HSBC Boss Gulliver In Line For £2m Bonus

By Mark Kleinman, City Editor

HSBC is to award its chief executive a bonus of just under £2m for 2012 following a year of successful strategic action to overhaul the bank but which was marred by a £1.2bn fine for violating US money-laundering laws.

I have learned that HSBC, Britain's biggest lender by market capitalisation, will announce on Monday alongside its full-year results that Stuart Gulliver has been awarded the bonus as part of a multimillion pound pay package.

Mr Gulliver intends to accept the award, according to HSBC insiders. His bonus will be deferred and subject to clawback, and he will not be able to cash it in until he retires from or leaves HSBC.

As part of an effort to demonstrate greater transparency over the way it rewards top executives, HSBC will for the first time publish a single figure for the aggregate pay and benefits packages awarded to Mr Gulliver and his most senior colleagues.

This will include pension contributions as well as salary, annual bonus and a long-term share award that has been allotted to him this year. It is designed to show compliance with new Government rules that will come into force later this year, which have been spearheaded by Vince Cable, the Business Secretary.

Douglas Flint, the chairman, Sir Simon Robertson, the deputy chairman, and John Thornton, the non-executive director who chairs the remuneration committee, are understood to have orchestrated the switch to the new disclosure regime ahead of the Government deadline.

For 2011, Mr Gulliver was awarded an annual bonus of just over £2.1m, alongside his base salary of £1.25m and £3.75m in long-term share awards, making a total of £7.2m.

In 2012, his bonus and LTIP are understood to have been determined "in broadly the same ballpark" with a total package worth between £6m and £7m, one person close to the bank said.

HSBC has been applauded by many leading City shareholders for the way it details its executive pay policies through the publication of a 'scorecard' for Mr Gulliver, who took over in 2011.

The chief executive is eligible for an annual bonus of three times his salary and six times his base pay in long-term incentive awards.

A chunk of both payments is determined by HSBC's compliance success and the bank's reputation during a 12-month period. Mr Gulliver is understood to have been awarded nothing in this bracket in 2012, the same outcome as a year earlier, when HSBC was fined for mis-selling bonds to elderly customers.

HSBC suffered one of the most ignominious episodes in its history last year, when it was forced to pay £1.2bn to US regulators to settle money laundering and sanctions breaches which had allowed its Mexican operation to be used by drug cartels and terrorist organisations.

In January, the bank established a committee to bolster its defences against financial crime, recruiting the former heads of HM Revenue and Customs and the Serious Organised Crime Agency, as well as a former US deputy attorney-general.

HSBC will set out plans on Monday to claw back millions of pounds from senior executives deemed to have been culpable in the Mexican situation.

While the bank will not name the affected individuals, they include Sandy Flockhart, the former head of the bank's Asian operation, who was at one stage seen as a contender against Mr Gulliver for the top job.

Mr Flockhart, who left HSBC last year, ran its Mexican subsidiary between 2002 and 2007, and had several million pounds-worth of shares which he is understood to have been told he will not now receive.

I understand, however, that Lord Green, the trade minister who stepped down as HSBC chairman in 2010, will not be included in the clawback effort, partly because he opted to take his long-term pay awards as pension contributions.

Michael Geoghegan, Mr Gulliver's predecessor as chief executive, has also been excluded from the clawback arrangement because the bank's remuneration committee did not conclude that he had been personally responsible for the compliance failings.

The effort to demonstrate pay restraint will be reflected in a lower bonus pool than the £2.8bn that was paid out for 2011, less than a quarter of which was paid to UK employees. HSBC will say on Monday that there has been an across-the-board reduction in the payout pot because of the US fine, although it is still understood to be paying out roughly £2bn in bonuses to staff around the world.

HSBC is also expected to pay a healthy final dividend, with its payouts to shareholders an increasingly-important source of income to UK investors in the context of a banking sector which has seen dividend expenditure shrink dramatically since the financial crisis.

In the UK, HSBC has abandoned a structure for paying staff that saw it impose a £50,000 cap on cash bonuses last year. The scheme involved the bank issuing shares that were then sold immediately in the market to hand executives larger cash sums.

HSBC bosses felt the initiative, devised with the Bank of England and Financial Services Authority, was "cosmetic". Instead, payouts will not include a cash ceiling but larger sums will have to be deferred for several years and won't pay out until employees leave or retire.

Analysts expect HSBC's full-year results to show continued progress under Mr Gulliver at accelerating the pace of change of what had historically been seen as a sluggish supertanker.

He has sold scores of businesses which did not meet internal targets for generating returns and has prioritised growth in the world's fastest-growing economies.

"HSBC has made excellent progress in its strategy to simplify the business and refocus it on growth markets and markets that benefit from international connectivity," analysts at Shore Capital said.

They predict underlying full-year profit of £12.5bn, against £11.8bn in 2011.

HSBC, which declined to comment, is also expected to outline a further provision for compensating customers who were mis-sold payment protection insurance.

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