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Employee compensation and benefits
 12 Months Ended
Dec. 31, 2017
Employee Compensation And Benefits [Abstract]  
Employee compensation and benefits
5
Employee compensation and benefits
 
2017

2016

2015

 
$m

$m

$m

Wages and salaries
15,227

15,735

17,245

Social security costs
1,419

1,312

1,600

Post-employment benefits
669

1,042

1,055

Year ended 31 Dec
17,315

18,089

19,900

Average number of persons employed by HSBC during the year by global business

2017

2016

2015

Retail Banking and Wealth Management
134,021

137,234

155,859

Commercial Banking
46,716

45,912

51,007

Global Banking and Markets
49,100

47,623

49,912

Global Private Banking
7,817

8,322

8,934

Corporate Centre
7,134

7,842

2,721

Year ended 31 Dec
244,788

246,933

268,433

Average number of persons employed by HSBC during the year by geographical region
 
2017

2016

2015

Europe
70,301

71,196

68,408

Asia
125,004

122,282

121,438

Middle East and North Africa
10,408

12,021

14,467

North America
18,610

20,353

21,506

Latin America
20,465

21,081

42,614

Year ended 31 Dec
244,788

246,933

268,433

Reconciliation of total incentive awards granted to income statement charge

2017

2016

2015


$m

$m

$m

Total incentive awards approved for the current year
3,303

3,035

3,462

Less: deferred bonuses awarded, expected to be recognised in future periods
(337
)
(323
)
(387
)
Total incentives awarded and recognised in the current year
2,966

2,712

3,075

Add: current year charges for deferred bonuses from previous years
336

371

483

Other
(78
)
(128
)
(40
)
Income statement charge for incentive awards
3,224

2,955

3,518

Year in which income statement is expected to reflect deferred bonuses

Charge recognised
Expected charge

2017

2016

2015

2018

2019 and beyond


$m

$m

$m

$m

$m

Variable compensation from 2017 bonus pool
162

—

—

162

175

Variable compensation from 2016 bonus pool
126

152

—

109

84

Variable compensation from 2015 bonus pool and earlier
210

168

253

82

21

Total
498

320

253

353

280

Cash awards
184

114

67

117

99

Equity awards
314

206

186

236

181

Share-based payments
‘Wages and salaries’ includes the effect of share-based payments arrangements, of which $500m were equity settled (2016: $534m; 2015: $757m), as follows:
 
2017
2016
2015
 
$m
$m
$m
Restricted share awards
520
591
748
Savings-related and other share award option plans
26
33
43
Year ended 31 Dec
546
624
791
HSBC share awards
Award
Policy
Deferred share awards (including annual incentive awards, LTI awards delivered in shares) and 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 not subject to performance conditions after the grant date.
•    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. GPSP awards are retained until cessation of employment.
•    Awards granted from 2010 onwards are subject to a malus provision prior to vesting.
•    Awards granted to Material Risk Takers from 2015 onwards are subject to clawback post vesting.
International Employee Share Purchase Plan (‘ShareMatch’)
•    The plan was first introduced in Hong Kong in 2013 and now includes employees based in 27 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.
•    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
 
2017

2016

 
Number

Number

 
(000s)

(000s)

Restricted share awards outstanding at 1 Jan
123,166

118,665

Additions during the year
62,044

94,981

Released in the year
(76,051
)
(76,552
)
Forfeited in the year
(4,634
)
(13,928
)
Restricted share awards outstanding at 31 Dec
104,525

123,166

Weighted average fair value of awards granted ($)
7.09

7.25

HSBC share option plans
Main plans
Policy
Savings-related share option plans (‘Sharesave’)
•    Two plans: the UK Plan and the International Plan. The last grant of options under the International Plan was in 2012.
•    From 2014, eligible employees can save up to £500 per month with the option to use the savings to acquire shares.
•    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% (2016: 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

 
Footnotes
(000s)

£

Outstanding at 1 Jan 2017
 
70,027

4.30

Granted during the year
2
10,447

5.96

Exercised during the year
3
(9,503
)
4.83

Expired during the year
 
(3,902
)
4.45

Forfeited during the year
 
(2,399
)
4.27

Outstanding at 31 Dec 2017
 
64,670

4.49

Of which exercisable
 
1,129

5.00

Weighted average remaining contractual life (years)
 
