HSBC Holdings Regulatory News (HSBA)

Annual Statement from the Group Remuneration Committee Chairman

285

Group performance in 2015

285

Group variable pay pool and risk adjustments

286

How our remuneration policy was applied in 2015

286

New remuneration policy for 2016

287

Looking ahead to 2016

287

Directors' remuneration policy

288

Material factors taken into account when setting pay policy

288

Remuneration policy - executive Directors

289

Remuneration policy - non-executive Directors

299

Remuneration policy for all employees

300

Link between pay and performance

300

Adjustment, malus and clawback

301

Annual report on remuneration

302

Remuneration Committee

302

Group variable pay pool

303

Single figure of remuneration

305

Determining executive Directors' annual performance

307

Awards under the GPSP

310

Non-executive Directors

311

Payments to past Directors

311

Total pension entitlements

312

Exit payments made in year

312

Scheme interests awarded during 2015

312

Summary of performance

312

CEO remuneration

313

Directors' interests in shares

314

Shareholder context

315

Implementation of remuneration policy in 2016 for executive Directors

315

Annual bonus scorecards

315

Implementation of remuneration policy fornon-executive Directors

317

Additional disclosures

318

Employee compensation and benefits

318

Pillar 3 remuneration disclosures

319

We grew adjusted revenue, strengthened our capital position and increased our dividend payable to shareholders.

• Reported PBT for 2015 was up 1% at $18,867m compared with $18,680m for 2014.

• Adjusted PBT was down 7% for 2015 at $20,418m compared with $21,976m for 2014. Adjusted PBT was up in two of five regions.

• Adjusted revenue increased by $538m or 1% in 2015 to $57,765m compared with $57,227m for 2014, driven by revenue growth in client-facing GB&M, principally in Equities and Foreign Exchange. Revenue also increased in CMB and Principal RBWM.

• Adjusted LICs increased by $553m or 17% to $3,721m compared with $3,168m in 2014. LICs increased in CMB and in RBWM.

• Adjusted operating expenses increased by $1,606m or 5% to $36,182m compared with $34,576m for 2014, reflecting investment in growth, and regulatory programmes and compliance costs. Excluding the bank levy which is booked in the fourth quarter each year, operating expenses in the second half of 2015 were broadly in line with the first half of the year. This was despite investment and inflationary pressures, and partly reflects the initial effect of our cost saving initiatives and a strong focus on cost management.

• Dividends in respect of 2015 increased from $0.50 per ordinary share in 2014 to $0.51 per ordinary share.

• Our CRD IV end point CET1 capital ratio of 11.9% at 31 December 2015 was up from 11.1% at 31 December 2014. We continue to generate capital from profit and our progress to achieve targeted RWA initiatives strengthened our CET1 ratio, creating capacity for growth.

• The leverage ratio remained strong at 5.0%.

Cash in lieu of pension

· Reduced from 50% of base salary to 30% of base salary.

Fixed pay allowance

· To be released on a pro rata basis over five years.

Annual incentive

· To be delivered in shares, subject to a minimum six-month retention period.

· The Committee will retain the discretion to apply longer retention periods or apply deferral to a proportion of the award (with vesting aligned to the long-term incentive).

Long-term incentives

· Prior performance will be taken into consideration when determining the value of the grant.

· Awarded in shares, subject to a three-year forward-looking performance period commencing from the start of the financial year in which the awards are granted.

· Awards will commence vesting after the end of the three-year performance period. Awards will vest in five equal instalments with the first vesting on or around the third anniversary of the date of grant and the last instalment vesting on or around the seventh anniversary of grant.

· A retention period may be applied to ensure compliance with regulatory requirements.

Shareholding requirement

· Expressed as a percentage of base salary.

INTERNAL FACTORS

Group strategyand objectives

· The Group strategic objectives are the key drivers for measuring performance and form the basis of the annual scorecard and long term incentive scorecard for our executive Directors.

· The targets set for the scorecards are aligned to the strategic targets of the Group.

Pay and employment conditions withinthe Group

· In considering individual awards, a comparison of the pay and employment conditions of our employees and senior executives is considered by the Committee.

· The Group Head of Performance and Reward presents proposals for remuneration for the wider employee population and consults with the Committee on the extent to which the different elements of remuneration are provided to other employees.

· Feedback from employee engagement surveys and HSBC Exchange meetings are taken into account in determining the Group's remuneration policy.

· Given the size of the Group's employee base and its geographical presence, the Committee did not consider it appropriate to consult all employees on the Directors' remuneration policy.

Reinforcing theGroup's values

· The remuneration policy is designed to reinforce the Group's values and behaviours and to drive sustainable performance.

· The Committee receives input from the Group Risk Committee, the Financial System Vulnerabilities Committee and the Conduct and Values Committee to ensure such behaviours are taken into account.

EXTERNAL FACTORS

Regulation

· There is still a wide divergence in local regulations governing remuneration structures globally. This presents significant challenges to HSBC, which operates in over 70 countries worldwide.

· In order to deliver long-term sustainable performance, it is important to have market-competitive remuneration which is broadly equivalent across geographical boundaries in order to attract, motivate and retain talented and committed employees around the world.

· We aim to ensure that our remuneration policy is aligned with regulatory practices and the interests of shareholders. HSBC is fully compliant with the FSB, FCA, PRA, EBA and HKMA principles and rules on remuneration which apply at the date of this report.

Comparator group

· The Committee considers market data for executive Directors' remuneration packages from a defined remuneration comparator group: Australia and New Zealand Banking Group Limited, Bank of America, Barclays, BNP Paribas, Citigroup, Deutsche Bank, JPMorgan Chase & Co, Santander, Standard Chartered and UBS.

· These ten global financial services companies were selected for 2015 on the basis of their business coverage, size and international scope, and are subject to annual review for continuing relevance.

· The Committee can also review other companies where relevant in determining the remuneration policy.

Shareholder views

· The Chairman of the Committee, the Group Head of Performance and Reward and the Group Company Secretary meet with key institutional shareholders and other representative bodies to discuss our remuneration policy design, impact of regulatory changes and any key changes introduced.

