2017, or date of retirement from the Board, if earlier3 (% of salary)


At 31 Dec 2017, or date of retirement from the Board, if earlier

 

 

Scheme interests

 

Share

interests4

(number

of shares)


Share options5


Shares awarded subject to deferral1

 

without performance conditions4, 6


with

performance

conditions7


Executive Directors

 

 

 

 

 

Douglas Flint (retired from the Board on
30 September 2017)

100

%

125

%

252,606


2,919


-


-


Stuart Gulliver

400

%

2,211

%

3,711,169


-


2,293,071


738,499


Iain Mackay

300

%

470

%

442,118


3,469


1,268,016


426,997


Marc Moses

300

%

1,284

%

1,207,068


-


1,288,389


424,927


Group Managing Directors8

250,000 shares


n/a


n/a


n/a


n/a


n/a




1

The gross number of shares is disclosed. A portion of these shares will be sold at vesting to cover any income tax and social security which falls due at the time of vesting.



2

Unvested share-based incentives are note counted towards compliance with the shareholding guideline.



3

The value of the shareholding is calculated using an average of the daily closing share prices in the three months to 31 December 2017, (£7.4468).



4

For variable pay awards (annual incentive and LTI), in line with regulatory requirements, any deferred shares (net of tax) which the Director becomes entitled to are subject to a retention requirement, such that they must be held for a predefined period of time. To provide the executive Directors with appropriate flexibility, the Committee determined that, the requirement to hold these shares could be met either by retaining the shares that vested from the underlying award (net of tax) or by separately retaining a number of shares equivalent to those that vested under the award. The Committee consider that such an arrangement results in the employee holding the same number of shares as per the original intention of the retention period as set out in the remuneration policy approved by shareholders in 2014.



5

All share options are unvested and unexercised.



6

Includes Group Performance Share Plan ('GPSP') awards, which were made following an assessment of performance over the relevant period ending on 31 December before the grant date but are subject to a five-year vesting period.



7

Awards granted in March 2013 are subject to service conditions and satisfactory completion of the AML DPA, as determined by the Committee. The AML DPA condition ends on the fifth anniversary of the award date. LTI awards granted in February 2017 are subject to the performance conditions as set out on page 152.



8

All Group Managing Directors are expected to meet their shareholding guideline by 2019 or within five years of the date of their appointment, whichever is later.













Share options

(Audited)

 

Date of award

Exercise price

Exercisable

At 1 Jan


Exercised


At 31 Dec 2017, or date of retirements from the Board, if earlier


 

 

£

from1

until

2017


in year


Douglas Flint

23 Sep 2014

5.1887

1 Jan 2018

30 June 2018

2,919


-


2,919


Iain Mackay

23 Sep 2014

5.1887

1 Nov 2017

30 April 2018

3,469


-


3,469




1

May be advanced to an earlier date in certain circumstances, such as retirement.

The above awards were made under HSBC UK Sharesave, an all-employee share plan under which eligible employees may be granted options to acquire HSBC Holdings ordinary shares. The exercise price is determined by reference to the average market value of HSBC Holdings ordinary shares on the five business days immediately preceding the invitation date, then applying a discount of 20%. Employees may make contributions of up to £500 each month over a period of three or five years. The market value per ordinary share at 29 December 2017 was £7.6650. Market value is the mid-market price derived from the London Stock Exchange Daily Official List on the relevant date. Under the Securities and Futures Ordinance of Hong Kong, the options are categorised as unlisted physically settled equity derivatives.

 

 

Summary of shareholder return and Group Chief Executive remuneration

The following graph shows the total shareholder return ('TSR') performance against the FTSE 100 Total Return Index for the nine-year period that ended on 31 December 2017. The FTSE 100 Total Return Index has been chosen as this is a recognised broad equity market index of which HSBC Holdings is a member. The single figure remuneration for the Group Chief Executive over the past nine years, together with the outcomes of the respective annual incentive and long-term incentive awards, is presented in the following table.

 




HSBC Holdings plc  Annual Report and Accounts 2017

153

 

 

Directors' Remuneration Report

 



HSBC TSR and FTSE 100 Total Return Index

 





















 

2009


2010


2011


2012


2013


2014


2015


2016


2017


Group Chief

Executive

Michael Geoghegan


Michael Geoghegan


Stuart Gulliver


Stuart Gulliver


Stuart Gulliver


Stuart Gulliver


Stuart Gulliver


Stuart Gulliver


Stuart Gulliver


Total single figure

£000

7,580

7,932

8,047

7,532

8,033

7,619

7,340

5,675

6,086

Annual incentive1

(% of maximum)

94

%

82

%

58

%

52

%

49

%

54

%

45

%

64

%

80

%

Long-term incentive2,3

(% of maximum)

25

%

19

%

50

%

40

%

49

%

44

%

41

%

-

%

-

%



1

The 2012 annual incentive figure for Stuart Gulliver used for this table includes 60% of the annual incentive disclosed in the 2012 Directors' Remuneration Report, which was deferred for five years and subject to service conditions and satisfactory completion of the AML DPA as determined by the Committee. The AML DPA condition ends on the fifth anniversary of the award date.



2

Long-term incentive awards are included in the single figure for the year in which the performance period is deemed to be substantially completed. For GPSP awards this is the end of the financial year preceding the date of grant (GPSP awards shown in 2011 to 2015 therefore relate to awards granted in 2012 to 2016). For performance share awards that were awarded before introduction of GPSP, the value of awards that vested subject to satisfaction of performance conditions attached to those awards are included at the end of the third financial year following the date of grant (for example, performance share awards shown in 2010 relates to awards granted in 2008).



3

The GPSP was replaced by the LTI in 2016 and the value for GPSP is nil for 2016 as no GPSP award was made for 2016. The first LTI award was made in February 2017, with a performance period ending in 2019. For year-on-year comparison purposes, if target performance is achieved over the three-year performance period, LTI payout would be 50% of grant value. In this case, the single figure total remuneration of the Group Chief Executive for year-on-year comparison would be (in £000) £7,670 for 2016. Stuart Gulliver was not eligible for an LTI award in respect of 2017 given his announced retirement.

Comparison of Group Chief Executive and all-employee pay

The following charts compare the changes in Group Chief Executive pay to changes in employee pay between 2016 and 2017, and provide a breakdown of total staff pay relative to the amount paid out in dividends.







