Employee compensation and benefits

12 Months Ended

Dec. 31, 2021

Employee Compensation And Benefits [Abstract]

Employee compensation and benefits

5 Employee compensation and benefits

	2021	2020	2019
	$m	$m	$m
Employee compensation and benefits	18,742	18,076	18,002
Capitalised wages and salaries	870	1,320	1,475
Gross employee compensation and benefits for the year ended 31 Dec	19,612	19,396	19,477
Consists of:
Wages and salaries	17,072	17,072	17,056
Social security costs	1,503	1,378	1,472
Post-employment benefits	1,037	946	949
Year ended 31 Dec	19,612	19,396	19,477

Employee compensation and benefits are presented net of software capitalisation costs in the income statement. During 2021, the allocation methodology for internally capitalised software costs between ‘employee compensation and benefits’ and ‘general administrative expenses’ has been updated to better reflect the underlying costs being capitalised.

Average number of persons employed by HSBC during the year by global business
	2021	2020	2019
Wealth and Personal Banking	138,026	144,615	148,680
Commercial Banking	44,992	45,631	46,584
Global Banking and Markets	48,179	49,055	51,313
Corporate Centre	359	411	478
Year ended 31 Dec	231,556	239,712	247,055

Average number of persons employed by HSBC during the year by geographical region
	2021	2020	2019
Europe	60,919	64,886	66,392
Asia	127,673	129,923	133,624
Middle East and North Africa	9,329	9,550	9,798
North America	13,845	15,430	16,615
Latin America	19,790	19,923	20,626
Year ended 31 Dec	231,556	239,712	247,055

Reconciliation of total incentive awards granted to income statement charge
	2021	2020	2019
	$m	$m	$m
Total incentive awards approved for the current year	3,495	2,659	3,341
Less: deferred bonuses awarded, expected to be recognised in future periods	(379)	(239)	(337)
Total incentives awarded and recognised in the current year	3,116	2,420	3,004
Add: current year charges for deferred bonuses from previous years	270	286	327
Other	4	2	(55)
Income statement charge for incentive awards	3,390	2,708	3,276

Share-based payments

‘Wages and salaries’ includes the effect of share-based payments arrangements, of which $467m was equity settled (2020: $434m; 2019: $478m), as follows:

	2021	2020	2019
	$m	$m	$m
Conditional share awards	479	411	521
Savings-related and other share award option plans	27	51	30
Year ended 31 Dec	506	462	551

HSBC share awards
Award	Policy
Deferred share awards (including annual incentive awards, LTI awards delivered in shares) and Group Performance Share Plans (‘GPSP’)	An assessment of performance over the relevant period ending on 31 December is used to determine the amount of the award to be granted. • Deferred awards generally require employees to remain in employment over the vesting period and are generally not subject to performance conditions after the grant date. An exception to these are the LTI awards, which are subject to performance conditions. • Deferred share awards generally vest over a period of three, five or seven years. • Vested shares may be subject to a retention requirement post-vesting. • Awards are subject to malus and clawback provisions.
International Employee Share Purchase Plan (‘ShareMatch’)	The plan was first introduced in Hong Kong in 2013 and now includes employees based in 28 jurisdictions. • Shares are purchased in the market each quarter up to a maximum value of £750, or the equivalent in local currency. • Matching awards are added at a ratio of one free share for every three purchased (in mainland China matching awards are settled in cash). • Matching awards vest subject to continued employment and the retention of the purchased shares for a maximum period of two years and nine months.

Movement on HSBC share awards
	2021	2020
	Number	Number
	(000s)	(000s)
Conditional share awards outstanding at 1 Jan	103,473	97,055
Additions during the year	75,549	72,443
Released in the year	(63,635)	(60,673)
Forfeited in the year	(6,023)	(5,352)
Conditional share awards outstanding at 31 Dec	109,364	103,473
Weighted average fair value of awards granted ($)	6.49	7.28

HSBC share option plans
Main plans	Policy
Savings-related share option plans (‘Sharesave’)	• From 2014, employees eligible for the UK plan could save up to £500 per month with the option to use the savings to acquire shares. •These are generally exercisable within six months following either the third or fifth anniversary of the commencement of a three-year or five-year contract, respectively. •The exercise price is set at a 20% (2020: 20%) discount to the market value immediately preceding the date of invitation.