· We consider these meetings important to gather views on our current and developing remuneration practices to ensure that our reward strategy continues to be aligned with the long-term interests of our shareholders.

· We also took on board views expressed by our shareholders on our remuneration policy at previous annual general meetings. We have changed our approach on the provision of cash in lieu of pension and long-term incentive awards as a result.

Fixed pay

These elements of remuneration are not subject to performance metrics.

Base salary

To attract and retain key talent by being market competitive and rewarding on-going contribution to role.

Base salary reflects the individual's role, experience and responsibility. The Committee reviews and approves changes within the context of local requirements and market competitiveness.

Base salaries are benchmarked on an annual basis against relevant comparator groups as set out on page 288. Base salaries may be reviewed more frequently at the discretion of the Committee.

The annual base salary for each executive Director is set out in the table on page 315.

Other than in exceptional circumstances, the base salary for the current executive Directors will not increase by more than 15% above the current levels during the duration of this policy.

Fixed pay allowance ('FPA')

To deliver fixed pay required to reflect the role, skills, and experience of the Directors and to maintain a competitive total remuneration package for the retention of key talent.

Fixed pay allowances are non-pensionable and will be granted in shares that vest immediately on a quarterly basis or at any other frequency that the Committee deems appropriate.

These shares (net of shares sold to cover any income tax and social security) will be subject to a retention period. Shares will be released annually on a pro rata basis over five years, starting from the March immediately following the end of the financial year in which the shares are granted in respect of.

Dividends will be paid on the vested shares held during the retention period.

The Committee retains the discretion to pay the fixed pay allowance in cash if required to do so by regulation.

Fixed pay allowances are determined based on the role and responsibility of each individual.

The fixed pay allowance for the duration of this policy will be capped at 150% of base salary levels at the start of this policy.

Cash in lieu of pension

To attract and retain key talent by being market competitive.

Directors receive a cash allowance in lieu of a pension entitlement.

30% of base salary.

Variable pay

Adhering to the HSBC Values is a prerequisite to be considered for any variable pay. The HSBC Values are key to running the bank on a sound, sustainable basis. Executive Directors have an HSBC Values rating that is considered by the Committee following the financial year end.

Annual incentive

To drive and reward performance against annual financial, non-financial and personal objectives which are consistent with the strategy and align to shareholder interests.

Awards are discretionary and are generally delivered in the form of shares.

On vesting, the shares (net of shares sold to cover any income tax and social security) will be subject to a minimum retention period of at least six months.

Awards are subject to clawback for a period of seven years from the date of award. This may be extended to ten years in the event of an ongoing internal/ regulatory investigation at the end of the seven-year period.

The Committee retains the discretion to:

· apply a longer retention period;

· grant the award partially in cash, as long as at least 50% of the award is in shares; and

· defer a portion of the awards, which will be subject to malus during the deferral period.

Dividend equivalents will be paid on the vested deferred shares, equal to the dividends paid or payable between the grant and vesting date. These will normally be paid in the form of additional, i.e. scrip, shares. If not permissible under regulatory requirements, the number of shares to be awarded may be based on a share price discounted based on a historical dividend yield.

The maximum opportunity for annual incentive award is up to 215% of base salary.

The Committee will assess and judge performance against the targets set to determine the level of achievement.

The overall payout of the annual incentive could be between 0% and 100% of the maximum.

25% of the maximum award opportunity will vest at threshold performance and up to 50% will vest for target performance. 100% of the award will pay out for maximum performance.

The Committee can reduce (to zero if appropriate) the annual incentive payout based on the outcome of the performance measures, if it considers that the payout determined does not appropriately reflect the overall position and performance of the Company during the performance period.

Performance is measured against an annual scorecard, based on targets set for financial outcomes and non-financial outcomes (including risk-related measures and personal objectives). The scorecards vary by individual. Examples of the types of measures are shown on page 294.

The financial measures will have a weighting of 60% for the Group CEO, 50% for the Group Chief Financial Officer and 25% for the Group CRO.

The Committee has the discretion to:

· change the overall weighting of the financial and non-financial measures;

· vary the measures and their respective weightings within each category. The specific performance measures will be disclosed in the 'Annual report on remuneration' for the relevant year; and

· make adjustments to performance targets to reflect significant one-off items which occur during the measurement period. Full and clear disclosure of any such adjustments will be made within the 'Annual report on remuneration' at the end of the performance year, subject to commercial confidentiality.

Long-term incentive ('LTI')

To incentivise sustainable long-term performance and long-term alignment with shareholder interests.

Awards are discretionary and are awarded in shares under the HSBC Share Plan 2011, subject to a forward-looking three-year performance period from the start of the financial year in which the awards are granted.

At the end of the performance period, the performance outcomes will be used to assess what percentage of the awards will vest. These awards will vest in five equal instalments with the first vesting on or around the third anniversary of the grant and the last instalment vesting on or around the seventh anniversary of the grant date. This is based on the PRA's requirements.

On each vesting, the shares (net of shares sold to cover any income tax and social security) will be subject to a minimum retention period of six months if required by regulators.

Awards are discretionary and are subject to malus during the vesting period and clawback for a period of seven to ten years from the date of award.

Dividend equivalents will be paid on the vested deferred shares, equal to the dividends paid or payable between the grant and vesting date. These will normally be paid in the form of additional, i.e. scrip, shares. If not permissible under regulatory requirements, the number of shares to be awarded may be based on a share price discounted based on a historical dividend yield.

The Committee may adjust and amend awards in accordance with the rules of the HSBC Share Plan 2011.

The maximum opportunity for LTI award is up to 320% of base salary.

The Committee will assess and judge performance against the targets set to determine the level of achievement.

The overall payout level could be between 0% and 100% of the maximum.

25% of the maximum award opportunity will vest at threshold performance and up to 50% will vest for target performance. 100% of the award will vest for maximum performance.

