Britain's biggest bank awards staff 'fixed pay allowances' to side-step restriction on bonuses imposed by Brussels
A defiant HSBC is handing its chief executive, Stuart Gulliver, allowances worth £32,000 a week – on top of his £1.2m salary – to get around the EU's cap on bonuses, in a move that is expected to be replicated by the other high street banks.
HSBC became the first UK bank to reveal how it will sidestep the pay restrictions imposed by Brussels, as it further fuelled the debate over City pay by also revealing that 239 of its bankers received more than £1m last year. Gulliver, the boss of Britain's biggest bank, hit out against the new rules, which restrict bonuses to 200% of salary even with shareholder approval, but the TUC accused HSBC of "soaraway boardroom greed".
The £1.7m "fixed pay allowance", paid in shares every three months on top of Gulliver's salary, will ensure he is paid a minimum of £4.2m a year, up from £2.5m now. Similar allowances, in shares that cannot be sold for five years, are being handed to 111 top bankers at HSBC, while another 554 are to be handed extra payments in cash.
The move prompted Labour to call for a repeat of its bonus tax while the Robin Hood Tax campaign said the payments bolstered its argument for a tax on financial transactions.
"HSBC haven't so much circumvented rules on bonuses as driven a coach and horses through them. The only way to rein in bankers' remuneration is to make banks pay their fair share to society," a Robin Hood Tax campaigner said.
The TUC general secretary, Frances O'Grady, said: "It would be great if banks put the same effort into lending to small businesses and investing in infrastructure as they do to getting round EU rules on boardroom bonuses."
HSBC's response to the Brussels bonus cap was contained in its annual report, which showed profits rose 9% to $22.5bn (£13.6bn) in 2013, when its bonus pool for staff rose 6% to $3.9bn.
A year ago HSBC made $20.6bn profits and paid 204 of its staff more than £1m, although its shares were among the biggest fallers in the FTSE 100 index of blue chip shares on disappointment that the profit rise was not greater.
However, the rise in bonuses at HSBC was in contrast to Barclays, which increased them by 10% even though its profits fell 32%. HSBC said its dividends to shareholders were up 11% while staff costs were down 6%. Barclays is among the banks – including the bailed-out Lloyds Banking Group and Royal Bank of Scotland – that are expected to follow HSBC by handing out allowances to top staff as they respond to the EU cap on bonuses, which affects payouts to be made this time next year.
The disclosures by HSBC came as the pay-setting committee of RBS prepared to meet to confirm the bonus pool for its 120,000 staff. The size of the pot, expected to be £500m, will be announced on Thursday, when the 81% taxpayer-owned bank is expected to report losses of £8bn.
"We don't want to do this at all," said Gulliver, whose total pay and bonuses in 2013 were £8m, up from £6.3m the previous year. He stressed his maximum potential pay each year would fall to £11.4m from £13.8m to counteract the rise in the fixed part of his pay. Gulliver, who started his career at HSBC more than 30 years ago as a currency dealer, also receives £79,000 for the use of cars in Hong Kong and accommodation there worth £229,000.
George Osborne is taking legal action against the Brussels cap and Gulliver said the bank would revert to its previous schemes if this was successful.
"We had a compensation plan here that the shareholders liked but sadly because of the EU directive we've had to change. This isn't something we would have wanted to do … It's much more complicated," Gulliver said.
The Bank of England's Andrew Bailey has warned the cap could lead to a £500m rise in fixed salary costs at the big banks and make them riskier. Andrew Tyrie, the chairman of the Treasury select committee who also chaired the parliamentary commission on banking standards, said: "A crude bonus cap does nothing to incentivise higher standards. What we need is a fundamental reform of the bonus culture including much longer deferral and much greater scope for clawback, as the banking commission proposed."
HSBC – which after a £1.2bn fine in 2012 is subject to tough restrictions imposed by the US authorities – risked further controversy over pay by revealing that its chairman, Douglas Flint, who in the past has not received bonus payments, is line for new share awards because of his role in "intense regulatory change". The move could allow Flint to receive maximum pay of £4.6m a year, up from £2.4m.
Gulliver has taken the axe to costs since being promoted to chief executive three years ago, cutting 40,000 roles and pulling out of 63 countries or businesses. The bank – one of the highest dividend payers in the FTSE 100 – said that the government's bank levy on its balance sheet had cut its dividend by $0.05 per share as it had cost $904m last year, while it had set aside another $395m for misselling payment protection insurance and products to small businesses. From the start of this year, the bank has changed the way it pays the staff in its retail division to remove the link between sales and bonuses, with a view to cutting misselling bills.
Despite the controversy over the cap, Gulliver gave a clear commitment to remaining in the UK, although the bank generates less than 10% of its profits here. Some 70% of its business is generated in Hong Kong and the Asia-Pacific region, and Gulliver said that 208 bankers in London would receive the three-monthly allowances compared with 395 outside the UK. It employs 254,000 people, 46,000 of them in the UK.
In total the bank has 1,318 employees whose bonuses must be capped under the new rules – those regarded as taking and managing risks – but just over 650 will receive no extra allowances.
In more than 600 pages of documents, the bank also gave further breakdowns of staff pay, revealing for the first time the number of staff paid more than €1m – some 330 – and that 192 bankers defined as key staff received an average pay deal of $1.5m (£900,000).
Barclays has told staff affected by the cap that they will receive the payments, called role-based allowances, each month alongside their salaries but has yet to disclose how much its chief executive, Antony Jenkins, will receive. Jenkins has turned down a potential bonus of £2.7mon top of his £1.1m salary but still stands to receive at least £4m from long-term share plans due to be released next month.
The new boss of RBS, Ross McEwan, has waived his payout. António Horta-Osório, the boss of Lloyds, is receiving a £1.7m bonus on top of his £1m salary, a £500,000 pension contribution and a payout from a long-term incentive plan that could total £2.9m – half the potential sum – when it is formally revealed next month.
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