HSBC Finance Corp 2007 10K-P6

3rd Mar 2008 14:00

HSBC Holdings PLC03 March 2008 PART 6 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) THREE THREE THREE THREE THREE THREE THREE THREE MONTHS MONTHS MONTHS MONTHS MONTHS MONTHS MONTHS MONTHS ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED DEC. 31, SEPT. 30, JUNE 30, MAR. 31, DEC. 31, SEPT. 30, JUNE 30, MAR. 31, 2007 2007 2007 2007 2006 2006 2006 2006------------------------------------------------------------------------------------------------------------------- (IN MILLIONS)Finance and other interest income......................... $ 4,616 $ 4,702 $4,669 $4,696 $4,629 $4,535 $4,311 $4,087Interest expense: HSBC affiliates................ 264 247 236 245 320 283 173 153 Non-affiliates................. 1,737 1,785 1,792 1,826 1,736 1,650 1,589 1,470 ------- ------- ------ ------ ------ ------ ------ ------Net interest income.............. 2,615 2,670 2,641 2,625 2,573 2,602 2,549 2,464Provision for credit losses on owned receivables.............. 4,222 3,189 1,931 1,684 3,066 1,384 1,248 866 ------- ------- ------ ------ ------ ------ ------ ------Net interest income after provision for credit losses.... (1,607) (519) 710 941 (493) 1,218 1,301 1,598 ------- ------- ------ ------ ------ ------ ------ ------Other revenues:..................Securitization related revenue... 12 15 22 21 21 24 51 71Insurance revenue................ 139 244 193 230 251 280 226 244Investment income................ 53 34 32 26 175 31 34 34Derivative income (expense)...... (29) (4) (39) (7) 72 68 (7) 57Gain (loss) on debt designated at fair value and related derivatives.................... 742 519 (130) 144 - - - -Fee income....................... 553 660 629 573 558 542 429 382Enhancement services revenue..... 170 167 150 148 133 129 130 123Taxpayer financial services income......................... 31 (27) 4 239 - 4 20 234Gain on receivable sales to HSBC affiliates..................... 121 94 109 95 139 101 97 85Servicing and other fees from HSBC affiliates................ 138 133 132 133 151 121 116 118Other income..................... (5) (17) (88) 40 (7) 34 79 73 ------- ------- ------ ------ ------ ------ ------ ------Total other revenues............. 1,925 1,818 1,014 1,642 1,493 1,334 1,175 1,421 ------- ------- ------ ------ ------ ------ ------ ------Costs and expenses:Salaries and fringe benefits..... 563 582 587 610 617 572 562 582Sales incentives................. 28 54 62 68 86 94 98 80Occupancy and equipment expense.. 139 77 85 78 77 78 79 83Other marketing expenses......... 146 162 220 220 268 197 176 173Other servicing and administrative expenses........ 514 319 242 262 353 286 224 252Support services from HSBC affiliates..................... 308 300 299 285 304 261 270 252Amortization of acquired intangibles.................... 64 63 63 63 63 63 63 80Policyholders' benefits.......... 65 142 90 124 119 123 107 118Goodwill and other intangible asset impairment charges....... 4,010 881 - - - - - - ------- ------- ------ ------ ------ ------ ------ ------Total costs and expenses......... 5,837 2,580 1,648 1,710 1,887 1,674 1,579 1,620 ------- ------- ------ ------ ------ ------ ------ ------Income before income taxes....... (5,519) (1,281) 76 873 (887) 878 897 1,399Income tax expense (benefit)..... (1,111) (179) 13 332 (323) 327 329 511 ------- ------- ------ ------ ------ ------ ------ ------Net income....................... $(4,408) $(1,102) $ 63 $ 541 $ (564) $ 551 $ 568 $ 888 ======= ======= ====== ====== ====== ====== ====== ====== 193 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ANDFINANCIAL DISCLOSURE.-------------------------------------------------------------------------------- There were no disagreements on accounting and financial disclosure mattersbetween HSBC Finance Corporation and its independent accountants during 2007. ITEM 9A. CONTROLS AND PROCEDURES.-------------------------------------------------------------------------------- EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES We maintain a system of internal and disclosure controls and procedures designedto ensure that information required to be disclosed by HSBC Finance Corporationin the reports we file or submit under the Securities Exchange Act of 1934, asamended, (the "Exchange Act"), is recorded, processed, summarized and reportedon a timely basis. Our Board of Directors, operating through its auditcommittee, which is composed entirely of independent outside directors, providesoversight to our financial reporting process. We conducted an evaluation, with the participation of the Chief ExecutiveOfficer and Chief Financial Officer, of the effectiveness of our disclosurecontrols and procedures as of the end of the period covered by this report.Based upon that evaluation, the Chief Executive Officer and Chief FinancialOfficer concluded that our disclosure controls and procedures were effective asof the end of the period covered by this report so as to alert them in a