The Committee can reduce (to zero if appropriate) the LTI payout based on the outcome of the performance measures, if it considers that the payout determined does not appropriately reflect the overall position and performance of the Company during the performance period.

The Committee will take into consideration prior performance when assessing the value of the LTI grant.

Forward-looking performance is measured against a long-term scorecard with financial outcomes (60% weighting) and non-financial outcome, including risk and strategy-related measures (40% weighting).

Relative Total Shareholder Return ('TSR') will have a weighting of one-third of the total financial measures. One-third will be based on achieving return on equity targets and one-third will be based on the attainment of cost-efficiency targets.

Performance targets are set annually for each three-year cycle by the Committee.

The Committee has the discretion to:

· change the overall weighting of the financial and non-financial measures;

· vary the measures and their respective weightings within each category. The specific performance measures will be disclosed in the 'Annual report on remuneration' for the relevant year; and

· make adjustments to performance targets to reflect significant one-off items which occur during the measurement period. Full and clear disclosure of any such adjustments will be made within the 'Annual report on remuneration', subject to commercial confidentiality.

Other

These elements are not subject to performance metrics.

Benefits

To provide benefits in accordance with local market practice.

Benefits take account of local market practice and include, but are not restricted to, the provision of medical insurance, income protection insurance, health assessment, life assurance, club membership, tax return assistance, car benefit (including any tax due on the benefit) and travel assistance.

Stuart Gulliver is also provided with accommodation and car benefit in Hong Kong. HSBC pay any tax due on this benefit.

Additional benefits may also be provided where an executive is relocated or spends a substantial proportion of his/her time in more than one jurisdiction based on business needs. Such benefits could include, but are not restricted to, airfare, accommodation, shipment, storage, utilities and any tax and social security that may be due in respect of such benefits.

Determined by the nature of the benefit provided. The benefit amount will be disclosed in the Single Figure Table of Remuneration for the relevant year.

Shareholding guidelines

To ensure appropriate alignment with the interest of our shareholders.

Executive Directors and other senior executives are subject to shareholding guidelines.

The shareholding guidelines as a percentage of base salary are:

· Group Chairman: 100%

· Group CEO : 400%

· Group Finance Director: 300%

· Group CRO: 300%

Individuals are given five years from 2014 or (if later) their appointment to build up the recommended levels of shareholding. The shareholding guideline does not count unvested share-based incentives.

The Committee reviews compliance with the shareholding guidelines. The Committee has full discretion in determining any penalties in cases of non-compliance, which could include a reduction of future awards and/or an increase in the proportion of the annual variable pay that is deferred into shares.

HSBC operates an anti-hedging policy and executive Directors are required to certify each year that they have not entered into any personal hedging strategies in relation to their holdings of HSBC shares.

N/A

All employee share plans

To promote share ownership by all employees.

Executive Directors are also entitled to participate in all employee share plans, such as the HSBC Sharesave, on the same basis as all other employees.

Under the Sharesave, executive Directors can make monthly savings over a period of three or five years towards the grant of an option over HSBC shares. The option price can be at a discount, currently of up to 20%, on the share price at the start of the savings period.

The number of options determined by maximum savings set by HM Revenue and Customs per month, currently £500.

Provisions of previous policy that will continue to apply:

2011 - 2015 Group Performance Share Plan ('GPSP'), deferred cash and share awards.

Vesting of outstanding deferred cash and share-based awards granted in prior years, including 2016. This includes deferred shares and GPSP awards granted under the HSBC Share Plan 2011 and HSBC Share Plan, which will continue to form part of the remuneration policy until vesting.

The awards normally vest over a period of up to five years from the date of grant. On vesting, shares (net of any shares sold to cover income tax and social security) will be subject to the applicable retention period set out at the time of the award.

Dividend equivalents will be paid on the vested shares. A notional return will be paid for vested deferred cash awards.

Award levels have already been determined based on the outcome of relevant performance measures in the relevant prior year.

The vesting of these awards is subject to a service condition.

In respect of performance year 2012, vesting of the deferred shares portion of the annual incentive awards granted in March 2013 is subject to satisfactory conclusion of the Deferred Prosecution Agreement with the US Department of Justice ('US DPA'). No further performance conditions apply for any other awards.

The US DPA condition ends on the fifth anniversary of the award date unless it is extended or otherwise continues beyond that date, in which case the awards will vest on the date on which the US DPA expires and otherwise ceases to operate.

Base salary

P

P

P

Fixed pay allowance

P

P

P

Annual incentive

P

P

P

GPSP/long-term incentive

P

P

-

Benefits and pension

P

P

P

Will be aligned to achievement of our annual operating plan targets and linked to the key Group's key strategic actions.

Measures may include but are not limited to:

· profit before tax;

· reduction of Group risk-weighted assets ('RWA's);

· delivery of cost savings; and

· strategic growth.

Targets for threshold and maximum vesting will be based on various factors including each year's annual operating plan targets.

Drive implementation of our Global Standards and risk and compliance policies.

Measures may include but are not limited to:

· progress and embedding of anti-money laundering and sanctions policies;

· implementation of enhanced customer due diligence programmes worldwide; and

· implementation and embedding of conduct programmes.

The targets set will be linked to milestones agreed with the Monitor, regulators and overall Group objectives.

Progress made on delivering key non-financial milestones aligned to the Group's strategic actions, leadership and people metrics.

Will be strongly aligned to the business strategy and based on primary long-term financial goals.

Measures may include but are not limited to:

· return on equity;

· cost efficiency (jaws); and

· relative TSR against a global financial services peer group.

Targets set for threshold and maximum vesting will be based on long-term financial goals.

Will be used in line with the Monitor's guidance and as part of regulatory requirement to use non-financial measures as part of a balanced scorecard.

Measures may include but are not limited to:

· completion of US DPA commitments;

· management of key risks; and

· regulatory transparency.

Targets set will be based on achievement of key long-term commitments and achievement of a successful Global Standards roll-out.

Will drive delivery of long-term Group strategic actions.

Base salary

No change

N/A

Fixed pay allowance

Released pro rata over a period of five years.