2.42

 
 
 
 
 
Outstanding at 1 Jan 2016
 
74,775

4.36

Granted during the year
2
15,044

4.40

Exercised during the year
3
(4,354
)
5.02

Expired during the year
 
(13,243
)
4.49

Forfeited during the year
 
(2,195
)
4.34

Outstanding at 31 Dec 2016
 
70,027

4.30

Of which exercisable
 
1,086

5.25

Weighted average remaining contractual life (years)
 
2.91

 
1
Weighted average exercise price.
2
The weighted average fair value of options granted during the year was $1.29 (2016: $1.28).
3
The weighted average share price at the date the options were exercised was $9.93 (2016: $6.98).
Post-employment benefit plans
The Group operates pension plans throughout the world for its employees. ‘Pension risk management’ on page 120 contains details of the policies and practices associated with these pension plans. Some are defined benefit plans, of which the largest is the HSBC Bank (UK) Pension Scheme (‘the principal plan’).
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 Bank. 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 and inflation swaps to reduce inflation risk.
The latest funding valuation of the plan at 31 December 2014 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 £24.6bn ($30.3bn) and this exceeded the value placed on its liabilities on an ongoing basis by £520m ($641m), giving a funding level of 102%. The main differences between the assumptions used for assessing the liabilities for this funding valuation and those used for IAS 19 are more prudent assumptions for discount rate, inflation rate and life expectancy.
Although the plan was in surplus at the valuation date, HSBC agreed to make further contributions to the plan to support a lower-risk investment strategy over the longer term. The remaining contributions are £64m ($79m) in each of 2018 and 2019, and £160m ($197m) in each of 2020 and 2021.
To meet the requirements of the Banking Reform Act, it is currently planned that from 1 July 2018, the main employer of the plan will change from HSBC Bank plc to HSBC UK Bank plc, with additional support from HSBC Holdings plc. At the same time, non-ring fenced entities including HSBC Bank plc will exit the section of the plan for ring-fenced entities and join a newly created section for the future defined benefit and defined contribution pension benefits of their employees (approximately 0.2% of the total plan). These changes are not expected to materially affect the funding position of the plan.
The following chart shows the expected profile of future benefits payable from the plan.
Future benefit payments ($bn)
chart-edfa68fd4369a61a5a4.jpg
The actuary also assessed the value of the liabilities if the plan were to be 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 £31bn ($38bn) at 31 December 2014.
Income statement charge
 
2017

2016

2015

 
$m

$m

$m

Defined benefit pension plans
100

218

256

Defined contribution pension plans
603

783

793

Pension plans
703

1,001

1,049

Defined benefit and contribution healthcare plans
(34
)
41

6

Year ended 31 Dec
669

1,042

1,055

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
47,265

(40,089
)
(37
)
7,139

Defined benefit healthcare plans
124

(663
)
—

(539
)
At 31 Dec 2017
47,389

(40,752
)
(37
)
6,600

Total employee benefit liabilities (within ‘Accruals, deferred income and other liabilities’)






(2,152
)
Total employee benefit assets (within ‘Prepayments, accrued income and other assets’)






8,752

 
 
 
 
 
Defined benefit pension plans
42,397

(39,747
)
(24
)
2,626

Defined benefit healthcare plans
118

(711
)
—

(593
)
At 31 Dec 2016
42,515

(40,458
)
(24
)
2,033

Total employee benefit liabilities (within ‘Accruals, deferred income and other liabilities’)
 
 
 
(2,681
)
Total employee benefit assets (within ‘Prepayments, accrued income and other assets’)
 
 
 
4,714

HSBC Holdings
Employee compensation and benefit expense in respect of HSBC Holdings’ employees in 2017 amounted to $54m (2016: $570m). The average number of persons employed during 2017 was 55 (2016: 1,660). Employees who are members of defined benefit pension plans are principally members of either the HSBC Bank (UK) Pension Scheme or the HSBC International Staff Retirement Benefits Scheme. HSBC Holdings pays contributions to such plans for its own employees in accordance with the schedules of contributions determined by the trustees of the plans and recognises these contributions as an expense as they fall due.
From 1 July 2016 employment costs of most employees are recognised by the ServCo group and the ServCo group started providing services to HSBC Holdings. HSBC Holdings recognised a management charge of $2,240m (2016 :$406m) for these services which is included under ‘General and administrative expenses’.
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)
 
