HSBC warned on shares for top executives

PUBLISHED : Saturday, 24 November, 2007, 12:00am
UPDATED : Saturday, 24 November, 2007, 12:00am


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Activist investment firm Knight Vinke Asset Management has accused HSBC Holdings of possibly misleading its shareholders over a share plan for its senior executives.

New York-based Knight Vinke, which owns less than 1 per cent of HSBC, questioned a plan that the bank introduced in 2005 to award shares to its senior executives for meeting the performance target of 24 per cent growth in earnings per share (EPS) in the subsequent three years.

It said that the plan 'gave the impression that the performance targets were significantly more demanding than they were in reality'.

The HSBC 2005 Share Plan states that the most senior executives would receive HSBC shares as part of their remuneration if the group could achieve a growth rate of 24 per cent in EPS over the three-year period following the unveiling of the plan.

However, full details of how the scheme works only became available to shareholders long after the plan was approved, said Knight Vinke. It labelled the scheme 'both misleading and insufficient'.

'HSBC's most senior executives stand to receive substantial performance-related pay in March 2008, despite more than US$20 billion of provisions for credit- and trading-related losses over the past two years,' it said in a statement.

'As a result, the resolution approving the plan is legally void and the plan will have to be resubmitted to shareholders for approval at the next annual general meeting.'

No HSBC spokesman was available for comment last night. Newswires yesterday quoted one spokesman as saying the share plan had consulted 50 of the bank's biggest shareholders. The plan was later clarified in the annual report.

Sandy Flockhart, HSBC's Asian operations chief, yesterday said the bank would continue to discuss management strategy with shareholders and reiterated that business was on track.

Since September, Knight Vinke has been calling on HSBC to conduct a 'fundamental review' of its strategy and management structure, claiming the bank had underperformed for most of the past 15 years.

The investment firm also issued a statement last week criticising HSBC's additional substantial provisions for subprime-related losses. The lender surprised the market last Wednesday by disclosing an additional US$3.4 billion provision against impairment charges in the third quarter for its consumer finance division in the United States.