Percentage change in remuneration between 2016 and 2017

 



Base salary1

-

%

5

%

Benefits2, 3

(10

)%

3

%

Annual incentive4

25

 %

12

%



1

Employee group consists of local full-time UK employees as representative of employees from different businesses and functions across the Group. Group Chief Executive's total fixed pay has not increased since 1 January 2014.



2

There has been no change in the benefits provided to the Group Chief Executive. The change in the value of the benefit is due to the change in the taxable value of the benefit as reported in the single figure table.



3

For benefits, employee group consists of UK employees which was deemed the most appropriate comparison for the Group Chief Executive given varying local requirements.



4

For annual incentive, employee group consists of all employees globally. The change is based on annual incentive pool as disclosed on page 31 and staff numbers (full-time equivalents at the financial year-end). The percentage change in annual incentive award of the Group Chief Executive is primarily driven by the difference in the 2016 and 2017 scorecard outcome, reflecting performance achieved in those years, and change in policy. Details of the 2017 total single figure of remuneration for the Group Chief Executive are on page 145.

 

Relative importance of spend on pay

The chart below shows the change in:



total staff pay between 2016 and 2017; and



dividends paid out in respect of 2016 and 2017.

In 2017, we returned a total of $3bn to shareholders through share buy-backs.  



Relative importance of spend on pay




ì

î

 

5%

4%

 








Return to shareholder

Employee compensation and benefits

 

 

Dividends

 

 

 

 

 

 

Share buy-back

 

 

 

 




154

HSBC Holdings plc  Annual Report and Accounts 2017

 

 

Non-executive Directors

(Audited)

The table below shows the total fees of non-executive Directors for 2017, together with comparative figures for 2016.  













Fees and benefits

(Audited)

 

Fees1

Benefits2

Total

(£000)

Footnotes

2017

2016


2017

2016


2017

2016


Phillip Ameen

3

474

440


12

38


486

478


Kathleen Casey

 

174

155


16

21


190

176


Henri de Castries

4

132

79


5

4


137

83


Laura Cha

5

269

247


22

20


291

267


Lord Evans of Weardale

 

215

190


8

5


223

195


Joachim Faber

6

162

152


9

10


171

162


Sam Laidlaw (Retired on 28 April 2017)

 

70

185


1

11


71

196


Irene Lee

7

300

268


8

9


308

277


John Lipsky

 

199

180


25

21


224

201


Rachel Lomax (Retired on 28 April 2017)

 

93

254


1

6


94

260


Heidi Miller

8

571

536


18

30


589

566


David Nish

9

158

83


18

19


176

102


Jonathan Symonds

10

639

520


2

6


641

526


Jackson Tai

11

194

48


43

4


237

52


Mark Tucker (Appointed on 1 September 2017)

12

500

-


318

-


818

-


Pauline van der Meer Mohr

13

239

172


16

9


255

181


Paul Walsh (Resigned on 21 April 2017)

 

55

142


2

5


57

147


Total

 

4,444

3,651


524

218


4,968

3,869


Total ($000)

 

5,720

4,926


674

294


6,395

5,220




1

Fees include a travel allowance of £4,000 for non-UK based non-executive Directors.



2

Benefits include accommodation and travel-related expenses relating to attendance at Board and other meetings at HSBC Holdings' registered office. Amounts disclosed have been grossed up using a tax rate of 45%, where relevant. The 2016 amounts have been restated to exclude National Insurance Contributions.



3

Includes fees of £330,000 in 2017 (£315,000 in 2016) as a Director, Chairman of the Audit Committee and member of the Risk Committee of HSBC North America Holdings Inc.



4

Appointed as a member of the Group Remuneration Committee on 26 May 2017.



5

Includes fees of £75,000 in 2017 (£72,000 in 2016) as a Director, Deputy Chairman and member of the Nomination Committee of The Hongkong and Shanghai Banking Corporation Limited.



6

Includes £8,000 (inclusive of VAT) in respect of his membership of a verwaltungsrat (advisory body) to HSBC Trinkaus & Burkhardt AG. Stepped down as Chairman of the Group Risk Committee on 28 April 2017 and resigned from the Group Risk Committee on 30 November 2017.



7

Includes fees of £187,000 in 2017 (£173,000 in 2016) as a Director, and member of the Audit Committee and the Risk Committee of The Hongkong and Shanghai Banking Corporation Limited and as a Director, member of the Audit Committee and Chairman of the Risk Committee of Hang Seng Bank Limited.



8

Includes fees of £427,000 in 2017 (£411,000 in 2016) as Chairman of HSBC North America Holdings Inc.



9

Appointed as a member of the Group Remuneration Committee on 26 May 2017.



10

Appointed as Senior Independent Director on 28 April 2017. Includes fees of £382,000 in 2017 (£345,000 in 2016) as non-executive Chairman of HSBC Bank plc.



11

Appointed as Chairman of the Group Risk Committee on 28 April 2017.



12

Received a one time relocation benefit of £300,000.



13

Appointed as Chairman of the Conduct & Values Committee and the Group Remuneration Committee on 28 April 2017.

Non-executive Directors' interests in shares

(Audited)

The shareholdings of persons who were non-executive Directors in 2017, including the shareholdings of their connected persons, at
31 December 2017, or date of cessation as a Director, if earlier, are set out below. The table below shows the comparison of shareholdings to the company shareholding guidelines.





Shares

 

Shareholding guidelines (number of shares)

Share interests

(number of shares)

Phillip Ameen

15,000

5,000

Kathleen Casey

15,000

9,125

Laura Cha

15,000

18,200

Henri de Castries

15,000

17,116

Lord Evans of Weardale

15,000

12,892

Joachim Faber

15,000

66,605

Sam Laidlaw (Retired on 28 April 2017)

15,000

41,887

Irene Lee

15,000

10,588

John Lipsky

15,000

16,165

Rachel Lomax (Retired on 28 April 2017)

15,000

18,900

Heidi Miller

15,000

4,200

David Nish

15,000

50,000

Jonathan Symonds

15,000

42,821

Jackson Tai

15,000

44,825

Mark Tucker (Appointed on 1 September 2017)

15,000

276,000

Pauline van der Meer Mohr

15,000

15,000

Paul Walsh (Resigned on 21 April 2017)

15,000

5,211

 




HSBC Holdings plc  Annual Report and Accounts 2017

155

 

 

Directors' Remuneration Report

 

Voting results from Annual General Meeting

The table below summarises the voting results at our AGM.  






