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Employee compensation and benefits
 12 Months Ended
Dec. 31, 2018
Employee Compensation And Benefits [Abstract]  
Employee compensation and benefits
6
Employee compensation and benefits
 
2018

2017

2016

 
$m

$m

$m

Wages and salaries
14,751

15,227

15,735

Social security costs
1,490

1,419

1,312

Post-employment benefits
1,132

669

1,042

Year ended 31 Dec
17,373

17,315

18,089

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

Footnotes
2018

2017

2016

Retail Banking and Wealth Management
 
135,239

134,021

137,234

Commercial Banking
 
48,757

46,716

45,912

Global Banking and Markets
 
48,990

49,100

47,623

Global Private Banking
 
8,206

7,817

8,322

Corporate Centre
1
1,658

7,134

7,842

Year ended 31 Dec
 
242,850

244,788

246,933

1 The reduction in the average number of people employed was due to the completion of the cost to achieve transformation programme at the end of 2017.
Average number of persons employed by HSBC during the year by geographical region

2018

2017

2016

Europe
67,007

70,301

71,196

Asia
127,992

125,004

122,282

Middle East and North Africa
9,798

10,408

12,021

North America
17,350

18,610

20,353

Latin America
20,703

20,465

21,081

Year ended 31 Dec
242,850

244,788

246,933

Reconciliation of total incentive awards granted to income statement charge
 
2018

2017

2016

 
$m

$m

$m

Total incentive awards approved for the current year
3,473

3,303

3,035

Less: deferred bonuses awarded, expected to be recognised in future periods
(351
)
(337
)
(323
)
Total incentives awarded and recognised in the current year
3,122

2,966

2,712

Add: current year charges for deferred bonuses from previous years
322

336

371

Other
(70
)
(78
)
(128
)
Income statement charge for incentive awards
3,374

3,224

2,955

Year in which income statement is expected to reflect deferred bonuses
 
Charge recognised
Expected charge
 
2018

2017

2016

2019

2020 and beyond

 
$m

$m

$m

$m

$m

Variable compensation from 2018 bonus pool
150

—

—

149

202

Variable compensation from 2017 bonus pool
180

162

—

60

29

Variable compensation from 2016 bonus pool and earlier
142

336

320

111

85

Total
472

498

320

320

316

Cash awards
169

184

114

102

113

Equity awards
303

314

206

218

203

Share-based payments
‘Wages and salaries’ includes the effect of share-based payments arrangements, of which $450m were equity settled (2017: $500m; 2016: $534m), as follows:
 
2018
2017
2016
 
$m
$m
$m
Restricted share awards
499
520
591
Savings-related and other share award option plans
23
26
33
Year ended 31 Dec
522
546
624
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 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
 
2018

2017

 
Number

Number

 
(000s)

(000s)

Restricted share awards outstanding at 1 Jan
104,525

123,166

Additions during the year
61,569

62,044

Released in the year
(67,899
)
(76,051
)
Forfeited in the year
(3,298
)
(4,634
)
Restricted share awards outstanding at 31 Dec
94,897

104,525

Weighted average fair value of awards granted ($)
7.66

7.09

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 could 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% (2017: 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 2018
 
64,670

4.49

Granted during the year
2
20,501

5.45

Exercised during the year
3
(23,260
)
4.14

Expired during the year
 
(3,148
)
5.20

Forfeited during the year
 
(1,698
)
4.53

Outstanding at 31 Dec 2018
 
57,065

4.92

Of which exercisable
 
3,513

4.09

Weighted average remaining contractual life (years)
 
2.59

 
 
 
 