Principal
plan

Other
plans

Principal
plan

Other
plans

Principal
plan

Other
plans

Principal
plan

Other
plans

 
$m

$m

$m

$m

$m

$m

$m

$m

At 1 Jan 2017
33,442

8,955

(29,279
)
(10,468
)
—

(24
)
4,163

(1,537
)
Current service cost
—

—

(65
)
(160
)
—

—

(65
)
(160
)
Past service cost and gains/(losses) from settlements
—

(833
)
(231
)
1,051

—

—

(231
)
218

Service cost
—

(833
)
(296
)
891

—

—

(296
)
58

Net interest income/(cost) on the net defined benefit asset/(liability)
864

272

(750
)
(300
)
—

(1
)
114

(29
)
Re-measurement effects recognised in other comprehensive income
1,410

784

1,730

(486
)
—

(9
)
3,140

289

– return on plan assets (excluding interest income)
1,410

784

—

—

—

—

1,410

784

– actuarial gains/(losses)
—

—

954

(491
)
—

(9
)
954

(500
)
– other changes
—

—

776

5

—

—

776

5

Exchange differences
3,292

239

(2,723
)
(306
)
—

(3
)
569

(70
)
Contributions by HSBC
449

236

—

—

—

—

449

236

– normal
58

215

—

—

—

—

58

215

– special
391

21

—

—

—

—

391

21

Contributions by employees
—

27

—

(27
)
—

—

—

—

Benefits paid
(1,143
)
(663
)
1,143

716

—

—

—

53

Administrative costs and taxes paid by plan
(49
)
(17
)
49

17

—

—

—

—

At 31 Dec 2017
38,265

9,000

(30,126
)
(9,963
)
—

(37
)
8,139

(1,000
)
Present value of defined benefit obligation relating to:
 
 
 
 
 
 
 
 
– actives




(5,837
)
(5,084
)








– deferreds




(8,745
)
(1,663
)








– pensioners




(15,544
)
(3,216
)








 
 
 
 
 
 
 
 
 
At 1 Jan 2016
32,670

8,754

(27,675
)
(10,651
)
—

(14
)
4,995

(1,911
)
Current service cost
—

—

(70
)
(235
)
—

—

(70
)
(235
)
Past service cost and gains/(losses) from settlements
—

(1
)
—

(39
)
—

—

—

(40
)
Service cost
—

(1
)
(70
)
(274
)
—

—

(70
)
(275
)
Net interest income/(cost) on the net defined benefit asset/(liability)
1,085

294

(914
)
(337
)
—

(1
)
171

(44
)
Re-measurement effects recognised in other comprehensive income
6,449

671

(6,886
)
(299
)
—

(8
)
(437
)
364

– return on plan assets (excluding interest income)
6,449

671

—

—

—

—

6,449

671

– actuarial gains/(losses)
—

—

(7,029
)
(152
)
—

(8
)
(7,029
)
(160
)
– other changes
—

—

143

(147
)
—

—

143

(147
)
Exchange differences
(6,097
)
(534
)
5,254

410

—

(1
)
(843
)
(125
)
Contributions by HSBC
347

379

—

—

—

—

347

379

– normal
64

207

—

—

—

—

64

207

– special
283

172

—

—

—

—

283

172

Contributions by employees
—

30

—

(30
)
—

—

—

—

Benefits paid
(970
)
(623
)
970

698

—

—

—

75

Administrative costs and taxes paid by plan
(42
)
(15
)
42

15

—

—

—

—

At 31 Dec 2016
33,442

8,955

(29,279
)
(10,468
)
—

(24
)
4,163

(1,537
)
Present value of defined benefit obligation relating to:
 
 
 
 
 
 
 
 
– actives
 
 
(7,066
)
(5,066
)
 
 
 
 
– deferreds
 
 
(9,219
)
(2,306
)
 
 
 