Annual General Meeting voting results

 

For1

Against1

Withheld

Remuneration Report (2017 AGM)

96.47%

3.53%

-

8,885,701,458

324,969,999

30,526,965

Remuneration Policy (2016 AGM)

96.05%

3.95%

-

8,887,168,002

365,908,568

35,165,873



1

Votes cast.

Implementation of remuneration policy in 2018 for executive Directors

Implementation of fixed remuneration is disclosed on page 144, along with the remuneration policy summary. Further details on performance measures and weightings for the 2018 annual incentive award are provided below.

John Flint's fixed remuneration on taking on the the role of Group Chief Executive is disclosed on page 144. In line with the other executive Directors, he will be eligible for discretionary variable pay that consists of an annual incentive award up to a maximum value of 215% of base salary, and a long-term incentive award up to a maximum of 320% of base salary.

 

Annual incentive scorecards

The weightings and performance measures for the 2018 annual incentive award for Stuart Gulliver, John Flint, Iain Mackay and Marc Moses are disclosed below. The performance targets for the annual incentive are commercially sensitive and it would be detrimental to the Group's interests to disclose them at the start of the financial year. Subject to commercial sensitivity, we will disclose the targets for a given year in the Annual Report and Accounts for that year in the Directors' Remuneration Report.

2018 annual incentive scorecards

Executive Directors will be eligible for an annual incentive award of up to 215% of base salary.






2018 annual incentive scorecards measures and weightings

 

John Flint and Stuart Gulliver

Iain Mackay

Marc Moses

Measures

%

%

%

Profit before tax

20

10

15

Positive JAWS

10

15

-

Revenue growth

10

-

-

Capital management

10

25

10

Strategic priorities1

25

25

15

Risk and compliance2

25

25

60

Total

100

100

100



1

Measures will include key objectives set out in the strategy to be agreed with the Board.



2

Measures will include objectives relating to financial crime risk, operational risk, conduct and other financial risks.

Stuart Gulliver will step down as Group Chief Executive on 20 February 2018, and John Flint will succeed as Group Chief Executive with effect from 21 February 2018. The scorecard outcome as determined in line with the table above will be applied to the maximum annual incentive award opportunity for Stuart Gulliver and John Flint on a pro-rata basis taking into account time spent by them in the Group Chief Executive role.

Stuart Gulliver will also be eligible to be considered for an annual incentive award and the Committee will consider his contribution as he continues to advise HSBC during the period between 21 February 2018 and his retirement date of 11 October 2018.

Long-term incentives

Details of the performance measures and targets for LTI awards to be made in 2018, in respect of 2017, are provided on page 151.

The performance measures and targets for awards to be made in respect of 2018, granted in 2019, will be provided in the Annual Report and Accounts 2018.

Retirement arrangements for Stuart Gulliver

Stuart Gulliver will step down as executive Director and Group Chief Executive on 20 February 2018 and will then cease employment with the Group on 11 October 2018.

Under the terms of his service contract, Stuart Gulliver will continue to receive his current salary of £1,250,000 per annum, his fixed pay allowance of £1,700,000 per annum, his cash in lieu of pension allowance of £375,000 per annum and his contractual benefits until his retirement. He will also be eligible to be considered for a 2018 annual incentive award as set out above. He will not receive a 2017 or 2018 LTI award, for which he otherwise would have been eligible to be considered for an amount which could have totalled up to £3,990,000 per year.

 

Stuart Gulliver will also be granted Good Leaver status, in accordance with the plan rules, in respect of his unvested deferred awards that were awarded in performance years 2012 to 2017. These awards were published in the annual report in those respective years and approved by shareholders at the respective AGMs. These awards will vest on the scheduled vesting dates, subject to the relevant terms (including post-vest retention periods, malus and, where applicable, clawback) and the achievement of any required performance conditions. Vesting of his 2016 performance year LTI award will be pro-rated for the period he is employed by the Group.

As per the shareholder approved remuneration policy, Stuart Gulliver will be entitled to a payment in lieu of any accrued but untaken holiday entitlement at his retirement date of 11 October 2018, and certain post-departure benefits including medical cover for a period of up to seven years. He will receive no compensation or payment for the termination of his service contract.

Implementation of remuneration policy in 2018 for non-executive Directors

The Committee has reviewed the fee levels payable to the non-executive Directors and details can be found on page 143.



Additional remuneration disclosures

This section provides disclosures required under the Hong Kong Ordinances, Hong Kong Listing Rules, the US Securities and Exchange Commission Form 20-F and the Pillar 3 remuneration disclosures.

 




156

HSBC Holdings plc  Annual Report and Accounts 2017

 

 

Employee compensation and benefits

Executive Directors

Set out below are details of compensation paid to executive Directors for the year ended 31 December 2017.



















Emoluments

 

Douglas Flint

Stuart Gulliver

Iain Mackay

Marc Moses

 

2017


2016


2017


2016


2017


2016


2017


2016


 

£000


£000


£000


£000


£000


£000


£000


£000


Basic salaries, allowances and benefits in kind

1,610


2,136


3,896


3,953


1,961


1,949


1,914


1,913


Pension contributions

-


-


-


-


-


-


-


-


Performance-related pay paid or receivable 1

-


-


2,127


5,685


3,566


3,219


3,590


3,237


Inducements to join paid or receivable

-


-


-


-


-


-


-


-


Compensation for loss of office

-


-


-


-


-


-


-


-


Notional return on deferred cash

-


-


63


27


42


17


42


18


Total

1,610


2,136


6,086


9,665


5,569


5,185


5,546


5,168


Total ($000)

2,072


2,882


7,834


13,039


7,168


6,995


7,139


6,972




1

Includes the value of the deferred and LTI awards at grant. The information for 2016 has been restated to include the value of LTI.

The aggregate amount of Directors' emoluments as defined above (including both executive Directors and non-executive Directors) for the year ended 31 December 2017 was $30,608,444. As per our policy, benefits in kind may include, but are not limited to, the provision of medical insurance, income protection insurance, health assessment, life assurance, club membership, tax assistance, Hong Kong accommodation, car benefit, travel assistance, and relocation costs (including any tax due on these benefits, where applicable). Medical insurance benefit of £4,181 ($5,382) was provided to former director, Alexander Flockhart, during the year ended 31 December 2017. Amounts are converted into US dollars based on the average year-to-date exchange rates for the respective year.

 

Emoluments of senior management and five highest paid employees

The following table sets out the details of emoluments paid to senior management (being here, executive Directors and Group Managing Directors of the Group) for the year ended 31 December 2017, or for the period of appointment in 2017 as a Director or Group Managing Director. Details of the remuneration paid to the five highest paid employees, comprising one executive Director and four Group Managing Directors of the Group, for the year ended 31 December 2017 are also presented.