timelyfashion to material information required to be disclosed in reports we fileunder the Exchange Act. There have been no significant changes in our internal and disclosure controlsor in other factors which could significantly affect internal and disclosurecontrols subsequent to the date that we carried out our evaluation. MANAGEMENT'S ASSESSMENT OF INTERNAL CONTROL OVER FINANCIAL REPORTING Management is responsible for establishing and maintaining adequate internalcontrol structure and procedures over financial reporting as defined in Rule13a-15(f) of the Securities and Exchange Act of 1934, and has completed anassessment of the effectiveness of HSBC Finance Corporation's internal controlover financial reporting as of December 31, 2007. In making this assessment,management used the criteria related to internal control over financialreporting described in "Internal Control - Integrated Framework" established bythe Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the assessment performed, management concluded that as of December 31,2007, HSBC Finance Corporation's internal control over financial reporting waseffective. The effectiveness of HSBC Finance Corporation's internal control over financialreporting as of December 31, 2007 has been audited by HSBC Finance Corporation'sindependent registered public accounting firm, KPMG LLP, as stated in theirreport appearing on page 122, which expressed an unqualified opinion on theeffectiveness of HSBC Finance Corporation's internal control over financialreporting as of December 31, 2007. ITEM 9B. OTHER INFORMATION.-------------------------------------------------------------------------------- None. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.-------------------------------------------------------------------------------- DIRECTORS Set forth below is certain biographical information relating to the members ofHSBC Finance Corporation's Board of Directors. Each director is electedannually. There are no family relationships among the directors. NIALL S. K. BOOKER, age 49, joined HSBC Finance Corporation's Board in August2007. Mr. Booker also serves as Chief Executive Officer of HSBC FinanceCorporation and Chief Operating Officer of HSBC North America Holdings Inc.since February 2008. From April 2007 to February 2008 he was Chief OperatingOfficer of HSBC Finance Corporation and Group Executive of HSBC North AmericaHoldings Inc. Mr. Booker was Deputy 194 Chairman and Chief Executive Officer of HSBC Bank Middle East Limited from May2006 to May 2007 and has served as Group General Manager to HSBC since January2004. Mr. Booker joined the HSBC Group in 1981 as an International Manager andhas held several positions within the HSBC organization since. Mr. Booker hasgained extensive international experience and skills by building differentbusinesses within various positions in the HSBC Group. Over the years, he hasworked in retail banking in Brunei and the UK, syndicated loans and specializedfinance in Hong Kong, banking operations in Abu Dhabi and Trade Finance andcorporate banking in Japan. He led HSBC's business in Thailand after the 1997financial crises in Asia and in three tenures in the United States. Mr. Bookerworked in Treasury, was responsible for the work out of assets for ConcordLeasing and lastly, was CEO, International Private Banking, Americas. He went toIndia in July 2002 as Deputy Chief Executive Officer of The Hongkong andShanghai Banking Corporation and took over as Chief Executive Officer andCountry Head for HSBC in India, in November 2002. Mr. Booker is a member of the Executive Committee. WILLIAM R. P. DALTON, age 64, joined HSBC Finance Corporation's Board in April2003. Mr. Dalton retired in May 2004 as an Executive Director of HSBC Holdingsplc, a position he held from April 1998. He also served HSBC as Global Head ofPersonal Financial Services from August 2000 to May 2004. From April 1998 toJanuary 2004 he was Chief Executive of HSBC Bank plc. Mr. Dalton held positionswith various HSBC entities for 25 years. Mr. Dalton is a member of the Compensation, the Executive and the AuditCommittees. J. DUDLEY FISHBURN, age 61, joined HSBC Finance Corporation's Board in September1995. Mr. Fishburn became Chairman of the Board of HFC Bank Ltd. (HSBC FinanceCorporation's primary subsidiary in the United Kingdom) in 1998. He is also onthe Board of HSBC Bank (UK) Ltd. He previously served as the Conservative Memberof Parliament for Kensington in London from 1988 to 1997. Prior to enteringParliament, Mr. Fishburn was Executive Editor for The Economist Newspaper Ltd.from 1979 to 1988. He is also a Director of Altria Inc., Henderson SmallerCompanies Investment Trust plc and Beazley Group plc. He is a trustee of theFoundation for Liver Research, The Peabody Trust and Reading University. Mr. Fishburn is a member of the Nominating & Governance Committee. DOUGLAS J. FLINT, age 52, joined HSBC Finance Corporation's Board in February2007. Mr. Flint serves as Group