HSBC has been criticised for continuing to offer a controversial “guaranteed bonus” scheme that will be part of a pay policy due to be put to a shareholder vote next week.
The influential shareholder advisory group ISS voiced concerns over the pay arrangements, describing guaranteed bonuses as a “problematic issue” and saying that HSBC has so far failed to provide clear guidelines on how or why they are earned.
Guaranteed bonuses are often “golden hellos”, meant to compensate fresh recruits for lucrative bonuses they might have earned if they had stayed in their previous job.
ISS published its concerns before HSBC’s annual general meeting on 12 April, explaining that as a result of the guaranteed bonus payments it would offer only “qualified support” for the lender’s remuneration policy.
Under the lender’s rules, guaranteed payouts can be deferred and subject to “unspecified ‘performance conditions’,” ISS said. However, it added: “It is not entirely clear how bonuses can be guaranteed and still be subject to performance conditions, as conventionally understood.”
HSBC said it only offers guaranteed bonuses in “exceptional cases and limited circumstances”, including where an executive joins the bank near the end of the financial year and will have lost the chance to receive a bonus from their old employer as a result.
The payments are only available to executives within a year of being hired and HSBC said guaranteed bonus arrangements have “not been used for any executive directors” to date.
But the bank regularly offers the payouts to bankers in lower levels of the business. HSBC last year handed $24m (£18.2m) to 27 bankers across the business. Most were hired by its investment banking division. However, staff below the executive level are not governed by the remuneration policy.
Luke Hildyard, the director of the High Pay Centre thinktank, said bonuses “are supposed to encourage long-term thinking and prevent the risk of key staff leaving for a rivals. But given the relative ease with which they can be bought out, they only serve to inflate bankers’ pay to a disproportionate level.
“This is money that could otherwise be put towards lower and middle income earners in the bank, returns to shareholders or support for the real economy. Society also has to pay the price for economic inequalities exacerbated by pay practices in the financial services industry.”
