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• HSBC shareholders complain payout criteria aren't clear
• Blueprint to be put before bank's annual meeting on 27 May
HSBC, Britain's biggest bank, is in discussions with its leading shareholders about an intricate and radical pay plan for its top bankers that risks controversy by paying out potentially millions of pounds in shares without clear performance criteria.
John Thornton, the former Goldman Sachs boss who chairs HSBC's remuneration committee, is sounding out key investors over the new-style pay deal for chief executive Stuart Gulliver, close boardroom colleagues and upper echelons of the bank's management.
He wants to move away from typical performance measures – such as total shareholder return – for the awards of shares as HSBC believes this has encouraged bankers to take risks in the past. The bank also wants to show that directors are aligned to investors by demanding they hold their share awards until they retire.
The scheme – which the bank wants to put to a shareholder vote at the annual meeting in May – is regarded by investors as a new approach to remuneration for the UK.
Typically a big UK company announces an award of shares for a director but warns that the ultimate value of the award will be determined three years later after certain performance criteria have been used to judge whether all the shares should be handed over.
Thornton, who lost out in the race to become chairman of HSBC, is instead proposing that the bank award shares to a director on the basis of past performance, to be released in their entirety after five years. The director would then be expected to hold the shares until retirement – longer than is traditionally required.
Some investors in the City are confused about what criteria the bank's remuneration committee would use to determine how many shares to hand over and how as shareholders they would be able to gauge whether the performance criteria have been achieved.
"The investment community is split on this idea," one source said.
Shareholders are unclear about what criteria would be used instead of share performance measures, when HSBC intends to implement the new pay scheme and whether it would be introduced alongside existing bonus plans.
The negotiations are continuing over the new scheme but need to reach a conclusions shortly if they are to be finalised before the bank's annual meeting in London on 27 May as Thornton has promised to update investors on the scheme in the letter formally inviting shareholders to the meeting. That letter needs to be sent out at the beginning of May.
The bank's annual report, published in February, showed that it paid its top staff an average of £1m each. In it Thornton said: "As announced in 2010, the committee is considering how HSBC can continue to improve the alignment between shareholders and senior management with regard to incentivising long-term sustainable performance.
"The committee is currently in the process of consulting with major shareholders on this subject. Any material changes to our approach which result from this consultation will be explained in the chairman's letter accompanying the notice of the company's 2011 annual general meeting."
Douglas Flint, the former finance director, became chairman in December to replace Stephen Green who took up the post of trade minister in the coalition government. Flint is not entitled to a bonus in his new role.
The bank, whose shareholder base is spread around the globe, set the pace on pay disclosure when Flint revealed that it paid 253 bankers more than £1m in 2010 – 89 of them were based in London.