Emoluments

 

 

Five highest paid employees


Senior management


 

£000


£000


Basic salaries, allowances and benefits in kind

18,729


41,143


Pension contributions

12


198


Performance-related pay paid or receivable1

15,272


40,220


Inducements to join paid or receivable

2,465


2,465


Compensation for loss of office

-


-


Total

36,478


84,026


Total ($000)

46,955


108,159




1

Includes the value of deferred shares awards at grant.








Emoluments by bands

Hong Kong dollars

US dollars

Number of

highest paid employees


Number of

senior management


$16,000,001 - $16,500,000

$2,053,177 - $2,117,338

-


2


$24,500,001 - $25,000,000

$3,143,927 - $3,208,088

-


1


$25,500,001 - $26,000,000

$3,272,250 - $3,336,412

-


1


$33,500,001 - $34,000,000

$4,298,839 - $4,363,000

-


1


$34,000,001 - $34,500,000

$4,363,000 - $4,427,162

-


2


$36,000,001 - $36,500,000

$4,619,647 - $4,683,809

-


1


$43,500,001 - $44,000,000

$5,582,074 - $5,646,236

-


1


$47,500,001 - $48,000,000

$6,095,368 - $6,159,530

-


1


$52,500,001 - $53,000,000

$6,736,986 - $6,801,147

-


1


$55,000,001 - $55,500,000

$7,057,795 - $7,121,956

-


2


$60,000,001 - $60,500,000

$7,699,412 - $7,763,574

1


1


$61,500,001 - $62,000,000

$7,891,898 - $7,956,059

1


1


$64,500,001 - $65,000,000

$8,276,868 - $8,341,030

1


1


$65,000,001 - $65,500,000

$8,341,030 - $8,405,192

1


1


$89,000,001 - $89,500,000

$11,420,795 - $11,484,956

1


1


 




HSBC Holdings plc  Annual Report and Accounts 2017

157

 

 

Directors' Remuneration Report

 



Pillar 3 remuneration disclosures

Remuneration for all employees

Remuneration policy overview and governance

Our remuneration strategy is designed to reward competitively the achievement of long-term sustainable performance, and attract and motivate the very best people who are committed to maintaining a long-term career with the Group while performing their role in the long-term interests of our stakeholders. We believe that remuneration is an important tool for instilling the right behaviours, and driving and encouraging actions that are aligned to organisational values and expectations.

Our remuneration strategy as approved by the Committee is based on the following principles:



An alignment to performance at all levels (individual, business and Group) taking into account both 'what' has been achieved and 'how' it has been achieved. The 'how' helps ensure that performance is sustainable in the longer term, consistent with HSBC's values, conduct and risk and compliance standards.



Being informed, but not driven by, market position and practice. Market benchmarks are sourced through independent specialists and provide an indication of the range of pay levels and employee benefits provided by our competitors.



Targeting pay for employees across the full market range depending upon their individual performance and that of the Group. An individual's position in this market range will also vary depending upon their performance in any given year.



Compliance with relevant regulation across all of our countries and territories.

Based on these principles, our approach to determining remuneration is based on the following objectives:



Offering our employee a competitive total reward package that includes a mix of fixed pay, variable pay and employee benefits.



Maintaining an appropriate balance between fixed pay, variable pay and employee benefits, taking into consideration an employee's seniority, role, individual performance and the market.

 

 

Fixed pay levels should be market competitive and allow our employees to meet their basic day-to-day living expenses.



Variable pay is awarded on a discretionary basis and dependent upon Group, business and individual performance.



Employee benefits offered should be valued by a diverse workforce, appropriate at the local market level and support HSBC's commitment to employee well-being.



Promoting employee share ownership through variable pay deferral or voluntary enrolment in an all employee share plan.



Reward packages should be linked to performance and behaviour with no bias towards an individual's ethnicity, gender, age, or any other characteristic.

The Group remuneration policy for all employees based on the above principles and objectives applies on a group-wide basis, subject to compliance with any applicable local laws and regulation.

Governance and role of relevant stakeholders

The Committee is responsible for setting the principles, parameters and governance framework for the Group's remuneration policy applicable to all Group employees. The Committee also oversees the application of the policy to the wider employee population, including employees in subsidiaries and branches, subject to local regulations.

All members of the Committee are independent non-executive Directors of HSBC Holdings plc. Details of the roles, responsibility and membership of the Committee, including other committees and senior management that the Committee engages with, are set out on page 132. Activities and advisers used by the Committee are detailed on page 144.

The Committee reviewed the Group's remuneration policy in
2017 and made no material changes to the policy and its implementation for 2017.

 




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Link between risk, performance and reward

Our remuneration practices promote sound and effective risk management while supporting our business objectives.

 

The key features of our remuneration framework that (subject to compliance with local laws and regulations) enable us to achieve alignment between risk, performance and reward are detailed in the following table.




Alignment between risk and reward

Variable pay pool and individual performance scorecard

The Group variable pay pool is expected to move in line with Group performance. We also use a countercyclical funding methodology, which is categorised by both a floor and a ceiling, and the payout ratio reduces as performance increases to avoid pro-cyclicality. The floor recognises that even in challenging times, remaining competitive is important. The ceiling recognises that at higher levels of performance it is not always necessary to continue to increase the variable pay pool, thereby limiting the risk of inappropriate behaviour to drive financial performance.

The main quantitative and qualitative performance and risk metrics used for assessment of performance include:

Group and business unit performance: an evaluation of overall Group and business unit performance provided by Finance is considered by the Committee when determining the Group variable pay pool and, subsequently, the variable pay pool for each business unit. Where performance in a year is weak, as measured by profits, this will have a direct and proportionate impact on the pool. Judgement is exercised to ensure that the pool is adjusted for appropriate current and future risks taking into consideration performance against the RAS and global conduct outcomes. Fines, penalties and provisions for customer redress are automatically included in the Committee's definition of profit.

Individual performance:  assessment of performance is made with reference to a balanced scorecard of clear and relevant objectives. Risk and compliance objectives are included in the performance scorecard of senior management and a mandatory global risk objective is included in the scorecard of all other employees. All employees receive a behaviour rating as well as a performance rating, which ensures performance is assessed not only on what is achieved but also on how it is achieved. Therefore, variable pay of individuals is expected to reflect Group performance, their individual behaviour rating and performance rating determined against their performance objectives for the year, which are aligned to the Group's strategic actions, risk objectives and adherence to the HSBC Values.