Retention period changed to be consistent with market practice and to reflect longer deferral requirements.

Cash in lieu of pension

Maximum reduced from 50% of base salary to 30% of base salary.

Feedback from shareholders that cash in lieu of pension was high relative to large FTSE companies.

Annual incentive

Maximum is 215% of base salary.

Delivered 100% in shares, subject to a retention period.

The Committee considered it appropriate to have the annual incentive subject to a retention period, to align with the overall variable pay structure of the PRA Remuneration Rules and to take into account the overall time horizons of the total remuneration package of the executive Directors.

Long-term incentive

Maximum is 320% of base salary.

Prior performance will be taken into consideration when assessing the value of the grant.

Performance targets set annually for each three-year forward-looking performance period.

Introduction of relative TSR as a performance measure.

Awards to vest, subject to the outcome of the performance conditions at the end of the three-year performance period, in equal instalments between the third and seventh anniversary of the grant date.

A retention period may be applied to ensure compliance with regulatory requirements.

Shareholder feedback on preference to have a more conventional long-term incentive structure, with a forward-looking performance period in line with FTSE practice.

Longer deferral period required under the PRA Remuneration Rules.

Fixed pay

Base salary and fixed pay allowance to reflect the individual's role, experience and responsibility and be set in the context of market practice.

Pension in line with policy as set out in the 'Remuneration policy' table on page 289.

Benefits

Benefits to be provided will be dependent on circumstances but in line with Group policy and the 'Remuneration policy' table, including the global mobility policy, where applicable, and local regulations.

Annual incentive

New joiners will be eligible to be considered for an annual incentive award as set out in the 'Remuneration policy' table on page 290.

Guaranteed bonuses are only permitted by exception and must be limited to the first year of service, subject to the Group Deferral Policy and performance requirements.

Long-term incentive

May be considered for LTI award in year as set out in the 'Remuneration policy' table on page 291.

Buyout

May be offered if the individual holds any outstanding unvested awards which are forfeited on resignation from the previous employer.

Group buyout policy is in line with the PRA Remuneration Rules which states that both the terms and amount of any replacement awards will not be more generous than the award forfeited on departure from the former employer.

Delivered as HSBC deferred shares with vesting and retention periods to match the terms of forfeited awards with previous employer as closely as possible, subject to proof of forfeiture and other relevant documentation. Where the time to vesting is less than 60 days, cash or deferred cash may be awarded for administrative purposes.

Where appropriate, the Committee retains the discretion to utilise the provisions provided in the Listing Rules for the purpose of making buy-out awards.

Contract date

(r (rolling)

Notice period (Director & HSBC)

Director

Douglas Flint

14 February 2011

12 months

Stuart Gulliver

10 February 2011

12 months

Iain Mackay

4 February 2011

12 months

Marc Moses

27 November 2014

12 months

Fixed pay and benefits

Executive Directors may be entitled to payments in lieu of:

· notice, which shall consist of base salary, pension entitlements and other contractual benefits, or an amount in lieu of; and/or

· accrued but untaken holiday entitlement.

Annual incentives andlong-term incentives

In exceptional circumstances as determined by the Committee, the executive Director may be eligible for annual incentives and long-term incentives based on the time worked in the performance year and on the individual executive Director's contribution.

Unvested deferred awards

All unvested awards will be forfeited when an executive Director ceases employment voluntarily and is not deemed a good leaver. An executive Director may be considered a good leaver at the discretion of the Committee and the following will apply:

· unvested awards will continue to vest in line with the applicable vesting dates, subject to the original performance conditions, the share plan rules, malus and clawback provisions; or

· vested shares, subject to retention, will be released to the executive Director on cessation of employment.

In the event of death unvested awards will vest and will be released to the executive Director's estate as soon as practicable.

In respect of outstanding unvested awards, for an individual to be considered as a good leaver, the Committee needs to be satisfied that the executive has no current or future intention at the date of leaving HSBC of being employed by any competitor financial services firm. The Committee determines the list of competitor firms and length of time this restriction applies. If the Committee becomes aware of any evidence to the contrary before vesting, the award will lapse.

If the executive Director is not deemed a good leaver for purposes of the GPSP, vested shares, subject to retention, will be released to the executive Director in three equal tranches on each of the first, second and third anniversary of cessation of employment.

Repatriation

Where an executive Director has been relocated as part of their employment, the Committee retains the discretion to pay the repatriation costs. This may include, but are not restricted to, airfare, accommodation, shipment, storage, utilities and any tax and social security that may be due in respect of such benefits.

Post-departure benefits

Applicable for the duration of the clawback period, up to a maximum of seven years from date of departure for those who depart under good leaver provisions under the HSBC Share Plan and subject to non-compete provisions, in accordance with the terms of the policy. Benefits may include medical coverage, tax return preparation assistance and legal expenses for the duration of the clawback period.

The Committee also has the discretion to extend the post-departure benefit of medical coverage to former executive Directors, up to a maximum of seven years from their date of departure.

Legal claims

The Committee retains the discretion to make payments (including professional and outplacement fees) to mitigate against legal claims, subject to any such payments being made in accordance with the terms of an appropriate agreement waiving all claims against the Group.

Change of control

In the event of a change of control, outstanding awards will be treated in line with the provisions set out in the respective plan rules.

Fees

The fee levels payable reflect the time commitment and responsibilities of a non-executive Director of HSBC Holdings.

The policy for non-executive Directors is to pay:

· base fees; and

· further fees for additional Board duties such as chairmanship, membership of a committee, or acting as the senior independent Director or deputy Chairman acting as one.

Fees are paid in cash. The Board retains the discretion to pay in shares rather than cash where appropriate.

Any non-executive Chairman would be paid a fixed annual fee for all Board responsibilities based on their experience and the time commitments expected for the role, together with such other benefits as the Committee may in its absolute discretion determine.

Any newly appointed non-executive Director would be paid in line with the policy on a time apportioned basis in the first year as necessary. No sign-on payments are offered to non-executive Directors.

