Kate Burgess and Patrick Jenkins

Tuesday, February 23, 2010

HSBC has yielded to shareholder protests and backed away from controversial plans to award its chief executive, Michael Geoghegan, a substantial rise in his base salary of more than one third.

HSBC consulted shareholders on plans to raise Mr Geoghegan’s salary by about 36 per cent to more than £1.4-million ($2.2-million U.S.) this year. HSBC was also proposing to increase the salary of Douglas Flint, finance director, from £700,000 to £900,000.

Shareholders told the bank that the rise was at odds with trends to temper big payouts in the face of public and political anger after the financial crisis.

HSBC’s retreat comes within days of a series of chief executives of UK banks waiving their right to annual bonuses, including John Varley, chief executive of Barclays and Stephen Hester, chief executive of the Royal Bank of Scotland. Eric Daniels, chief executive of the Lloyds Banking Group, this week gave up his right to £2.33m bonus for 2009. Mr Geoghegan is entitled to a performance-related bonus this year of up to 400 per cent of his salary worth about £4.3m.

HSBC defended its pay plans, pointing out that it had not taken taxpayers’ money during the crisis and had been profitable. Those close to HSBC add that the bank froze salaries of executive directors last year.

Many banks have implemented significant rises in base pay for bankers over the past year, in numerous cases doubling salaries to pre-empt expected cuts in payouts. But that trend has not yet extended to chief executives. Shareholders favour a high proportion of performance-related share-based pay for board executives.

Rebalancing remuneration towards a larger component of base pay, combined with smaller bonuses, has been a focus of regulators, led by the UK’s Financial Services Authority. Regulators have argued that the prospect of outsized bonuses contributed to excessive risk-taking in the run-up to the financial crisis.

HSBC has emerged better than most banks from the crisis and is expected to report strong results next Monday, in spite of the lingering impact early in the crisis of problems at its US business, formerly known as Household. Analysts at Credit Suisse have upgraded their forecasts due to growing confidence about trends in US loan losses, saying the bank should report pre-tax profits of $10.4bn, up 12 per cent on 2008.

Copyright The Financial Times Limited 2010.