 
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

 
1
Weighted average exercise price.
2
The weighted average fair value of options granted during the year was $1.40 (2017: $1.29).
3
The weighted average share price at the date the options were exercised was $8.28 (2017: $9.93).
Post-employment benefit plans
The Group operates pension plans throughout the world for its employees. ‘Pension risk management’ on page 126 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’).
HSBC’s balance sheet includes the net surplus or deficit, being 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.
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 and inflation swaps to reduce inflation risk.
The latest funding valuation of the plan at 31 December 2016 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 combined assets was £30.2bn ($37.2bn), and this exceeded the value placed on its liabilities on an ongoing basis by £1.3bn ($1.6bn), giving a funding level of 104%. These figures include all sections of the plan and defined contribution assets amounting to £3.1bn ($3.8bn). 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.
Although the plan was in surplus at the valuation date, HSBC continues to make further contributions to the plan to support a lower-risk investment strategy over the longer term. The remaining contributions are £64m ($82m) in 2019, and £160m ($204m) in each of 2020 and 2021.
To meet the requirements of the Banking Reform Act, the main employer of the plan changed from HSBC Bank plc to HSBC UK Bank plc with effect from 1 July 2018, with additional support from HSBC Holdings plc. At the same time, non-ring-fenced entities including HSBC Bank plc exited the section of the plan for ring-fenced entities and joined a newly created section for the future defined benefit and defined contribution pension benefits of their employees. These changes have not materially affected the overall funding position of
the plan.
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 £38bn ($47bn) at 31 December 2016.
Guaranteed minimum pension (‘GMP’) equalisation
On 26 October 2018, the High Court of Justice of England and Wales issued a judgment in a claim between Lloyds Banking Group Pension Trustees Limited as claimant and Lloyds Bank plc and others as defendants regarding the rights of men and women to equal treatment in relation to their benefits from certain pension schemes.
The judgment concluded that the claimant is under a duty to amend the schemes in order to equalise benefits for men and women in relation to GMP benefits. The judgment also provided comments on the method to be adopted in order to equalise benefits, on the period during which a member can claim in respect of previously underpaid benefits, and on what should be done in relation to benefits that have been transferred into, and out of, the relevant schemes.
The issues determined by the judgment arise in relation to many other occupational pension schemes and consequently will result in an increase in the principal plan’s liabilities. We have estimated the financial effect of equalising benefits in respect of GMPs, and any potential conversion of GMPs into non-GMP benefits, to be an approximate 0.8% increase in the plan’s liabilities, or £177m ($226m) on the IAS19 basis as at 31 December 2018. This has been recognised as a past service cost in profit and loss. The estimate was performed based on Method C2, which compares the accumulated benefits, with interest, payable to a member on their ‘own sex’ and an ‘opposite sex’ basis and each year pays the amount necessary to ensure the higher of the two accumulated amounts has been paid.
Income statement charge

2018

2017

2016


$m

$m

$m

Defined benefit pension plans
355

100

218

Defined contribution pension plans
756

603

783

Pension plans
1,111

703

1,001

Defined benefit and contribution healthcare plans
21

(34
)
41

Year ended 31 Dec
1,132

669

1,042

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
42,799

(36,583
)
(35
)
6,181

Defined benefit healthcare plans
110

(524
)
—

(414
)
At 31 Dec 2018
42,909

(37,107
)
(35
)
5,767

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






(2,167
)
Total employee benefit assets (within ‘Prepayments, accrued income and other assets’)






7,934


 
 
 
 
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

HSBC Holdings
Employee compensation and benefit expense in respect of HSBC Holdings’ employees in 2018 amounted to $37m (2017: $54m). The average number of persons employed during 2018 was 43 (2017: 55). 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 $2,428m (2017: $2,240m) 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 2018
38,265

9,000

(30,126
)
(9,963
)
—

(37
)
8,139

(1,000
)
Current service cost
—

—

(66
)
(157
)
—

—

(66
)
(157
)
Past service cost and gains/(losses) from settlements
—

—

(280
)
8

—

—

(280
)
8

Service cost
—

—

(346
)
(149
)
—

—

(346
)
(149
)
Net interest income/(cost) on the net defined benefit asset/(liability)
970

220

(759
)
(249
)
—

(1
)
211

(30
)
Remeasurement effects recognised in other comprehensive income
(1,501
)
(568
)
1,180