Calculation of fair values

The fair values of share options are calculated using a Black-Scholes model. The fair value of a share award is based on the share price at the date of the grant.

Movement on HSBC share option plans
	Savings-related share option plans
	Number	WAEP1
	(000s)	£
Outstanding at 1 Jan 2021	130,953	2.97
Granted during the year2	15,410	3.15
Exercised during the year3	(3,878)	3.80
Expired during the year	(11,502)	3.53
Forfeited during the year	(7,786)	3.97
Outstanding at 31 Dec 2021	123,197	2.85
– of which exercisable	4,949	4.05
Weighted average remaining contractual life (years)	3.02
Outstanding at 1 Jan 2020	65,060	4.81
Granted during the year2	111,469	2.63
Exercised during the year3	(1,387)	4.48
Expired during the year	(43,032)	4.81
Forfeited during the year	(1,158)	4.88
Outstanding at 31 Dec 2020	130,953	2.97
– of which exercisable	8,170	4.50
Weighted average remaining contractual life (years)	3.68

1    Weighted average exercise price.

2    The weighted average fair value of options granted during the year was $0.85 (2020: $0.47).

3    The weighted average share price at the date the options were exercised was $5.87 (2020: $7.08).

Post-employment benefit plans

The Group operates pension plans throughout the world for its employees. ‘Pension risk management processes’ on page 228 contains details of the policies and practices associated with these pension plans, some of which are defined benefit plans. The largest defined benefit plan is the HBUK section of the HSBC Bank (UK) Pension Scheme (‘the principal plan’), created as a result of the HSBC Bank (UK) Pension Scheme being fully sectionalised in 2018 to meet the requirements of the Banking Reform Act.

HSBC holds on its balance sheet the net surplus or deficit, which is the difference between the fair value of plan assets and the discounted value of scheme liabilities at the balance sheet date for each plan. Surpluses are only recognised to the extent that they are recoverable through reduced contributions in the future or through potential future refunds from the schemes. In assessing whether a surplus is recoverable, HSBC has considered its current right to obtain a future refund or a reduction in future contributions together with the rights of third parties such as trustees.

The principal plan

The principal plan has a defined benefit section and a defined contribution section. The defined benefit section was closed to future benefit accrual in 2015, with defined benefits earned by employees at that date continuing to be linked to their salary while they remain employed by HSBC. The plan is overseen by an independent corporate trustee, who has a fiduciary responsibility for the operation of the plan. Its assets are held separately from the assets of the Group.

The investment strategy of the plan is to hold the majority of assets in bonds, with the remainder in a diverse range of investments. It also includes some interest rate swaps to reduce interest rate risk, inflation swaps to reduce inflation risk and longevity swaps to reduce the impact of longer life expectancy.

The latest funding valuation of the plan at 31 December 2019 was carried out by Colin G Singer of Willis Towers Watson Limited, who is a Fellow of the UK Institute and Faculty of Actuaries, using the projected unit credit method. At that date, the market value of the plan’s assets was £31.1bn ($41.1bn) and this exceeded the value placed on its liabilities on an ongoing basis by £2.5bn ($3.3bn), giving a funding level of 109%. These figures include defined contribution assets amounting to £2.4bn ($3.2bn). The main differences between the assumptions used for assessing the defined benefit liabilities for this funding valuation and those used for IAS 19 are more prudent assumptions for discount rate, inflation rate and life expectancy. The next funding valuation will have an effective date of 31 December 2022.