Remuneration for Control Function staff

The performance and remuneration of individuals in Control Functions, including risk and compliance employees, is assessed according to a balanced scorecard of objectives specific to the functional role they undertake, to ensure their remuneration is determined independent of the performance of the business areas they control.

The Committee is responsible for approving the remuneration recommendations for the Group Chief Risk Officer and senior management in Control Functions.

Group policy is for Control Functions staff to report into their respective function and remuneration decisions for senior functional roles are led by, and must carry the approval of, the global function head.

The variable pay pool for Control Functions is determined centrally, without influence from the relevant business areas. Furthermore, employees performing a Control Function role have a direct reporting line through the relevant global function rather than through the relevant business areas.

Remuneration is carefully benchmarked with the market and internally to ensure that it is set at an appropriate level.

Variable pay adjustments

Variable pay awards may be adjusted downwards in circumstances including:

- Detrimental conduct, including conduct which brings HSBC into disrepute.

- Involvement in events resulting in significant operational losses, or events which have caused or have the potential to cause significant harm to HSBC.

- Non-compliance with the HSBC Values and other mandatory requirements or policies.

Positive adjustments to variable pay awards can also be made where exceptional behaviours have been demonstrated which go beyond the normal course of an employee's responsibilities, and those which set an outstanding example of our Values-aligned behaviours and conduct expectations.

The override policy was introduced in 2014, based on the recommendations received from the independent Monitor as appointed by the AML DPA. This is applicable for current-year variable pay awards for executive Directors and certain other senior management. In deciding the application and degree of any such downward override to reduce variable pay awards, the Committee considers feedback from the Financial System Vulnerabilities Committee, the Monitor in relation to cooperation with its review and our group legal function.

Malus

Malus can be made to unvested deferred awards granted in prior years. It may be applied in circumstances including:

Detrimental conduct, including conduct which brings the business into disrepute.

Past performance being materially worse than originally reported.

Restatement, correction or amendment of any financial statements.

Improper or inadequate risk management.

Clawback

Clawback can be applied to vested or paid awards granted to MRTs on or after 1 January 2015 for a period of seven years. From 2016 onwards, this period may be extended to 10 years for employees under the PRA's Senior Manager Regime in the event of ongoing internal/regulatory investigation at the end of the seven-year period. Clawback may be applied in circumstances including:

Participation in, or responsibility for, conduct which results in significant losses.

Failing to meet appropriate standards and propriety.

Reasonable evidence of misconduct or material error that would justify, or would have justified, summary termination of a contract of employment.

A material failure of risk management suffered by HSBC or a business unit in the context of Group risk-management standards, policies and procedures.

Sales incentives

We do not have commission-based sales plans globally.

 




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Directors' Remuneration Report

 

Remuneration structure

Total compensation (fixed pay and variable pay) is the key focus of our remuneration framework, with variable pay differentiated by performance and adherence to the HSBC Values. The key features

 

and design characteristic of our remuneration system that applies on a Group-wide basis, subject to compliance with local laws, is set out below:




Overview of remuneration structure for employees

Fixed pay

Attract and retain employees by paying market competitive pay for the role, skills and experience required for the business.

This may include salary, fixed pay allowance, cash in lieu of pension and other cash allowances in accordance with local market practices. They are categorised as fixed pay as all of these elements are based on predetermined criteria, non-discretionary, transparent and are not reduced based on performance.

Represent a higher proportion of total compensation for more junior employees.

All elements of fixed pay are fixed and may change to reflect an individual's position, role or grade, cost of living in the country, individual skills, competencies, capabilities and experience, as may be evidenced by sustained strong performance of the individual.

Fixed pay is delivered in cash on a monthly basis, except for executive Directors, where the fixed pay allowance is delivered in shares.

Benefits

Ensure market competitiveness and provide benefits in accordance with local market practice.

This may include, but not be limited to, the provision of pensions, medical insurance, life insurance, health assessment and relocation allowances.

Annual incentive

Drive and reward performance based on annual financial and non-financial measures consistent with the medium- to long-term strategy, stakeholder interests and adherence to HSBC values.

All employees are eligible to be considered for a discretionary variable pay award. Individual awards are determined on the basis of individual performance against their performance objectives for the year, which are aligned to the Group's strategic actions, a global risk objective and adherence to the HSBC Values and business principles.

In addition, there is a process to identify behavioural transgressions for all employees during the year to ensure compliance with Group policies and procedures, and other expected behaviours. Such transgressions are taken into consideration in determining ex-ante adjustments to variable pay.

Represent a higher proportion of total compensation for more senior employees and will be more closely aligned to Group and business performance as seniority increases.

Variable pay awards for all Group employees identified as MRTs under European Union Regulatory Technical Standard 604/2014 are limited to 200% of fixed pay.1

All awards are subject to malus and awards granted to employees identified as MRTs are subject to clawback (see section on variable pay adjustment, malus and clawback).

Awards can be in the form of cash, shares and, where required by regulations, in units linked to asset management funds. A portion of the annual incentive award may be deferred and vests over a period of three years, five years or seven years.

Deferral

Alignment with the medium- to long-term strategy, stakeholder interests and adherence to the HSBC Values.

A Group-wide deferral approach is applicable to all employees across the Group. Awards above a specified threshold are subject to deferral based on a deferral table, as approved by the Group Remuneration Committee. The deferred variable pay is delivered over HSBC shares. Vesting of deferred awards will be annually over a three-year period with 33% vesting on the first anniversary of grant, 33% on the second anniversary and 34% on the third anniversary.

For MRTs identified in accordance with the PRA and Financial Conduct Authority ('FCA') remuneration rules, awards are generally subject to a minimum 40% deferral (60% for awards of £500,000 or more) over a minimum period of three years2. A longer deferral period is applied for certain MRTs as follows:

-

Five years for individuals identified in a risk-manager MRT role under the PRA and FCA remuneration rules. This reflects the deferral period prescribed by both the PRA and the European Banking Authority ('EBA') for individuals performing key senior roles with the Group.

-

Seven years for individuals in PRA designated senior management functions, being the deferral period mandated by the PRA as reflecting the typical business cycle period.

Individuals identified as MRTs under local regulations and not considered Group MRTs are subject to a three-year deferral period, except in Germany and Malta where individuals reporting into the local management Board and Executive Committee members, respectively, are subject to a five-year deferral. Local MRTs are also subject to a minimum deferral rate aligned to the Group MRT policy, except in China (where a minimum deferral rate of 50% is applied for the CEO in China), Oman (where a minimum deferral rate of 45% is applied) and Germany (where a minimum deferral rate of 60% is applied for local management board members).

