Banker bonus clawbacks yet to bite at HSBC

LONDON, March 4 Mon Mar 4, 2013 1:05pm EST

LONDON, March 4 (Reuters) - HSBC, hit by scandals over lax compliance and product mis-selling last year, clawed back less pay from senior staff during 2012 than in the previous year.

HSBC said it retrieved $700,000 out of $608 million of deferred pay still outstanding for 314 senior staff, as of end-December. That represented 0.1 percent, and was less than the $800,000 the bank clawed back in 2011. It did not say how much it clawed back across the whole bank.

Banks are under pressure from regulators and governments to match pay to performance after the excesses of the financial crisis. Some banks, like HSBC, now have the ability to claw back bonuses paid to staff who have underperformed.

But banks only introduced clawback mechanisms from 2010, so they have limited scope to act on issues that date back before then, such as HSBC's compliance and mis-selling problems.

The bank has said people involved have also left, and that it cut bonuses for 2012 to reflect the damage caused.

HSBC, Europe's largest bank, was fined a record $1.9 billion by U.S. authorities in December for compliance failings in its Mexico and U.S. operations after a long-running investigation, which its chief executive called "shameful."

It also set aside $2.3 billion last year to compensate UK customers mis-sold insurance policies and interest rate hedging products. In December 2011, the bank was handed a record fine for poor investment advice from its NHFA unit to elderly customers.

The bank said last year's clawbacks were mainly related to the UK mis-selling and NHFA issues, and clawbacks had been exercised this year in respect of the U.S. regulatory fines.

But HSBC also acknowledged the legal difficulty of clawing back pay. The bank's remuneration committee only uses external advisers in exceptional circumstances, but last year hired law firm Freshfields Brukhaus Deringer to provide legal advice on the clawback process.

HSBC has said the clawback is a crucial tool in the way banks structure pay, whereby more is often paid in bonuses than fixed salary. In this way, employers can recover bonuses if problems come to light several years after they were paid.

"There is quite a lot of public support for clawback, which can only happen with deferral and deferral can only happen with bonus," HSBC Chairman Douglas Flint told lawmakers last month, saying he regarded deferrals and clawbacks as essential.

The European Union has just agreed a cap on bankers' bonuses, a step critics have said could lead to higher fixed salaries.

HSBC said last year's clawback was from senior management. It did not take back anything from 264 non-senior management who are designated "code staff", an industry definition for people in risk-facing jobs.

Its 314 senior staff earned $529 million in 2012, or an average of $1.7 million each. Almost three-quarters of the pay was variable.