413

—

—

(321
)
(155
)
– return on plan assets (excluding interest income)
(1,501
)
(568
)
—

—

—

—

(1,501
)
(568
)
– actuarial gains/(losses)
—

—

1,051

505

—

—

1,051

505

– other changes
—

—

129

(92
)
—

—

129

(92
)
Exchange differences
(2,038
)
(151
)
1,601

86

—

3

(437
)
(62
)
Contributions by HSBC
197

128

—

—

—

—

197

128

– normal
197

128

—

—

—

—

197

128

– special
—

—

—

—

—

—

—

—

Contributions by employees
—

26

—

(26
)
—

—

—

—

Benefits paid
(1,138
)
(538
)
1,138

544

—

—

—

6

Administrative costs and taxes paid by plan
(51
)
(22
)
51

22

—

—

—

—

At 31 Dec 2018
34,704

8,095

(27,261
)
(9,322
)
—

(35
)
7,443

(1,262
)
Present value of defined benefit obligation relating to:
















– actives




(5,337
)
(4,443
)








– deferreds




(8,200
)
(1,589
)








– pensioners




(13,724
)
(3,290
)








 
 
 
 
 
 
 
 
 
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
)
Remeasurement 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
)
 
 
 
 
HSBC expects to make $312m of contributions to defined benefit pension plans during 2019. 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
 


2019

2020

2021

2022

2023

2024 - 2028


Footnotes
$m

$m

$m

$m

$m

$m

The principal plan
1
820

856

911

981

1,004

5,248

Other plans
1
442

517

522

514

469

2,286

1
The duration of the defined benefit obligation is 17.0 years for the principal plan under the disclosure assumptions adopted (2017: 17.4 years) and 13.3 years for all other plans combined (2017: 12.9 years).
Fair value of plan assets by asset classes

31 Dec 2018
31 Dec 2017

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
34,704

31,300

3,404

1,034

38,265

33,624

4,641

1,006

– equities
3,675

3,675

—

—

6,131

5,503

628

—

– bonds
26,509

26,509

—

—

26,591

26,591

—

—

– derivatives
2,030

—

2,030

1,034

2,398

—

2,398

1,006

– other
2,490

1,116

1,374

—

3,145

1,530

1,615

—

Other plans
















Fair value of plan assets
8,095

6,795

1,300

182

9,000

7,737

1,263

114

– equities
1,663

742

921

2

2,005

1,340

665

—

– bonds
5,707

5,559

148

7

5,871

5,714

157

7

– derivatives
37

—

37

—

—

39

(39
)
—

– other
688

494

194

173

1,124

644

480

107

1
The fair value of plan assets includes derivatives entered into with HSBC Bank plc as detailed in Note 36.
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 2018
2.80
3.40
3.10
3.65
At 31 Dec 2017
2.60
3.40
3.10
3.88
At 31 Dec 2016
2.50
3.50
3.20
4.00
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 2018
SAPS S21
21.6
22.9
24.1
25.6
At 31 Dec 2017
SAPS S22
22.2
23.6
24.4
25.9
1
Self-administered pension scheme (‘SAPS’) S2 table (males: 'All pensioners' version; females: 'Normal pensions' version) with a multiplier of 1.05 for male and 1.01 for 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 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.
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
 
2018

2017

2018

2017

 
$m

$m

$m

$m

Discount rate – increase/decrease of 0.25%
(1,097
)
(1,246
)
1,170

1,333

Inflation rate – increase/decrease of 0.25%
734

850

(724
)
(837
)
Pension payments and deferred pensions – increase/decrease of 0.25%
1,172

1,077

(1,105
)
(1,021
)
Pay – increase/decrease of 0.25%
55

62

(56
)
(61
)
Change in mortality – increase of 1 year
1,494

1,332

N/A

N/A

Directors’ emoluments
Details of Directors’ emoluments, pensions and their interests are disclosed in the Directors’ remuneration report on page 217.