All deferred awards are subject to malus provisions subject to compliance with local laws. Awards granted to MRTs on or after 1 January 2015 are also subject to clawback.

HSBC operates an anti-hedging policy for all employees who are required to certify each year that they have not entered into any personal hedging strategies in respect of HSBC securities.

Deferral instruments

Alignment with the medium- to long-term strategy, stakeholder interests and adherence to the HSBC Values.

 

For all employees, other than MRTs identified in accordance with the PRA and FCA remuneration rules or other similar local rules, the underlying instrument for all deferred awards is HSBC shares to ensure alignment between the long-term interest of our employees and the interest of shareholders.

For Group and local MRTs, excluding executive Directors where deferral is typically in the form of shares only, a minimum of 50% of the deferred awards is over HSBC shares and the balance is deferred into cash. In accordance with local regulatory requirements, for local MRTs in Oman 100% of the deferred amount is delivered in shares and for local MRTs in Poland 50% of the deferred awards are delivered in an instrument linked to the value of the local entity and the balance in deferred cash.

For some employees in our asset management business, where required by the regulations applicable to asset management entities within the Group, at least 50% of the deferred awards is linked to fund units reflective of funds managed by those entities, with the remaining portion of deferred awards being in the form of deferred cash awards.

 




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Overview of remuneration structure for employees (continued)

Post-vesting retention period

To ensure appropriate alignment with shareholders.

Awards over HSBC shares or linked to relevant fund units granted to MRTs identified in accordance with the PRA and FCA remuneration rules and local MRTs (except those in Brazil, China, Germany, Oman and Russia) are generally subject to a one-year retention period post vesting. For local MRTs in Brazil, Russia and Germany, a six-month retention period is applied. No retention period is applied for local MRTs in China and Oman.

MRTs who are subject to a five-year deferral period, except senior management or individuals in PRA and FCA designated senior management functions, have a six-month retention period applied to their awards.

Long-term incentive awards ('LTI')

Alignment with the medium- to long-term strategy, stakeholder interests and adherence to the HSBC Values.

 

Only executive Directors are eligible to be considered for an LTI award. See details on page 151.

Shareholding requirement

Align interests of senior management with shareholders' interests.

 

All executive Directors, Group Managing Directors and Group General Managers of HSBC Holdings are subject to this requirement. Details of the minimum shareholding requirement for executive Directors and Group Managing Directors are set out on page 153. Group General Managers have a minimum shareholding requirement of 25,000 shares.

The minimum shareholding requirement must be achieved by 2019 or within five years of their appointment, whichever is later.

 

Buy-out awards

To support recruitment of talent.

Awards may be offered if an individual holds any outstanding unvested awards that are forfeited on resignation from the previous employer.

The terms of the buy-out awards will not be more generous than the terms attached to the awards forfeited on cessation of employment with the previous employer.

Guaranteed variable remuneration

To support recruitment of talent.

Guaranteed variable remuneration is awarded in exceptional circumstances for new hires, and is limited to the individual's first year of employment only.

The exceptional circumstances where HSBC would offer a guaranteed variable remuneration would typically involve a critical new hire and would also depend on factors such as the seniority of the individual, whether the new hire candidate has any competing offers and the timing of the hire during the performance year.

Severance payments

To adhere to contractual agreements with involuntary leavers.

 

Where an individual's employment is terminated involuntarily for gross misconduct then, subject to compliance with local laws, the Group's policy is not to make any severance payment in such cases. For such individuals, all outstanding unvested awards are forfeited.

For other cases of involuntary termination of employment, any severance that may be determined to be paid to an individual will take into consideration the performance of the individual, contractual notice period, applicable local laws and circumstances of the case.

Where an individual's employment is terminated involuntarily (except where an individual is dismissed for gross misconduct), all outstanding unvested awards will normally continue to vest in line with the applicable vesting dates and, where relevant, any performance conditions attached to the awards and malus and clawback provisions applicable to those awards.

Severance amounts awarded to MRTs are considered as fixed pay where such amounts include: (i) payments of fixed remuneration that would have been payable during the notice and/or consultation period; (ii) statutory severance payments; (iii) payments determined in accordance with any approach applicable in the relevant jurisdictions; and (iv) payments made to settle a potential or actual dispute.



1

Shareholders approved the increase in the maximum ratio between the fixed and variable components of total remuneration from 1:1 to 1:2 at the 2014 Annual General Meeting held on 23 May 2014 (98% in favour). The Group has also used the discount rate of 21.85% for individuals with seven-year deferral period and 13.85% for individuals with five-year deferral period. This discount rate was used for six MRTs in UK and one MRT Hong Kong.



2

HSBC does not dis-apply any remuneration rules on proportionality grounds. However, in accordance with the terms of the PRA and FCA remuneration rules, the deferral requirement for MRTs is not applied to individuals where their total compensation is £500,000 or less and variable pay is not more than 33% of total compensation. For these individuals, the Group standard deferral applies.

Material Risk Takers

Individuals are identified as MRTs based on the qualitative and quantitative criteria set out in the Regulatory Technical Standard ('RTS') EU 604/2014 and additional criteria determined by the Committee. The following key principles underpin HSBC's identification process:



MRTs are identified at Group and HSBC Bank plc (consolidated) level.



MRTs are also identified at material solo regulated entity level in EU countries.



HSBC uses the Global Business dimension as the primary basis for identifying MRTs within its matrix management structure.

In addition to applying the qualitative and quantitative criteria specified in the RTS, HSBC also identifies additional MRTs based on its own internal criteria, which includes compensation thresholds and individuals in certain roles and grades outside the EU where such individuals are not strictly captured by the criteria prescribed in the RTS.

The list of MRTs, and any exclusions from it, is reviewed by the heads of the relevant global businesses and global functions, Chief Risk Officers, Chief Operating Officers and Heads of Human Resources of the relevant global functions and businesses. The overall results are reviewed by the Group Chief Risk Officer.

 

The Committee reviews the methodology, key decisions regarding identification, and approves the results of the identification exercise, including proposed MRT exclusions.

Management body and senior management

For the purpose of the Pillar 3 remunerations disclosures executive Directors and non-executive Directors are considered to be members of the management body. Members of the Group Management Board other than the executive Directors are considered as senior management. No guaranteed bonus, sign-on or severance payments were made to this population for the year ended 31 December 2017.

