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NAPF backs HSBC’s euro 32 million pay package

UK – The National Association of Pension Funds’ view of the 37.5 million dollar pay package of HSBC’s Bill Aldinger was shared by investors who, at the bank’s annual general meeting on Friday, voted in favour of the remuneration package, despite beliefs that many would oppose the deal.

It had been believed that shareholders would revolt at the HSBC AGM against the 37.5 million dollar (32 million euro) three-year pay package for Bill Aldinger, the bank’s new head of US operations. However, only around 22% of shareholders abstained or opposed the bank’s remuneration report, and only 15% of shareholders abstained or opposed the re-election of Aldinger to the board.

The influential National Association of Pension Funds voiced its support for Aldinger’s pay package through its voting issues service AGM, and advised its members to support the deal. A spokesman at the association explained that the NAPF viewed his remuneration as part of the acquisition deal of US financial group, Household International. HSBC acquired Household International earlier this year, where Aldinger was chief executive.

The NAPF’s voting issues service AGM notes stated: “The terms of William Aldinger's appointment has caused much media comment, particularly covering the generosity of the remuneration package. The company states, by way of explanation, that Aldinger and the Household team are talented executives, experienced in the field of consumer finance. The company also stresses that it wants to retain the services of these executives to ensure the continued success of the business and that their compensation arrangements are not out of line with those of other top US
financial services executives. Shareholders may want to consider the remuneration
package as part of the transaction cost.”

It points out, however: “The issue here is whether the acquisition contributes to the long term growth of shareholder value. If this happens, shareholders may consider the price worth paying, but it could be many years before any judgement can be made.”

PIRC, Pensions Investment and Research Consultants, and the Trades Union Congress (TUC), both recommended their clients oppose Aldinger’s election to HSBC’s board and the remuneration report. Commenting on the results, Alan McDougall, managing director at PIRC, said: “It is disappointing that institutions are not taking a consistent line. Aldinger’s contract breaches the guidelines of a significant number of UK institutions, yet they choose to support it. Avoiding the importation of the worst aspects of US style contract packages is important for the reputation of UK business.”

Whether in agreement or not, many UK industry participants are becoming concerned that the HSBC story will become a precedent, and that UK executives will demand similar pay packages. UK pharmaceutical company GlaxoSmithKline, is rumoured to be transferring its headquarters to the US where high executive pay is more widely accepted, although GSK has denied the claims. Corporate governance has become the focus of many institutional investors in Europe and the US, although experts are critical, claiming it exaggerated. The question raised is whether institutions should be spending more time trying to compensate on negative returns of the last three years, rather than focusing resources on weeding out high executive pays and boardroom cosiness.

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