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Sat 28 May 2011 11:07 AM

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HSBC investors hit out over high executive pay

Nearly 20% of shareholders in Europe's largest bank reject new payout proposals

HSBC investors hit out over high executive pay

HSBC
faced a fresh backlash from investors on Friday over high executive pay
and mediocre returns, echoing the stinging attacks of a year ago that
it had tried to duck by revamping its remuneration package.

Nearly 20 percent of
shareholders rejected the new payout proposals, which include lower caps
on long-term incentive share payouts -- only a marginal improvement on
the nearly 25 percent of investors that voted against its 2010 report.

Europe's
largest bank received a bigger pushback on pay than its British peers,
despite a year of lobbying to get shareholders on board with its new
policy, which was ultimately approved.

"How
greedy is this board of directors?" asked private shareholder Michael
Mason-Mahon, as other investors called on HSBC to take a lead in moving
away from "wildly excessive remuneration at board level."

"It is getting obscene," private shareholder John Farmer said.

One
contentious issue raised was the criteria HSBC said it would use when
awarding payouts. These include brand and reputation as well as cost
efficiency, but no specific measure on total shareholder return.

The
response to HSBC's new pay plan had looked promising when it won the
early backing of one its fiercest critics of previous years, Standard
Life Investments.

Standard
Life had voted against the pay plan for three years in a row, but said
this time that the bank had taken to heart the lessons of the banking
crisis.

The revamped pay format
includes limiting long-term incentive plan share payouts to six times
basic salary, from seven times, and makes it harder for employees to
cash in quickly on rewards.

Staff also have to hold on to shares until they retire or leave the bank.

But other investor bodies had already voiced reservations over the pay plan.

Share
advisory group Pirc slammed elements such as the provisions for "golden
hellos," a recruitment incentive whereby employees are rewarded for
joining from another firm. It also questioned the lack of a cap on
salaries.

The Association of
British Insurers (ABI), whose members own almost 15 percent of
investments listed on the London stock market, had issued a so-called
"amber top" alert to raise its concerns.

It did the same over compensation proposals put forward by British rival Barclays, though the firm's pay plan was passed after opposition from only about a tenth of investors.

This
was despite criticism it had faced over its potentially lucrative bonus
system for high flyers and a salary hike for chief executive Bod
Diamond.

Even Royal Bank of Scotland,
which had to be bailed out during the crisis and faces constant public
scrutiny over the pay of its bankers, had its remuneration plan approved
by over 99 percent of investors.

It was helped by its one major shareholder however, the government, which has an 83 percent holding in the bank.

HSBC, which has started a cost-cutting drive to increase profits, said it was committed to improving returns.

But
chairman Douglas Flint also defended high pay across the bank, a
particularly pressing issue in Asia, where competition for staff is
tough.

"It would be irresponsible
to allow our comparative advantages to wither by ignoring the market
forces that exist around compensation, even though we understand how
sensitive this subject is," Flint said.

He acknowledged, however, that shareholder returns were "disappointing and inadequate."

Earlier
this month, newly installed chief executive Stuart Gulliver unveiled a
retreat from retail banking in a host of countries, aimed at tackling a
jump in costs that dragged down first-quarter profits 14 percent.

Gulliver,
who rose to the top job earlier this year after a boardroom tussle in
2010, is targeting up to $3.5 billion in costs
savings through the overhaul, which could also involve Europe's largest
bank offloading its US credit card arm.

Amid
queries over the bank's growth strategy, HSBC also faced uncomfortable
questions over its relationship with the Libyan government, after
reports surfaced this week saying HSBC held assets from the country's
oil fund.

Flint argued that Libya
had been rehabilitated by the international community in 2006, which
explained why it had enjoyed access to the international financial
system again, before being cast aside this year.

He refused to be drawn on whether HSBC had any connection to the Libyan government.

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