HSBC Bank Malta p.l.c.

Remuneration Policy

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Contents

1.

Purpose and Scope........................................................................................................................

3

2.

Governance.....................................................................................................................................

3

3.

Remuneration Strategy..................................................................................................................

4

4

Remuneration Structure ................................................................................................................

5

5

Reward Review Principles.............................................................................................................

6

6

Performance Management ............................................................................................................

7

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Identified Staff ................................................................................................................................

7

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  1. 1. Purpose and Scope

  2. The Remuneration Policy ('the Policy') is designed to reward competitively the achievement of long-term sustainable performance. It helps to attract, retain and motivate the very best people, regardless of gender, ethnicity, age, disability or any other factor unrelated to performance or experience in line with our Diversity and Inclusion Policy. This policy is designed to attract and motivate the very best people who are committed to maintaining a long-term career with HSBC Bank Malta plc ('the Bank') while at the same time acting in the best interest of our customers, shareholders and other stakeholders.
  3. This Policy is applied to all employees of the Bank.
  1. 2. Governance

  2. The Remuneration and Nomination Committee ('RemNom') oversees the Policy and its application to the Bank's global businesses, global functions, Digital Business Services ('DBS') and country management as well as to all employees. All members of the Committee are independent non-executive Directors of HSBC Bank Malta plc.
  3. RemNom is responsible for recommending to the HSBC Bank Malta plc Board of Directors ('Board') the approvals of the total compensation spend within an annual operating plan.
  4. The Board is responsible for approving the total variable pay pool.
  5. The Board is responsible for approving the general terms and conditions of variable pay awards of certain employees that are captured as Identified Staff as per the Commission Delegated Regulation (EU) 2021/923 which is explained further in section 7 of this document.
  6. The Chief Risk Officer would consult with the Compliance function for identified risks and regularly informs RemNom of risk related issues across the Bank to ensure that such matters are considered by RemNom in applying the Policy and making remuneration decisions for the recommendation to the Board. The Chief Risk Officer also updates the Board on the Bank's performance against the Risk Appetite
    Statement, which describes and measures the amount and types of risk that the Bank is prepared to take in executing its strategy. The Board uses these updates in applying the Policy and considering the risk related adjustments made to the variable pay pool, to ensure that return, risk and remuneration are aligned.
  7. RemNom periodically reviews, but not less than once a calendar year, the adequacy and effectiveness of the Remuneration Policy and ensures that the Policy meets the commercial requirement to remain competitive, is affordable, allows flexibility in response to prevailing circumstances. The remuneration policy must be aligned to regulatory requirements and is consistent with effective risk management after consulting with the Risk and Compliance function.

2.7 The People Committee, in its limited perimeter, made up of the main Senior Executives of HSBC Bank Malta plc (the Chief Executive Officer, Head of Human Resources and Sustainability, Head of Commercial Banking, Head of Wealth and Personal Banking, the Chief Financial Officer, Head of Global Markets, the Chief Risk Officer, the Chief Compliance Officer, Chief Operating Officer, Head of Legal, Company Secretary, Head of Communications, Head of

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Internal Audit), reviews the main aspects of the remuneration policy proposed by the Human Resources function and endorses it. It ensures that this policy fits in with the general principles of the compensation policy set by the HSBC Group for all of its subsidiaries. Lastly, it gives an opinion on the policy's compliance with local professional standards and the recommendations of banking supervisory bodies in Malta such as Malta Financial Services Authority (MFSA) and the European Central Bank (ECB).

  1. 3. Remuneration Strategy

  2. Under the remuneration framework, remuneration decisions are made based on a combination of business results, performance against objectives set out in performance scorecards and general individual performance. In addition, they factor in adherence to the HSBC Purpose & Values, business principles, the Bank's risk-related policies and procedures, and Global Standards. Remuneration adjustments and changes take into account the bank's code of conduct policy and guidelines.
  3. The Bank's Risk Appetite Statement (approved by the Board on the advice of the Risk Committee) is a key component of our risk management framework, and informs the Bank's financial reporting plan.
  4. The People Committee align business objectives based on the financial reporting plan, and the risk objectives based on the qualitative and quantitative metrics in the Risk
    Appetite Statement. These performance scorecards are cascaded from the Bank's
    Executive Committee to business lines and certain functions. The performance scorecard of the Bank's executives will include sustainability objectives to ensure positive impact on business, people and the planet and to establish a robust culture across the Bank.
  5. At the end of each performance year, business results and performance against scorecard objectives, including risk objectives, form the basis of remuneration decisions including the review and approval of the total variable pay pool by RemNom and the Board. This ensures risk management is embedded and forms an integral part of all our activities.

