May 27, 2011 – By Sudip Kar-Gupta and Sarah White
LONDON (Reuters) - HSBC Holdings Plc executives faced investor anger on Friday over lackluster returns and high executive pay, prompting Chairman Douglas Flint to admit performance had been disappointing.
Europe's largest bank, which has started a cost-cutting drive to make bigger profits, faced a backlash over top executive rewards at its annual shareholders' meeting, even if a remuneration plan won the backing of some former critics.
Yet a fifth of shareholders refused to back the plan, which includes lower caps on long-term incentive share payouts, despite a year of lobbying by HSBC, marking stronger opposition over pay than faced by its British peers.
"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."
Still, the plan was approved by 81 percent of HSBC's owners, many of whom rounded on the bank for its mediocre shareholder returns, which Flint called disappointing and inadequate. "We are committed to making it better," Flint said.
Earlier this month, newly-instated Chief Executive Stuart Gulliver unveiled a retreat from retail banking in a host of countries, aimed at tackling a jump in costs which dragged down first-quarter profits some 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 U.S. credit card arm.
HSBC also faced uncomfortable questions over its relationship with the Libyan government and leader Mummar Gaddafi, 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.
The new pay plan failed to garner full support from HSBC shareholders despite the bank striving to lay the ground for the proposals in the last year as it sought to avoid a repeat of a similar backlash last year.
HSBC's revamped 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 their incentives.
Measures also include making staff hold on to shares until they retire or leave the bank.
HSBC did manage to win the backing of one prominent former critic, Standard Life Investments Plc, a representative of which said it would vote in favor of all resolutions.
Standard Life had been one of the bank's fiercest critics last year when investors had already launched stinging attacks on the bank over executive pay.
The representative did ask HSBC, however, to consider strengthening the role of the deputy chairman and senior independent director and to review the effectiveness of its new policy no later than 2014.
Other investor bodies had already voiced reservations over the pay plan.
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 Plc, although the firm's pay plan was passed after a backlash from about a tenth of investors -- a much lower disapproval rate than HSBC.
Share advisory group Pirc also slammed elements of the compensation strategy, including provisions for "golden hellos," a recruitment incentive whereby employees are compensated for joining from another firm.
Pirc also questioned the lack of a cap on salaries.
"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.
(Additional reporting by Tommy Wilkes; Editing by David Holmes)