The Board (excluding the non-executive Directors) has discretion to approve changes to the fees. The Board may also introduce any new component of fee for non‑executive Directors subject to the principles, parameters and other requirements set out in this remuneration policy.

Certain non-executive Directors may be entitled to receive fees for their services as directors of subsidiary companies of HSBC Holdings plc. Such additional remuneration is determined by the board of directors of each relevant subsidiary within a framework set by the Group Remuneration Committee.

The Board will review the amount of each component of fees periodically to assess whether, individually and in aggregate, they remain competitive and appropriate in light of changes in roles, responsibilities, and/or time commitment of the non-executive Directors and to ensure that individuals of the appropriate calibre are able to be retained or appointed.

Other than in exceptional circumstances, fees will not increase by more than 20% above the current fee levels during the duration of this policy.

Expenses

Reimbursed for any expenses incurred in performing their role and any related tax cost on such reimbursement.

Shareholding guidelines

To ensure appropriate alignment with the interests of our shareholders, non-executive Directors, individually or with their connected persons, are expected to satisfy a shareholding guideline of 15,000 shares within five years from 2014 or (if later) their appointment.

The Committee reviews compliance with the guidelines annually. The Committee has full discretion in determining any consequences in cases of non-compliance.

Base salary

Market competitive pay for the role, skills and experience required for the business. Used to attract and retain employees.

Fixed pay allowances

Given where a rebalancing of the fixed and variable pay components of remuneration is appropriate. The criteria used for determining fixed pay allowances include: the role, skills, experience, technical expertise, market compensation and other remuneration that the employee may receive in the year.

Allowances may be in cash and/or vested shares.

The shares (net of shares sold to cover any income tax and social security) would be subject to a retention period.

Pension and benefits

Provided in accordance with local market practice. This includes but is not limited to the provision of pensions, medical coverage, life insurance, health assessment, tax return preparation, legal fees and relocation allowances.

Annual incentives

Awards to drive and reward performance based on annual financial and non-financial measures consistent with the medium to long-term strategy, shareholder interests and adherence to HSBC Values.

For MRTs , awards are normally subject to a 40% or 60% deferral. Normally delivered in cash and/or shares, subject to a minimum six-month retention period. The vesting schedule is normally over 3 years. For 2016, it could be 3 years, 5 years or 3-7 years, depending on the regulatory status of the employee. Deferred awards are subject to malus and all awards are subject to clawback.

MRTs who meet the de minimis requirements of the PRA are subject to the normal deferral rates applicable to all other employees.

For all other employees, awards can be in the form of cash and/or shares. Awards above a specified threshold are subject to deferral based on a deferral table. All deferred awards are subject to malus.

HSBC operates an anti-hedging policy for all employees. As part of this all employees are required to certify each year that they have not entered into any personal hedging strategies in relation to their unvested awards and holdings of HSBC shares subject to a retention period.

Long-term incentives

Share awards made to incentivise sustainable long-term performance and align to shareholder interests.

Only Group Managing Directors are eligible to receive long-term incentives. All awards are subject to malus and clawback.

Adjustment

Current yearvariable pay

· Detrimental conduct or conduct which brings the business into disrepute.

· Involvement in Group-wide events resulting in significant operational losses, including events which have caused or have the potential to cause significant harm to HSBC.

· Non-compliance with HSBC Values and other mandatory requirements.

Adjustment under the downward override policy

Current year variable pay for executive Directors and other senior executives

· Based on the recommendations received from the independent Monitor, the Committee introduced the policy in 2014.

· The criteria used to determine the downward adjustment will include:

‒ insufficient yearly progress in developing an effective AML and sanctions compliance programme; or

‒ non-compliance with the US DPA and other relevant orders.

· In deciding the application and degree of any such downward override to reduce variable pay awards, the Committee will factor in the Financial System Vulnerabilities Committee's recommendations and the feedback from the Monitor in relation to cooperation with their review and progress in developing an effective AML and sanctions compliance programme.

Malus

Unvested deferred awards granted inprior years

· Detrimental conduct or conduct which brings the business into disrepute.

· Past performance being materially worse than originally reported.

· Restatement, correction or amendment of any financial statements.

· Improper or inadequate risk management.

Clawback

Vested or paid awards

· Applicable only to awards granted to MRTs on or after 1 January 2015 for seven years. May be extended to ten years for employees under the Senior Manager Regime in the event of ongoing internal/regulatory investigation at the end of the seven-year period.

· Participation in or responsibility for conduct which results in significant losses.

· Failing to meet appropriate standards of fitness and propriety.

· Reasonable evidence of misconduct or material error that would justify, or would have justified, summary termination of a contract of employment.

· HSBC or a business unit suffers a material failure of risk management within the context of Group-risk management standards, policies and procedures.

January

· 2014 performance year pay review matters

· Directors' Remuneration report

· Share Plan - HSBC UK Share Incentive Plan

· Governance matters

May

· Remuneration policy review

· 2015 Material Risk Taker review

· Update on notable events

· Regulatory updates

· Country/business policies and practice

· Governance reports

February

· 2014 performance year pay review matters

· 2015 GPSP and Group CEO Annual Scorecards

· Update on notable events

· Downward Override Policy

· 2014 Directors' Remuneration Report and Strategic Report

· Regulatory submissions and disclosures

· Governance matters

July

· Country/business policies and practice

· Regulatory updates

· Update on notable events

· Remuneration policy design considerations

· Governance matters

March

· 2015 Monitor's report on remuneration-related matters

· Downward Override Policy

· Final regulatory submissions and disclosures

· Review of draft EBA remuneration guidelines

· 2014 performance year pay review matters

· Country/business policies and practice

· Governance matters

September

· Regulatory updates and submissions

· Update on notable events

· Remuneration policy design considerations

· 2015 performance year pay review matters

· Group share plans

· Governance matters

· G30 study on banking conduct and culture

· Remuneration policy design considerations

· Country/business policies and practice

· Governance matters

April

· Performance management and reward survey

· Regulatory update on EBA guidelines and FCA guidance on ex-post risk adjustment

· Group share plans

· Country/business policies and practice

· Governance matters

November

· 2015 performance year pay review matters

· 2015 regulatory submissions

· Update on notable events

· Remuneration policy design considerations

· Shareholder consultation on new remuneration policy

· Governance matters

December

· 2015 performance year pay review matters

· 2015 regulatory submissions

· Governance matters

· Country/business policies and practice

· Group share plans

Performance and riskappetite statement

· The variable pay pool takes into account the performance of the Group considered within the context of our risk appetite statement ('RAS') which includes a number of earnings/capital related metrics, such as return on equity, return on notional risk weighted assets, common equity tier 1 capital ratio and the leverage ratio. This ensures that the variable pay pool is both economic and shaped by risk considerations and any Group-wide notable events.