3.5 The performance and reward of individuals in control functions, including risk and compliance

employees, are assessed according to a balanced scorecard of objectives specific to the functional role they undertake, which excludes any performance related metrics. This is to ensure their remuneration is determined independent of the performance of the business areas they oversee.

3.6 Key principles of the remuneration framework include:

  • Assessment of performance with reference to clear and relevant objectives set within a performance scorecard framework;
  • The use of behaviour and performance ratings for all employees who directly influence pay outcomes;
  • Positive adjustments to variable pay for individuals who have exhibited exemplary conduct and who went the extra mile to courageously do the right thing;
  • Our global recognition program, where our employees can recognise peers and reward positive behaviour in real-time;
  • A focus on total compensation (fixed plus variable pay) with variable pay (namely annual bonus) differentiated by performance and adherence to HSBC values;
  • The use of discretion to assess the extent to which performance has been achieved; and

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  • Deferral of a significant proportion of variable pay (where appropriate) to tie recipients to the future performance of the Bank and align the relationship between risk and reward.
  • Downward adjustment of variable pay awards in circumstances including:
  1. detrimental conduct, including conduct that brings HSBC into disrepute;
  1. involvement in events resulting in significant operational losses, or events that

have caused or have the potential to cause significant harm to HSBC;

  1. non-compliancewith the HSBC Values and other mandatory requirements or policies.

3.7 Within this framework, risk alignment of the remuneration structure is achieved through the following measures:

  • Risk and Compliance is a critical part of the assessment process in determining the performance of all employees, especially senior executives and material risk takers.
  • Adherence to HSBC Purpose and Values is a pre-requisite for any employee to be considered for variable pay. HSBC values are key to the running of a sound, sustainable bank. Employees have a separate HSBC Values rating which directly influences their overall performance rating, and is therefore considered for their variable pay determinations.
  • For senior executives and certain Identified Staff, part of their variable pay is deferred (where appropriate) and thereby subject to malus, which allows unvested/unpaid deferred awards to be reduced or cancelled if warranted.
  • For senior executives and certain Identified Staff, their variable pay is subject to the achievement of sustainability metrics (i.e. Chief Executive Officer, Chief Operational Officer, Heads of Business Lines). These include key performance indicators linked to Environmental, Social and Governance (ESG) imperatives.
  • Employees must not use personal hedging strategies or remuneration or liability related contracts of insurance in connection with any unvested deferred remuneration awards or any vested awards subject to a retention period. In-Scope employees must comply with anti-hedging requirements on remuneration in line with group policy.
  • Instances of non-compliance with risk procedures and expected behavior are escalated for consideration in variable pay decisions, including variable pay adjustments for that performance year and malus of unpaid awards granted in prior years. For Identified Staff, RemNom and the Board has oversight of such decisions and can make recommendations to the HSBC Group Remuneration Committee to reduce or cancel all or part of any unpaid deferred award.

4 Remuneration Structure

The Bank's reward package consists of three key elements:

  1. Fixed Pay. The purpose of the fixed pay is to attract and retain employees by paying market competitive pay for the role, skills and experience required for the business. This includes salary and allowances in accordance with local market practices. These payments are fixed and do not vary with performance.
  2. Salary is determined, calculated and paid in line with internal Bank policies and procedures based on the level of complexity and accountability of the role as described in the corresponding role profile, with the focus on total compensation competitiveness within internal peer group and external market.
  3. Allowances may include, but are not limited to, the statutory allowances which are determined, calculated and paid in line with internal Bank policies and procedures.
  4. Variable Pay. Annual awards are made to drive performance based culture. These are based on annual financial and non-financial measures consistent with the medium to long-term

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HSBC Bank Malta plc published this content on 23 February 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 23 February 2022 11:38:08 UTC.