Remuneration disclosures

The tables below set out the remuneration disclosures for individuals identified as MRTs for HSBC Holdings plc. Remuneration information for individuals who are only identified as MRTs at HSBC Bank plc or other solo-regulated entity levels are included in those entities' relevant disclosures.

The 2017 variable pay information included in the tables below is based on the market value of awards granted to MRTs. For share awards, the market value is based on HSBC Holdings plc's share price at the date of grant (unless indicated otherwise). For cash awards, it is the value of awards expected to be paid to the individual over the deferral period.

 




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Remuneration - fixed and variable amounts

 

Executive Directors


Non-executive Directors


Senior management


Total


Number of MRTs

4


17


15


36


 

$m


$m


$m


$m


Total fixed

11.5


4.4


33.1


49.0


Cash-based1

6.9


4.4


33.1


44.4


- of which: deferred cash

-


-


-


-


Share-based

4.6


-


-


4.6


- of which: deferred shares

-


-


-


-


Total variable2

14.0


-


44.1


58.1


Cash-based

-


-


20.7


20.7


- of which: deferred cash

-


-


12.5


12.5


Share-based3

14.0


-


23.4


37.4


- of which: deferred shares3

9.5


-


15.2


24.7


Other forms3

-


-


-


-


- of which: deferred3

-


-


-


-


Total remuneration

25.5


4.4


77.2


107.1




1

Cash-based fixed remuneration is paid immediately.



2

Variable pay awarded in respect of 2017. In accordance with shareholder approval received on 23 May 2014 (98% in favour), for each MRT the variable component of remuneration for any one year is limited to 200% of fixed component of the total remuneration of the MRT.



3

Share-based awards are made in HSBC shares. Vested shares are subject to a retention period of up to one year.











Deferred remuneration at 31 December1

 

 

 

 

 

Executive

Directors


Non-executive Directors


Senior

management


Total


$m

 

 

 

 

Cash

 

 

 

 

Total outstanding deferred remuneration2

3.1


-


24.8


27.9


- of which:

 

 

 

 

Unvested

3.1


-


24.8


27.9


Total amount of outstanding deferred and retained remuneration exposed to ex post explicit and/or implicit adjustment

3.1


-


24.8


27.9


Total amount of amendment during the year due to ex post implicit adjustment

-


-


-


-


Total amount of amendment during the year due to ex post explicit adjustment3

-


-


-


-


Total amount of deferred remuneration paid out in the financial year

1.5


-


7.2


8.7


Shares

 

 

 

 

Total outstanding deferred remuneration2

66.7


-


68.7


135.4


- of which:

 

 

 

 

Unvested

66.7


-


68.7


135.4


Total amount of outstanding deferred and retained remuneration exposed to ex post explicit and/or implicit adjustment

66.7


-


68.7


135.4


Total amount of amendment during the year due to ex post implicit adjustment

9.7


-


10.5


20.2


Total amount of amendment during the year due to ex post explicit adjustment3

-


-


-


-


Total amount of deferred remuneration paid out in the financial year4

20.0


-


25.1


45.1


Other forms

 

 

 

 

Total outstanding deferred remuneration2

-


-


-


-


- of which:

 

 

 

 

Unvested

-


-


-


-


Total amount of outstanding deferred and retained remuneration exposed to ex post explicit and/or implicit adjustment

-


-


-


-


Total amount of amendment during the year due to ex post implicit adjustment

-


-


-


-


Total amount of amendment during the year due to ex post explicit adjustment3

-


-


-


-


Total amount of deferred remuneration paid out in the financial year4

-


-


-


-




1

This table provides details of balances and movements during performance year 2017. For details of variable pay awards granted for 2017, please refer to the remuneration tables above. Deferred remuneration is made in cash and/or shares. Share-based awards are made in HSBC shares.



2

Includes unvested deferred awards, and vested deferred awards subject to retention period as at 31 December 2017.



3

Includes any amendments due to malus or clawback. Page 160 provides details of in-year variable pay adjustments.



4

Shares are considered as paid when they vest. Vested shares are valued using the sale price or the closing share price on the business day immediately preceding the vesting day.

 




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Other MRTs (non-senior management)  

















Remuneration - fixed and variable amounts

 

Investment banking


Retail  
 banking


Asset management


Corporate functions


Independent control functions


All other


Total


Number of MRTs

677


124


30


115


156


96


1,198


 

$m


$m


$m


$m


$m


$m


$m


Total fixed

406.2


61.3


18.5


58


57.2


61.6


662.8


Cash-based1

406.2


61.3


18.5


58.0


57.2


61.6


662.8


- of which: deferred cash

-


-


-


-


-


-


-


Share-based

-


-


-


-


-


-


-


- of which: deferred shares

-


-


-


-


-


-


-


Total variable2

417.7


58.4


19.0


57.2


44.1


55.1


651.5


Cash-based

203.5


28.3


9.4


28.0


22.5


27.0


318.7


- of which: deferred cash

105.1


13.8


4.6


13.8


9.0


14.3


160.6


Share-based3

214.2


30.1


5.1


29.2


21.5


28.1


328.2


- of which: deferred shares3

117.0


15.9


2.8


15.8


10.8


15.7


178.0


Other forms3

-


-


4.5


-


0.1


-


4.6


- of which: deferred shares3

-


-


2.7


-


-


-


2.7


Total remuneration

823.9


119.7


37.5


115.2


101.3


116.7


1,314.3




1

Cash-based fixed remuneration is paid immediately.



2

Variable pay awarded in respect of 2017. In accordance with shareholder approval received on 23 May 2014 (98% in favour), for each MRT the variable component of remuneration for any one year is limited to 200% of the fixed component of the total remuneration of the MRT.



3

Share-based awards are made in HSBC shares and/or linked to notional fund units in the HSBC World Selection Balanced Portfolio. Vested shares are subject to a retention period of up to one year.

