· Additionally, individual RAS has been developed for Financial Crime Compliance and Regulatory Compliance to reflect the current regulatory focus on these risks.

· The Group CRO regularly updates the Committee on the Group's performance against the risk appetite statement and summarises the notable issues for the various business lines.

· The Committee uses these updates along with feedback from the Group Risk Committee as delivered by the Group CRO when determining the annual variable pay pool to ensure that return, risk and remuneration are aligned.

Countercyclical funding methodology

· We use a countercyclical funding methodology which is categorised by both a floor and a ceiling and the payout ratio reduces as performance increases to avoid pro-cyclicality risk.

· The floor recognises that even in challenging times, remaining in a competitive position is important.

· The ceiling recognises that at higher levels of performance it is possible to limit reward as it is not necessary to continue to increase the variable pay pool, thereby limiting the risk of inappropriate behaviour to drive financial performance.

Distribution of profits

· In addition, our funding methodology considers the relationship between capital, dividends and variable pay to ensure that the distribution of post-tax profits between these three elements is considered appropriate (see next page for the 2015 and 2014 split).

· It is deemed fundamental that the majority of post-tax profits should be allocated to capital and to shareholders, particularly when strong performance is delivered.

Commerciality andaffordability

· Finally, we consider the commercial requirement to remain competitive in the market and overall affordability. Funding of the Group's annual variable pay pool is determined in the context of Group profitability, capital strength, shareholder returns and the overall compensation and benefits expense. This approach ensures that performance-related awards for individual global businesses, global functions, geographical regions and levels of staff are considered in a holistic fashion.

· Market competiveness is also considered in determining the variable pay pool. This allows us to address any gaps to market identified when comparing total reward with our global peers. This also recognises the challenges which arise from being headquartered in the UK and having to apply more stringent reward practices than those in all other markets. We need to retain a competitive market position in Asia, the Middle East and the US in attracting and retaining talent, where our competitors are not subject to discounts applied by employees on their pay due to regulatory requirements including a variable pay cap, higher and longer deferrals, malus and clawback.

Group

Global Banking

and Markets

2015

2014

2015

2014

Variable compensation incentive pool as a %of pre-tax profit(pre-variable pay)1

16%

16%

12%

15%

% of variable pay pool deferred2

15%

14%

26%

25%

Douglas Flint

Stuart Gulliver

Iain Mackay

Marc Moses

2015

2014

2015

2014

2015

2014

2015

2014

£000

£000

£000

£000

£000

£000

£000

£000

Fixed pay

Base salary

1,500

1,500

1,250

1,250

700

700

700

700

Fixed pay allowance

-

-

1,700

1,700

950

950

950

950

Pension

750

750

625

625

350

350

350

350

2,250

2,250

3,575

3,575

2,000

2,000

2,000

2,000

Variable pay

Annual incentive

-

-

1,072

1,290

1,068

867

827

1,033

GPSP

-

-

1,969

2,112

1,101

1,131

1,101

1,131

-

-

3,041

3,402

2,169

1,998

1,928

2,164

Total fixed and variable pay

2,250

2,250

6,616

6,977

4,169

3,998

3,928

4,164

Benefits

151

136

662

589

54

43

6

6

Non-taxable benefits

95

105

53

53

28

28

29

33

Notional return on deferred cash

-

41

9

-

5

11

5

36

Total single figure of remuneration

2,496

2,532

7,340

7,619

4,256

4,080

3,968

4,239

Douglas Flint

Stuart Gulliver

Iain Mackay

Marc Moses

2015

2014

2015

2014

2015

2014

2015

2014

£000

£000

£000

£000

£000

£000

£000

£000

Car benefit (UK and Hong Kong)

69

70

87

88

-1

-1

-1

-

Hong Kong bank-owned accommodation2

-

-

281

246

-

-

-

-

Tax expense on car benefit andHong Kong bank-owned accommodation

57

58

275

239

-1

-1

-1

-

Insurance benefit (non-taxable)

80

80

-1

-1

-1

-1

-1

-

Value (£000)

3,575

2,000

2,000

Annual incentive

Maximum multiple of fixed pay

0.67

0.67

0.67

Performance outcome

45.0%

80.1%

62.0%

Multiple awarded

0.30

0.53

0.41

Value (£000)

1,072

1,068

827

Profit before tax1

15

$21.2bn

$21.1bn

50

7.5

Return on equity

15

7.3

7.2%

-

-

Jaws2

15

-

(3.7%)

-

-

Grow dividends3

15

0.50

0.51

75

11.2

Financial

60

18.7

Strategy execution

15

Judgement - see commentary

75

11.3

Global Standards including risk and compliance

25

Judgement - see commentary

60

15.0

%

Non-financial

40

26.3

Promoting HSBC Values

Over-riding test

Met

Total

100

45.0

FINANCIAL

Profit before tax

· Although the target was not fully met, profit before tax fell marginally short of the baseline. In acknowledgement of a resilient performance in difficult market conditions, an assessment of 50% was awarded.

Return on equity

· Return on equity for 2015 was 7.2%, 190 basis points lower than 2014, impacted by low revenue growth as well as significant items. While the Committee acknowledged efforts to improve medium-term returns, it decided to not make an award under this opportunity.

