HSBC has notified investors that it will be increasing the bonuses for its senior directors including Noel Quinn as chief executive. This is the latest indication that FTSE 100 firms are worried about their ability compete with international pay rates, especially in America.
The largest bank in Britain has informed shareholders that they will spend the year examining possible changes to compensation for Quinn. His pay almost doubled to £10.6million last year. This was mainly due to long-term bonuses on top of £3.3m of fixed pay.
HSBC’s remuneration report stated: “Over the past few years, the committee has expressed concern about the competitiveness in the executive director remuneration packages and we have indicated our preference to operate a more variable pay policy linked to performance.
HSBC’s admission that it is re-evaluating executive pay coincides with a British debate about whether UK listed global companies should have the ability to offer higher pay packages to compete against America, where bosses are paid more.
The Investment Association will address this topic, which has been a hot-button issue in London’s battle to stop companies from moving their stock listings to New York. They will commit to simplifying the widely used principles of pay and to “ensure that they support a competitive marketplace”.
The IA concluded after meeting with nearly 100 companies from the FTSE 350, the largest companies listed in London, that the companies were looking to develop pay schemes in order to “compete in the US market”.
The IA traditionally has supported plans involving a salary, an annual bonus, and a long term incentive plan (Ltip) which pays out shares linked to performance for three years. This is worth around 300 percent of the salary.
It acknowledged, however, that some companies would like to have the ability to award higher Ltips. They may also want to use “hybrid schemes” whereby Ltips can be offered in conjunction with restrictive shares – which are usually linked to share prices and are commonly used in America.
This issue will likely come up this week, when both the London Stock Exchange Group – the owner of London Stock Exchange – and FTSE 100 medical device group Smith & Nephew release their results.
LSEG has been talking with shareholders about doubling its potential pay for David Schwimmer, from £6.25million by increasing the number of performance-related share it can offer. S&N, which is based in America, has been working to align its pay agreements with American pay practices.
In a letter that will be sent to major companies this week, the IA stated that shareholders are “willing” to consider proposals for quantum and hybrid schemes, given the unique circumstances of…companies.
As a result, banks have had to limit their bonus deals to a maximum of two times the salary. Following Brexit, Britain removed these restrictions. HSBC announced that it would ask shareholders at this year’s annual general meeting to lift the limit. Barclays, however, said they were still deciding on how to proceed.
Barclays’ annual report published last week stated that the pay of its chief executive CS Venkatakrishnan, £4.6 million, was “significantly below international banking peers”. Goldman Sachs’ David Soloman earned $31 million, or £24 million. Jane Fraser at Citi received $26 millions.
The IA noted that governments expect shareholders to “police” executive compensation.
Andrew Ninian is a director of the IA. He said, “There are many different perspectives on the market about remuneration, and we’re thinking about the future.” We start from the idea that we want London’s success.
We want to see companies list here and to operate there. We also want to see people paid fairly for the work they do and that there is a clear connection between pay and performance.