Household HSBC Watch

Investors are complaining about high pay and rewards for average performance as HSBC Finance pulled down all of HSBC aorund the world once again. Throwing $17 billion (USD) down the drain has a tendency to anger investors and customers. No one likes to associated with a loser. History shows us that HSBC Finance was once called Household International, back before HSBC bought the risky lender in 2003. Granted the Household purchase was a very bad idea. But high rewards for substandard performance has been the norm at HSBC since the Hosuehold deal was finalized. Take the case of William F. Aldinger, former leader at Household, and the one responsible for running the company into the ground.

There is no doubt that had the company survived as Hosuehold International it would be out of busines now.Better companies failed to survive the subprime crisis, and similar companies such as NovaStar failed to make the cut. Household’s cost of financing was sky high after they lost a nationwide $484 million predatory lending lawsuit. In fact after HSBC bought the predatory lender Aldinger was rewarded to the turn of around $36 million. HSBC refinanced Hosuehold’s debt - about $15 million of it, and claimed Household was making a profit.

HSBC said yesterday: “The emphasis of remuneration policy is on pay for performance to align with the interests of shareholders. The consultation is a work in progress and, if appropriate, proposals will be presented to the AGM to vote on.” Pay for performance is what got HSBC Finance into trouble. Insurance packing, upselling, acts of omission, commission, doubious signatures, and late application of payments that were received on time are examples. There were no controls. Risk managers say one thing while employees do wuite another after risk managers leave. It is all performance driven.

The difference between management and the employee level is an employee must perform, oftne by sacrificing morla values and ethics, or find a new job. At upper levels of management one must weep over a smaller bonus, and if forced out of a job, must somehow learn to live with a huge payoff, consulting fees, and free use of the corporate jet. Such is life.