FINANCIAL

Jaws

· The Group targeted the achievement of positive adjusted jaws in 2015. Based on the profile of the Group's revenues and cost base, it was judged that no award should be made under this element of the scorecard.

Grow dividends

· The Group is committed to paying out progressive dividends to shareholders, predicated on the growth of overall profitability and the continuing ability to meet regulatory capital requirements. Prospective dividend growth remains dependent upon the long term overall profitability of the Group and delivering further release of less efficiently deployed capital.

· The Group was able to increase the dividend per ordinary share in 2015 as well as improve its capital position.

NON-FINANCIAL

Strategyexecution

· Committee reviewed the progress to date in driving the Strategic Actions announced during the June 2015 Investor Update, particularly around re-sizing and simplifying the Group, and re-deploying capital to invest in higher-return businesses.

· The Group had achieved $124bn reduction in RWAs in the year, ahead of the 2015 target and accounting for 45% of the total RWA reduction to be achieved by the end of 2017 to drive improved profitability.

· The Committee further recognised favourable progress in optimising the global network with the planned sale of our operations in Brazil. The Committee acknowledged the work under way to re-build profitability in the United States, although noted that underlying revenue growth remains challenged. The Committee also noted the implementation of several initiatives to control costs, improve efficiency, and shift the Group's front office to back office ratio towards customer facing activities.

· There were advances made in re-deploying capital to invest in higher-return businesses. The Committee recognised the Group's progress in leveraging its global network to drive growth from global connectivity, in particular through its range of transaction banking products, and to deliver revenue synergies from its universal banking model. The Pivot to Asia strategy is being executed to capture growth opportunities in China's Pearl River Delta, in the Association of Southeast Asian Nations, and in the Asian Asset Management and Insurance businesses.

· The Group continues to play a leading role in the Internationalisation of the renminbi, being able to grow revenues and demonstrate several market firsts during 2015, such as the first Panda bond issued by a foreign bank in mainland China.

Global Standards including risk and compliance

· The Committee was advised that the Group has continued to make progress in the implementation of Global Standards, including completion of certain milestones related to customer due diligence, transaction monitoring and sanctions screening. In addition, the global businesses are focusing on increasing operational impact and improving consistency across geographies to support the implementation of global AML and sanctions policies.

· During 2015, the Global Standards programme assurance function has been strengthened to provide additional insight into programme outcomes and effectiveness. This has resulted in enhanced visibility of potential risks and compliance weaknesses and has enabled proactive mitigating actions.

· The Committee recognised that the Group had progressed with the implementation of other compliance and regulatory programmes in addition to Global Standards, including global stress testing, ring-fencing and global conduct (e.g. development of Conduct Management Information Dashboard). The Committee further noted favourable trends in customer redress, regulatory fines and regulatory provisions.

· However, the Committee exercised its discretion and reduced the assessment from 75% to 60%. This was based on feedback received from the Monitor, matters arising from risk and compliance incidents, and the number and extent of unsatisfactory internal audits covering AML and sanctions related issues.

Measure

Grow both business and dividends

15

Judgement - see commentary

90

13.5

Global Standards including risk and compliance

50

Judgement - see commentary

75

37.5

Streamline processes and procedures

25

Judgement - see commentary

88

21.9

Strategic priorities

90

72.9

People

10

Judgement - see commentary

72

7.2

Promoting HSBC Values

Over-riding test

Met

Total

100

80.1

STRATEGIC PRIORITIES

Grow both business and dividends

· Assessed the contribution of the Global Finance function in setting the framework to track progress against the 10 Strategic Actions, and its on-going partnership and support to global businesses on initiatives orientated to the reduction of Group RWAs and revenue generation programmes.

Global Standards including risk and compliance

· Noted the progress towards compliance with regulatory requirements and implementing Global Standards. This was evidenced by the successful execution of the 2015 PRA stress test and the reporting on revised 'Delegated Act' basis of the liquidity coverage ratio, as well as by Finance's tax transparency engagement with global businesses' clients.

Streamline processes and procedures

· Recognised the support that the Global Finance function has provided to global businesses and functions on key streamlining and cost saving initiatives, as well as the progress on its own Finance Transformation Programme.

People

· Noted the full implementation of the revised Finance Operating Model as well as the delivery of accelerated development programmes to targeted Finance populations.

· The sustained work of the Global Finance function on improving gender diversity was also noted.

Weighting

%

Target

$bn

Performance

$bn

Assessment

%

Outcome

%

Measure

Grow both business and dividends

20

Judgement - see commentary

85

17.0

Global Standards including risk and compliance

50

Judgement - see commentary

45

22.5

Streamline processes and procedures

20

Judgement - see commentary

75

15.0

Strategic priorities

90

54.5

People

10

Judgement - see commentary

75

7.5

Promoting HSBC Values

Over-riding test

Met

Total

100

62.0

STRATEGIC PRIORITIES

Grow both business and dividends

· Recognised the use of risk appetite statements to enable a sustainable business, and the provision of resources to support business growth (e.g., each global business has a formal governance process around the management of RWAs).

Global Standards including risk and compliance

· Continued progress towards driving strategic priorities for Global Standards, progressing compliance with regulatory requirements, and de-risking the organisation. Activity has continued at pace ensuring delivery of the Regulatory Compliance Framework.

· We continue to prioritise our efforts on material inherent risk areas and implement targeted governance and remediation efforts.

· However, the Committee exercised its discretion and reduced the assessment from 75% to 45%. This was based on feedback received from the Monitor, matters arising from risk and compliance incidents, and the number and extent of unsatisfactory internal audits covering AML and sanctions related issues.

Streamline processes and procedures

· These objectives have progressed, supported by the management of business performance, delivery of key transformation initiatives, and re-engineering of policies, procedures and systems.

· For example, credit risk management was significantly strengthened through the implementation of multiple new policies on collections, allowances, stress testing, approval authorities and products.

· One significant structural change was the announcement of a new development in risk analytics at HSBC: the creation of a centralised team called Global Risk Analytics.

People

· The execution of the pay and performance plans, as well as the learning and development plans which were part of the comprehensive people strategy for the Global Risk function were noted.