 
– pensioners
 
 
(12,994
)
(3,096
)
 
 
 
 
HSBC expects to make $278m of contributions to defined benefit pension plans during 2018. 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
 
 
 
2018

2019

2020

2021

2022

2023-2027

 
Footnote
$m

$m

$m

$m

$m

$m

The principal plan
1
1,241

1,279

1,320

1,360

1,402

7,692

Other plans
1
443

508

511

527

520

2,307

1
The duration of the defined benefit obligation is 17.4 years for the principal plan under the disclosure assumptions adopted (2016: 19.0 years) and 12.9 years for all other plans combined (2016: 13.9 years).
Fair value of plan assets by asset classes
 
31 Dec 2017
31 Dec 2016
 
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 plan
 
 
 
 
 
 
 
 
Fair value of plan assets
38,265

33,624

4,641

1,006

33,442

29,379

4,063

878

– equities
6,131

5,503

628

—

5,386

4,722

664

—

– bonds
26,591

26,591

—

—

23,426

23,426

—

—

– derivatives
2,398

—

2,398

1,006

2,107

—

2,107

878

– other
3,145

1,530

1,615

—

2,523

1,231

1,292

—

Other plans








 
 
 
 
Fair value of plan assets
9,000

7,737

1,263

114

8,955

7,631

1,324

239

– equities
2,005

1,340

665

—

2,255

1,502

753

—

– bonds
5,871

5,714

157

7

5,811

5,592

219

5

– derivatives
—

39

(39
)
—

(89
)
44

(133
)
(85
)
– other
1,124

644

480

107

978

493

485

319

1
The fair value of plan assets includes derivatives entered into with HSBC Bank plc as detailed in Note 35.
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 plan
 
Discount rate
Inflation rate
Rate of increase for pensions
Rate of pay increase
 
%
%
%
%
UK
 
 
 
 
At 31 Dec 2017
2.60
3.40
3.10
3.88
At 31 Dec 2016
2.50
3.50
3.20
4.00
At 31 Dec 2015
3.70
3.20
3.00
3.70
Mortality tables and average life expectancy at age 65 for the principal plan
 
Mortality
table
Life expectancy at age 65 for
a male member currently:
Life expectancy at age 65 for
a female member currently:
 
 
Aged 65
Aged 45
Aged 65
Aged 45
UK
 
 
 
 
 
At 31 Dec 2017
SAPS S21
22.2
23.6
24.4
25.9
At 31 Dec 2016
SAPS S22
22.4
24.1
24.7
26.6
1
Self-administered pension scheme (‘SAPS’) S2 table (males: 'All Pensioners' version; females: 'Normal Pensions' version) with a multiplier of 0.98 for both male and female pensioners. Improvements are projected in accordance with the Continuous Mortality Investigation (‘CMI’) core projection model 2016 with a long-term rate of improvement of 1.25% per annum. Separate tables assuming lighter mortality have been applied to higher paid pensioners.
2
Self-administered pension scheme (‘SAPS’) S2 table (males: 'All Pensioners' version; females: 'Normal Pensions' version) with a multiplier of 0.98 for both male and female pensioners. Improvements are projected in accordance with the Continuous Mortality Investigation (‘CMI’) core projection model 2015 with a long-term rate of improvement of 1.25% per annum. Separate tables assuming lighter mortality have been applied to higher paid pensioners.
The effect of changes in key assumptions on the principal plan
 
Impact on HSBC Bank (UK) Pension Scheme Obligation
 
Financial impact of increase
Financial impact of decrease
 
2017

2016

2017

2016

 
$m

$m

$m

$m

Discount rate – increase/decrease of 0.25%
(1,246
)
(1,322
)
1,333

1,419

Inflation rate – increase/decrease of 0.25%
850

735

(837
)
(1,048
)
Pension payments and deferred pensions – increase/decrease of 0.25%
1,077

1,305

(1,021
)
(1,255
)
Pay – increase/decrease of 0.25%
62

143

(61
)
(139
)
Change in mortality – increase of 1 year
1,332

1,326

n/a

n/a

Directors’ emoluments
Details of Directors’ emoluments, pensions and their interests are disclosed in the Directors’ Remuneration Report on page 186.