How much should you expect to earn for running one of Britain’s biggest lenders?
If you ask the board at HSBC Holdings PLC (LSE:HSBA), banking bosses aren’t getting enough.
In the FTSE 100, Asia-focused bank’s 2022 remuneration report, the committee said it had become “increasingly concerned that, over time, the remuneration opportunity of our executive directors has fallen behind desired levels to reflect their calibre and positioning against our international peers”.
“This is supported by benchmarked data for comparable roles in organisations similar in size, geographical presence and with whom we compete for talent,” so to committee said.
UK regulations stipulate that executive remuneration structures must emphasise fixed pay over variable performance-linked pay, something HSBC has decried in the past.
“Our preference would be to use such a structure to improve the total compensation opportunity of our executive directors,” HSBC stated in its 2022 Directors’ Remuneration Policy Supplement.
“This view was supported by a number of our shareholders, who also expressed a preference for a structure with lower fixed pay and higher variable pay opportunity, but understood that UK regulatory rules impact our ability to use such a structure.”
As unfortunate as that may be, HSBC boss Noel Quinn still took home £2,164 in bonuses on top of his £3.367 fixed remuneration for a handsome £5.562mln pay packet.
Given HSBC’s profit bonanza in 2023, it is likely that Quinn’s 2023 remuneration exceed, or at least match, this number.
Bumper profits = bumper pay packets
Last year’s pre-tax profit target for 100% payout of the 20% weighted metric was US$19.51bn, which HSBC easily beat.
Though this year’s target is not known, it is a fairly safe bet that the target will be reached, given pre-tax profits in the first half alone breached US$21.66bn, thanks to significantly higher net interest income in all businesses due to interest rate rises.
Return of tangible equity (RoTE), weighted at 15% on the incentives scorecard in 2022, should easily reach the maximum payout threshold too.
After all, HSBC raised its RoTE guidance 2023 and 2024 to the mid-teens, whereas 2022’s RoTE target was for a maximum payout was just 5%.
One metric that is not expected to be reached is group lending growth, given the rate of belt-tightening across the UK’s major lenders in response to the soaring bank rate.
HSBC failed to reach even the minimum payout threshold in 2022, so is it doubtful that 2023 will fare any better on this front.
Growth in net new invested assets, which hit US$34bn in the first half, will likely come somewhere in the middle of guidance.
Group costs might also fail to stay below target. HSBC just managed to scrape below the maximum cost threshold in 2022, yet costs have already increased 4.3% this year.
Though we are only privy to executive remuneration reports on a once-a-year basis, it is a good bet that 2023 will once again be a bonza year Mr Quinn.
However, with exceeding pressure to pass through eye-watering net interest profits to cost-of-living-struck customers, there is no doubt that the board at HSBC will face increasing scrutiny over its remuneration policies.
MPs criticise banks
Activists and MPs have voiced their criticism of the UK banking sector following HSBC's announcement of surging profits. The bank has profited from higher interest rates that have put pressure on borrowers.
Treasury Committee chair Harriet Baldwin expressed concerns over major lenders not adequately passing on these higher interest rates to savers, as evident from the latest earnings figures.
She said: “This morning, we have further evidence that high street banks are making hay out of high interest rates while still offering little to loyal savers.
“The FCA (Financial Conduct Authority) promised action yesterday under the Consumer Duty and we will be monitoring progress carefully.
“This isn’t just important to savers, it is important to the whole economy.”