Although the plan was in surplus at the valuation date, HSBC continued to make separately committed lump sum contributions and the final such contribution of £160m ($218m) was paid in 2021. The main employer of the principal plan is HSBC UK Bank plc, with additional support from HSBC Holdings plc. The HSBC Bank (UK) Pension Scheme is fully sectionalised and no entities outside the ring fence participate in the HBUK section.

The actuary also assessed the value of the liabilities if the plan were to have been stopped and an insurance company asked to secure all future pension payments. This is generally larger than the amount needed on the ongoing basis described above because an insurance company would use more prudent assumptions and include an explicit allowance for the future administrative expenses of the plan. Under this approach, the amount of assets needed was estimated to be £33bn ($44bn) at 31 December 2019.

Guaranteed minimum pension equalisation

Following a judgment issued by the High Court of Justice of England and Wales in 2018, we estimated the financial effect of equalising benefits in respect of guaranteed minimum pension (‘GMP’) equalisation, and any potential conversion of GMPs into non-GMP benefits, to be an approximate 0.9% increase in the principal plan’s liabilities, or £187m ($239m). This was recognised in the income statement in 2018. A further judgment by the High Court on 20 November 2020 ruled that GMPs should also be equalised for those who had previously transferred benefits from the principal plan to another arrangement, with £13m ($17m) consequently being recognised in 2020. We continue to assess the impact of GMP equalisation.

Income statement charge
	2021	2020	2019
	$m	$m	$m
Defined benefit pension plans	243	146	176
Defined contribution pension plans	767	775	758
Pension plans	1,010	921	934
Defined benefit and contribution healthcare plans	27	25	15
Year ended 31 Dec	1,037	946	949

Net assets/(liabilities) recognised on the balance sheet in respect of defined benefit plans
	Fair value of plan assets	Present value of defined benefit obligations	Effect of limit on plan surpluses	Total
	$m	$m	$m	$m
Defined benefit pension plans	51,431	(42,277)	(23)	9,131
Defined benefit healthcare plans	103	(572)	—	(469)
At 31 Dec 2021	51,534	(42,849)	(23)	8,662
Total employee benefit liabilities (within Note 26 ‘Accruals, deferred income and other liabilities’)				(1,607)
Total employee benefit assets (within Note 22 ‘Prepayments, accrued income and other assets’)				10,269
Defined benefit pension plans	52,990	(43,995)	(44)	8,951
Defined benefit healthcare plans	114	(639)	—	(525)
At 31 Dec 2020	53,104	(44,634)	(44)	8,426
Total employee benefit liabilities (within Note 26 ‘Accruals, deferred income and other liabilities’)				(2,025)
Total employee benefit assets (within Note 22 ‘Prepayments, accrued income and other assets’)				10,450

HSBC HoldingsEmployee compensation and benefit expense in respect of HSBC Holdings’ employees in 2021 amounted to $30m (2020: $56m). The average number of persons employed during 2021 was 54 (2020: 59). A small number of employees are members of defined benefit pension plans. These employees are members of the HSBC Bank (UK) Pension Scheme. HSBC Holdings pays contributions to such plan for its own employees in accordance with the schedules of contributions determined by the trustees of the plan and recognises these contributions as an expense as they fall due.Defined benefit pension plans