Guaranteed bonus, sign-on and severance payments

 

Investment banking


Retail banking


Asset management


Corporate functions


Independent control functions


All other


Total


Guaranteed bonus and sign-on payments1

 

 

 

 

 

 

 

Made during year ($m)

11.4


0.4


-


1.7


0.8


0.7


15.0


Number of beneficiaries

17


1


-


3


3


1


25


Severance payments2

 

 

 

 

 

 

 

Awarded during year ($m)

17.3


1.9


-


1.4


0.6


4.8


26.0


Number of beneficiaries

31


3


-


2


2


4


42


Highest such award to a single person ($m)

1.9


0.7


-


1.2


0.5


2.9


2.9


Made during year ($m)

17.1


1.5


-


1.4


0.6


4.8


25.4


Number of beneficiaries

31


2


-


2


2


4


41




1

No sign-on payments were made in 2017. A guaranteed bonus is awarded in exceptional circumstances for new hires, and in the first year only. The circumstances where HSBC would offer a guaranteed bonus would typically involve a critical new hire and would also depend on factors such as the seniority of the individual, whether the new hire candidate has any competing offers and the timing of the hire during the performance year.



2

Includes payments such as payment in lieu of notice, statutory severance, outplacement service, legal fees, ex-gratia payments and settlements (excludes pre-existing benefit entitlements triggered on terminations).

 




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Deferred remuneration at 31 December1

 

 

 

 

 

 

 

Investment banking


Retail banking


Asset management


Corporate functions


Independent control functions


All other


Total


$m

 

 

 

 

 

 

 

Cash

 

 

 

 

 

 

 

Total outstanding deferred remuneration2

162.9


19.2


8.3


19.9


12.4


24.4


247.1


- of which:

 

 

 

 

 

 

 

Unvested

162.9


19.2


8.3


19.9


12.4


24.4


247.1


Total amount of outstanding deferred and retained remuneration exposed to ex post explicit and/or implicit adjustment

162.9


19.2


8.3


19.9


12.4


24.4


247.1


Total amount of amendment during the year due to ex post implicit adjustment

-


-


-


-


-


-


-


Total amount of amendment during the year due to ex post explicit adjustment3

-


-


-


-


-


-


-


Total amount of deferred remuneration paid out in the financial year

71.1


7.0


4.0


7.2


4.6


9.8


103.7


Shares

 

 

 

 

 

 

 

Total outstanding deferred remuneration2

286.2


31.8


12.6


38.5


23.9


48.2


441.2


- of which:

 

 

 

 

 

 

 

Unvested

286.1


31.8


12.6


38.5


23.9


48.1


441.0


Total amount of outstanding deferred and retained remuneration exposed to ex post explicit and/or implicit adjustment

286.2


31.8


12.6


38.5


23.9


48.2


441.2


Total amount of amendment during the year due to ex post implicit adjustment

43.7


5.5


1.8


6.3


3.7


7.7


68.7


Total amount of amendment during the year due to ex post explicit adjustment3

-


-


-


-


-


-


-


Total amount of deferred remuneration paid out in the financial year4

231.1


30.5


11.0


29.2


20.2


32.1


354.1


Other forms

 

 

 

 

 

 

 

Total outstanding deferred remuneration2

-


-


0.5


-


-


-


0.5


- of which:

 

 

 

 

 

 

 

Unvested

-


-


0.5


-


-


-


0.5


Total amount of outstanding deferred and retained remuneration exposed to ex post explicit and/or implicit adjustment

-


-


0.5


-


-


-


0.5


Total amount of amendment during the year due to ex post implicit adjustment

-


-


-


-


-


-


-


Total amount of amendment during the year due to ex post explicit adjustment3

-


-


-


-


-


-


-


Total amount of deferred remuneration paid out in the financial year4

-


-


0.4


-


-


-


0.4




1

This table provides details of movements during performance year 2017. For details of variable pay awards granted for 2017, please refer to both the remuneration tables above. Deferred remuneration is made in cash and/or shares. Share-based awards are made in HSBC shares and/or linked to notional fund units in the HSBC World Selection Balanced Portfolio.



2

Includes unvested deferred awards, and vested deferred awards subject to retention period as at 31 December 2017.



3

Includes any amendments due to malus or clawback. Page 160 provides details of in-year variable pay adjustments.



4

Shares are considered as paid when they vest. Vested shares are valued using the sale price or the closing share price on the business day immediately preceding the vesting day.









MRTs' remuneration by band1

 

 

 

 

Management body


All other


Total


€0 - 1,000,000

17


841


858


€1,000,000 - 1,500,000

-


208


208


€1,500,000 - 2,000,000

-


72


72


€2,000,000 - 2,500,000

1


34


35


€2,500,000 - 3,000,000

-


22


22


€3,000,000 - 3,500,000

-


12


12


€3,500,000 - 4,000,000

-


7


7


€4,000,000 - 4,500,000

-


6


6


€4,500,000 - 5,000,000

-


3


3


€5,000,000 - 6,000,000

-


2


2


€6,000,000 - 7,000,000

3


5


8


€7,000,000 - 8,000,000

-


-


-


€8,000,000 - 9,000,000

-


-


-


€9,000,000 - 10,000,000

-


-


-


€10,000,000 - 11,000,000

-


1


1




1

Table prepared in euros in accordance with Article 450 of the European Union Capital Requirements Regulation, using the exchange rates published by the European Commission for financial programming and budget for December of the reported year as published on its website.

 




164

HSBC Holdings plc  Annual Report and Accounts 2017

 

 



Directors' Responsibility Statement

The Directors are responsible for preparing the Annual Report and Accounts 2017, the Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the parent company ('Company') and Group financial statements in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union. In preparing these financial statements, the Directors have also elected to comply with IFRSs, issued by the International Accounting Standards Board ('IASB'). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and Group and of the profit or loss of the Company and Group for that period. In preparing these financial statements, the Directors are required to:



select suitable accounting policies and then apply them consistently;



make judgements and estimates that are reasonable and prudent;



state whether applicable IFRSs as adopted by the European Union and IFRSs issued by IASB have been followed, subject to any material departures disclosed and explained in the financial statements; and



prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company and Group will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the Annual Report and Accounts 2017 as they appear on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

The Directors consider that the Annual Report and Accounts 2017, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position, performance, business model and strategy.

Each of the Directors, whose names and functions are listed in the 'Report of the Directors: Corporate Governance' section on pages 122 to 126 of the Annual Report and Accounts 2017, confirm that, to the best of their knowledge:



the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group; and



the management report represented by the Report of the Directors includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

Disclosure of Information to Auditors

In accordance with section 418 of the Companies Act 2006, the Directors' report includes a statement, in the case of each Director in office as at the date the Report of the Directors is approved, that:



so far as the Director is aware, there is no relevant audit information of which the Company's auditors are unaware; and



they have taken all the steps they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Company's auditors are aware of that information.

 

 

 

On behalf of the Board

Mark E Tucker

Group Chairman

20 February 2018

 

 




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