· Key initiatives include the first Aspiring CRO programme and further investment in the three lines of defence.

Value (£000)

3,575

2,000

2,000

GPSP

Maximum multiple of fixed pay

1.33

1.33

1.33

Performance outcome

41.3%

41.3%

41.3%

Multiple awarded

0.55

0.55

0.55

Value (£000)

1,969

1,101

1,101

Weighting

%

Long-term target range

Actual 2015

performance

Assessment

%

Outcome

%

Measure

Return on equity

20

>10%

7.2%

-

-

Jaws1

20

Positive adjusted

(3.7%)

-

-

Grow dividends2

20

Progressive

Progressive

75

15.0

Financial

60

15.0

Strategy execution

15

75

11.3

Global standards including risk and compliance

25

60

15.0

Non-financial

40

26.3

Total performance outcome

100

41.3

FINANCIAL

Return on equity

· In February 2015, the Group announced an updated medium-term return on equity target of greater than 10%. The Group did not achieve the stated target in 2015, with return on equity decreasing from 7.3% in 2014 to 7.2% for the year.

· Significant items, including fines, penalties, UK customer redress and associated provisions, as well as the UK bank levy, continue to have a significant effect, reducing our return on equity in 2015 by 190 basis points.

· The Committee acknowledged the progress being made to implement the 10 strategic actions announced at the June 2015 Investor Update which are being undertaken to improve the return on equity. However, the Committee decided not to make any award under this opportunity.

Jaws

· The Group targeted the achievement of positive adjusted jaws in 2015. As this target was not met, the Committee judged that no award should be made under this element of the scorecard.

· The Group's ability to generate revenue growth was affected by a slowdown in global trade, reflecting reduced commodity prices, and weaker investor sentiment in the second half of 2015 following stock market corrections in Asia. Operating expenses increased, as expected, reflecting wage inflation, continuing investment in strategic growth areas and in regulatory programmes and compliance.

· The Committee noted positive momentum on costs in the second half of the year, with cost growth slowing and a reduction in staff numbers. This was achieved through a strong focus on cost management and the initial effect of our cost saving programmes.

Grow dividends

· The Group is committed to increasing the dividends we pay to shareholders each year, measured by dividends per ordinary share in respect of the year. Prospective dividend growth remains dependent upon the long term overall profitability of the Group and delivering further release of less efficiently deployed capital. Actions to address these points are core elements of the Investor Update provided in June 2015.

· The Group was able to increase the dividend per ordinary share in 2015 as well as improve its capital position. The Group's strong capital position supports its capacity to generate dividend growth, despite a challenging operating environment.

NON-FINANCIAL

Strategy execution

· The Group outlined 10 Strategic Actions at the June 2015 Investor Update to re-size and simplify the Group and redeploy resources to capture future growth opportunities.

· There was strong progress in driving reductions in RWAs, with 45% of the targeted 2017 RWA reduction delivered to date. The Group is implementing several transformation programmes to streamline the cost base, and it was noted that more work is required to meet related medium-term targets in this regard.

· The Group has set the foundations for further growth in Asia, investing in select locations, for example, the Pearl River Delta in mainland China and in products, including Insurance and asset management. The Committee also noted the Group's role in driving the internationalisation of the renminbi and business scale in ASEAN.

Global Standards including risk and compliance

· The Group published Global Standards for AML and sanctions compliance in all countries and progressed the implementation of enhanced controls and related data initiatives. Significant effort continues towards embedding the enhanced standards and controls and improving operational effectiveness.

· The Committee noted progress made, and that material work remains to comply fully with enhanced Global Standards by the end of 2017.

· However, the Committee exercised its discretion and the assessment was reduced from 75% to 60%. This was based on feedback received from the Monitor, matters arising from risk and compliance incidents, and the number and extent of unsatisfactory internal audits covering AML and sanctions related issues.

Fees

Benefits9

Total

2015

2014

2015

2014

2015

2014

£000

£000

£000

£000

£000

£000

Phillip Ameen1

403

-

13

-

416

-

Kathleen Casey

155

129

29

12

184

141

Safra Catz2

95

95

4

4

99

99

Laura Cha3

238

197

14

22

252

219

Lord Evans of Weardale

190

167

9

14

199

181

Joachim Faber

145

145

14

10

159

155

Rona Fairhead4

510

494

14

19

524

513

Sam Laidlaw

174

140

13

-

187

140

Irene Lee5

184

-

2

-

186

-

John Lipsky

180

168

49

27

229

195

Rachel Lomax

253

205

11

21

264

226

Heidi Miller6

175

52

31

-

206

52

Sir Simon Robertson

195

260

12

6

207

266

Jonathan Symonds7

520

365

1

3

521

368

Pauline van der Meer Mohr8

32

-

5

-

37

-

Total

3,449

2,417

221

138

3,670

2,555

Total ($000)

5,274

3,979

338

229

5,609

4,208

Type of interest awarded

Basis on whichaward made

Dates of award

Face value

awarded1

£000

Percentage

receivable

for minimum

performance2

Number of

shares

awarded

Share price

on date

of grant1

End of performance period

Stuart Gulliver

Deferred cash

Annual incentive 2014

2 Mar 2015

387

-

n/a

n/a

31 Dec 2014

Stuart Gulliver

Deferred shares

Annual incentive 2014

2 Mar 2015

387

-

67,016

£5.773

31 Dec 2014

Stuart Gulliver

Deferred shares

GPSP 2014

2 Mar 2015

2,112

-

365,864

£5.773

31 Dec 2014

Iain Mackay

Deferred cash

Annual incentive 2014

2 Mar 2015

260

-

n/a

n/a

31 Dec 2014

Iain Mackay

Deferred shares

Annual incentive 2014

2 Mar 2015

260

-

45,037

£5.773

31 Dec 2014

Iain Mackay

Deferred shares

GPSP 2014

2 Mar 2015

1,131

-

195,969

£5.773

31 Dec 2014

Marc Moses

Deferred cash

Annual incentive 2014