Net asset/(liability) under defined benefit pension plans
	Fair value of plan assets		Present value of defined benefit obligations		Effect of the asset ceiling		Net defined benefit asset/(liability)
	Principal1 plan	Other plans	Principal1 plan	Other plans	Principal1 plan	Other plans	Principal1 plan	Other plans
	$m	$m	$m	$m	$m	$m	$m	$m
At 1 Jan 2021	42,505	10,485	(33,005)	(10,990)	—	(44)	9,500	(549)
Service cost	—	—	(55)	(276)	—	—	(55)	(276)
– current service cost	—	—	(14)	(206)	—	—	(14)	(206)
– past service cost and gains/(losses) from settlements	—	—	(41)	(70)	—	—	(41)	(70)
Net interest income/(cost) on the net defined benefit asset/(liability)	613	172	(473)	(174)	—	(1)	140	(3)
Remeasurement effects recognised in other comprehensive income	(377)	7	(271)	471	—	22	(648)	500
– return on plan assets (excluding interest income)	(377)	7	—	—	—	—	(377)	7
– actuarial gains/(losses) financial assumptions	—	—	611	315	—	—	611	315
– actuarial gains/(losses) demographic assumptions	—	—	(447)	64	—	—	(447)	64
– actuarial gains/(losses) experience adjustments	—	—	(435)	92	—	—	(435)	92
– other changes	—	—	—	—	—	22	—	22
Exchange differences	(361)	(94)	283	138	—	—	(78)	44
Benefits paid	(1,396)	(645)	1,396	712	—	—	—	67
Other movements2	400	122	(130)	97	—	—	270	219
At 31 Dec 2021	41,384	10,047	(32,255)	(10,022)	—	(23)	9,129	2
At 1 Jan 2020	37,874	9,693	(30,158)	(10,424)	—	(16)	7,716	(747)
Service cost	—	—	(68)	(172)	—	—	(68)	(172)
– current service cost	—	—	(28)	(184)	—	—	(28)	(184)
– past service cost and losses from settlements	—	—	(40)	12	—	—	(40)	12
Net interest income/(cost) on the net defined benefit asset/(liability)	726	233	(575)	(245)	—	—	151	(12)
Remeasurement effects recognised in other comprehensive income	3,173	879	(2,118)	(547)	—	(26)	1,055	306
– return on plan assets (excluding interest income)	3,173	692	—	—	—	—	3,173	692
– actuarial gains/(losses) financial assumptions	—	—	(3,179)	(564)	—	—	(3,179)	(564)
– actuarial gains/(losses) demographic assumptions	—	—	86	49	—	—	86	49
– actuarial gains/(losses) experience adjustments	—	—	975	87	—	—	975	87
– other changes	—	187	—	(119)	—	(26)	—	42
Exchange differences	1,446	249	(1,100)	(387)	—	(2)	346	(140)
Benefits paid	(1,148)	(652)	1,148	727	—	—	—	75
Other movements2	434	83	(134)	58	—	—	300	141
At 31 Dec 2020	42,505	10,485	(33,005)	(10,990)	—	(44)	9,500	(549)

1    For further details of the principal plan, see page 361.

2    Other movements include contributions by HSBC, contributions by employees, administrative costs and taxes paid by plan.

HSBC expects to make $145m of contributions to defined benefit pension plans during 2022. Benefits expected to be paid from the plans to retirees over each of the next five years, and in aggregate for the five years thereafter, are as follows:

Benefits expected to be paid from plans
	2022	2023	2024	2025	2026	2027-2031
	$m	$m	$m	$m	$m	$m
The principal plan1,2	1,444	1,491	1,542	1,592	1,644	9,070
Other plans1	474	473	460	459	453	2,325

1    The duration of the defined benefit obligation is 17.3 years for the principal plan under the disclosure assumptions adopted (2020: 17.4 years) and 12.7 years for all other plans combined (2020: 13.5 years).

2    For further details of the principal plan, see page 361.

Fair value of plan assets by asset classes
	31 Dec 2021				31 Dec 2020
	Value	Quoted market price in active market	No quoted market price in active market	Thereof HSBC1	Value	Quoted market price in active market	No quoted market price in active market	Thereof HSBC1
	$m	$m	$m	$m	$m	$m	$m	$m
The principal plan2
Fair value of plan assets	41,384	36,270	5,114	1,037	42,505	37,689	4,816	973
– equities3	197	5	192	—	268	7	261	—
– bonds4	36,295	35,612	683	—	36,198	35,479	719	—
– derivatives	1,864	—	1,864	1,037	1,973	—	1,973	973
– property	1,094	—	1,094	—	1,106	—	1,106	—
– other5	1,934	653	1,281	—	2,960	2,203	757	—
Other plans
Fair value of plan assets	10,047	8,248	1,799	52	10,485	9,512	973	54
– equities	892	668	224	5	1,484	1,069	415	3
– bonds	7,080	6,490	590	5	7,624	7,143	481	10
– derivatives	7	(13)	20	—	(57)	—	(57)	—
– property	123	119	4	—	192	157	35	—
– other	1,945	984	961	42	1,242	1,143	99	41

