HSBC plans to reduce bonuses for its junior staff globally by 22.5 per cent for 2020 as it navigates a difficult operating environment marked by the economic fallout of the coronavirus pandemic and historically low interest rates.
The largest of Hong Kong’s three currency-issuing lenders, HSBC will cut bonuses for its frontline and back office staff who are part of its streamlined variable pay programme in grades 6 to 8, according to an internal memorandum seen by the Post.
“The challenging external environment in 2020 has had a significant impact on business and group performance with reported profit in our Q3 YTD results down 62 per cent and adjusted profit down 44 per cent,” the memo said. “It is appropriate that we adjust the [streamlined variable pay] grid as a result.”
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Variable pay was only reduced by 22.5 per cent to “reflect the exceptional performance of staff in supporting customers and each other and helping to build the bank for the future,” a spokeswoman said. Total compensation for affected employees is mostly flat or slightly up from the previous year as a result, she said.
Employees in the streamlined variable pay programme receive a discretionary bonus in February of the following year based on their performance and behaviour ratings, which is calculated using a formula. Most of its junior staff globally fall within the programme.
For example, top performers in grades 6 to 8 would receive a bonus equivalent to about 2.3 times one month’s salary under the revised formula.
The London-based lender’s employees fall within grades zero to 8, with zero representing its most senior leaders.
The announcement came nearly a month after HSBC’s chief regulator in the United Kingdom said it was comfortable with British lenders resuming shareholder payouts.
HSBC and crosstown rival Standard Chartered were asked to suspend their dividends and share buy-backs in April as part of a coordinated response to the pandemic and its effects on the economy. The move sparked a shareholder revolt in Hong Kong, but their shares have recovered sharply in recent months as the economic outlook has improved.
The bonus cut comes after HSBC, Europe’s biggest bank by assets, and other lenders navigated a difficult operating environment in 2020 as the coronavirus pandemic weighed on growth and forced cities from London to Singapore into months-long lockdowns.
Banks benefited from a favourable trading environment last year as stock markets soared, but also were hit hard as central banks kept interest rates at historic lows to stimulate economies globally.
In the first nine months of the year, HSBC’s profit fell to US$5.2 billion from US$13.7 billion a year earlier. The bank also recorded US$7.6 billion in so-called expected credit losses because of weakening business activity, nearly four times what it set aside a year ago.
New accounting standards adopted by HSBC and its rivals in 2018 require banks to recognise potential credit losses over the life of a loan and more aggressively write down loans if they have experienced a significant increase in credit risk.
In October, HSBC said it now expected to reduce its annual costs to below US$31 billion by 2022, a more ambitious target as the company seeks to eliminate 35,000 jobs as part of a massive restructuring.
But the bank warned at the time it could still face headwinds from the low-interest rate environment, uncertainty surrounding a resurgence of coronavirus cases globally, Britain’s exit from the European Union and geopolitical tensions between Washington and Beijing.
HSBC, which generates much of its profit in Asia, is set to report its full-year results in February.
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