1    The fair value of plan assets includes derivatives entered into with HSBC Bank plc as detailed in Note 35.

2    For further details on the principal plan, see page 361.

3    Includes $192m (2020: $261m) in relation to private equities.

4    Principal plan bonds includes fixed income bonds of $18,315m (2020: $17,730m) and index-linked bonds of $18,160m (2020: $18,468m).

5 Other includes $0m (2020: $696m) of pooled investment vehicles with quoted underlying assets and $1,281m (2020: $757m) of pooled investment vehicles with unquoted underlying assets.

Post-employment defined benefit plans’ principal actuarial financial assumptions

HSBC determines the discount rates to be applied to its obligations in consultation with the plans’ local actuaries, on the basis of current average yields of high-quality (AA-rated or equivalent) debt instruments with maturities consistent with those of the defined benefit obligations.

Key actuarial assumptions for the principal plan1
	Discount rate	Inflation rate (RPI)2	Inflation rate (CPI)2	Rate of increase for pensions	Rate of pay increase
	%	%	%	%	%
UK
At 31 Dec 2021	1.90	3.45	3.20	3.30	3.45
At 31 Dec 2020	1.45	3.05	2.50	3.00	2.75

1    For further details on the principal plan, see page 361.

2 Due to the significant difference between short-term and long-term inflation expectations that has developed over 2021, HSBC UK has changed the methodology of setting inflation-related assumptions to fully and separately reflect how benefits are linked to RPI inflation and CPI inflation respectively. For example, the revaluation of deferred pensions is driven by CPI inflation expectations in the short to medium term, whereas increases to pensions in payment are driven by RPI inflation expectations over the long term.

Mortality tables and average life expectancy at age 60 for the principal plan1
	Mortality table	Life expectancy at age 60 for a male member currently:		Life expectancy at age 60 for a female member currently:
		Aged 60	Aged 40	Aged 60	Aged 40
UK
At 31 Dec 2021	SAPS S32	27.3	28.8	28.5	30.1
At 31 Dec 2020	SAPS S32	27.0	28.5	28.1	29.7

1    For further details of the principal plan, see page 361.

2    Self-administered pension scheme (‘SAPS’) S3 table, with different tables and multipliers adopted based on gender, pension amount and member status, reflecting the Scheme’s actual mortality experience. Improvements are projected in accordance with the Continuous Mortality Investigation’s CMI 2020 core projection model with an initial addition to improvement of 0.25% per annum and a long-term rate of improvement of 1.25% per annum.

The effect of changes in key assumptions on the principal plan1
	Impact on HBUK section of the HSBC Bank (UK) Pension Scheme obligation2
	Financial impact of increase		Financial impact of decrease
	2021	2020	2021	2020
	$m	$m	$m	$m
Discount rate – increase/decrease of 0.25%	(1,337)	(1,383)	1,425	1,475
Inflation rate (RPI and CPI) – increase/decrease of 0.25%	1,211	871	(980)	(830)
Pension payments and deferred pensions – increase/decrease of 0.25%	1,267	1,307	(1,177)	(1,222)
Pay – increase/decrease of 0.25%	20	60	(20)	(59)
Change in mortality – increase of 1 year	1,387	1,453	N/A	N/A

1    For further details of the principal plan, see page 361.

2 Sensitivities allow for HSBC UK’s convention of rounding pension assumptions to the nearest 0.05%.

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this in unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the defined benefit asset recognised in the balance sheet. The methods and types of assumptions used in preparing the sensitivity analysis did not change compared with the prior period.

Directors’ emoluments

Details of Directors’ emoluments, pensions and their interests are disclosed in the Directors’ remuneration report on page 290.