Finance Director with responsibility forinvestor relations, finance and tax at HSBC. He joined HSBC as an ExecutiveDirector in 1995. Mr. Flint chaired the Financial Reporting Council's review ofthe Turnbull Guidance on Internal Control, served on the Accounting StandardsBoard and the Standards Advisory Council of the International AccountingStandards Board from 2001 to 2004 and is a former partner of KPMG. He is a non-executive Director of BP plc since January 2005. Mr. Flint is the Non-Executive Chairman of the Board and an ex-officio (non-voting) member of the Audit Committee. CYRUS F. FREIDHEIM, JR., age 72, joined HSBC Finance Corporation's Board inSeptember 1992. He currently serves as Chief Executive Officer of Sun-TimesMedia Group Inc., and is a member of its Board of Directors since October 2005.Mr. Freidheim served as Chairman of the Board and Chief Executive Officer ofChiquita Brands International, Inc. from March 2002 to January 2004 and Chairmanuntil May 2004. In March 2002, he retired as Vice Chairman of Booz, Allen &Hamilton, Inc. (a management consulting firm), with which he had been affiliatedsince 1966. He is also a Director of both Allegheny Energy, Inc. and VirginAmerica Inc. He is a Trustee for The Brookings Institution, Rush UniversityMedical Center, Chicago Council on Global Affairs and the Chicago SymphonyOrchestra. Mr. Freidheim is a Member of the Advisory Council of the MendosaSchool of Business at the University of Notre Dame, The Economic Club of Chicagoand The Commercial Club of Chicago, Council of Foreign Relations. Mr. Freidheim is the Lead Director and as such is Chair of the ExecutiveCommittee and an ex-officio (non-voting) member of both the Audit and theNominating & Governance Committees. He is also a member of the CompensationCommittee. ROBERT K. HERDMAN, age 59, joined HSBC Finance Corporation's Board in January2004. Since March 2005, he has served as a member of the Board of Directors ofHSBC North America Holdings, Inc. Mr. Herdman is also on 195 the Board of Directors of Cummins Inc. since February 2008. Since January 2004,Mr. Herdman has been a Managing Director of Kalorama Partners LLC, a Washington,D.C. consulting firm. Mr. Herdman was the Chief Accountant of the U.S.Securities and Exchange Commission ("SEC") from October 2001 to November 2002.The Chief Accountant serves as the principal advisor to the SEC on accountingand auditing matters, and is responsible for formulating and administering theaccounting program and policies of the SEC. Prior to joining the SEC, Mr.Herdman was Ernst & Young's Vice Chairman of Professional Practice for itsAssurance and Advisory Business Services (AABS) practice in the Americas and theGlobal Director of AABS Professional Practice for Ernst & Young International.Mr. Herdman was the senior Ernst & Young partner responsible for the firms'relationships with the SEC, Financial Accounting Standards Board (FASB) andAmerican Institute of Certified Public Accountants (AICPA). He served on theAICPA's SEC Practice Section Executive Committee from 1995 to 2001 and as amember of the AICPA's Board of Directors from 2000 to 2001. Mr. Herdman is Chair of the Audit Committee. LOUIS HERNANDEZ, JR., age 41, joined HSBC Finance Corporation's Board in April2007. Mr. Hernandez serves as Chief Executive Officer of Open Solutions Inc., aprovider of software and services to financial institutions, since 1999. He alsobecame Chairman of Open Solutions Inc. in 2000. Previously, he served Rowecom,Inc., an electronics commerce software provider, as its Chief Financial Officerfrom 1997 to 1999 and also as an Executive Vice President from 1998. Mr.Hernandez held several positions in the Business and Advisory Services Group ofPrice Waterhouse LLP from 1990 though 1996. In addition to Open Solutions, heserved on the Board of Mobius Management System, Inc. which was sold during2007. Mr. Hernandez is a member of the Audit Committee. GEORGE A. LORCH, age 66, joined HSBC Finance Corporation's Board in September1994. He also serves as a member of the Board of Directors of HSBC North AmericaHoldings Inc. From May 2000 until August 2000, Mr. Lorch served as Chairman,President and Chief Executive Officer of Armstrong Holdings, Inc. (the parent ofArmstrong World Industries, Inc.). Mr. Lorch served as Chairman of the Board,Chief Executive Officer and President of Armstrong World Industries, Inc. (amanufacturer of interior finishes) from 1994 and President and Chief ExecutiveOfficer from 1993 until May 1994. Mr. Lorch is a Director of The WilliamsCompanies, Inc., Autoliv, Inc. and Pfizer Inc. Mr. Lorch is Chair of the Compensation Committee and a member of the Nominating& Governance Committee. BRENDAN P. MCDONAGH, age 49, joined HSBC Finance Corporation's Board in August2007. Mr. McDonagh serves as Chief Executive Officer of HSBC North AmericaHoldings Inc. since February 2008. From February 2007 to February 2008 Mr.McDonagh served as Chief Executive Officer of HSBC Finance Corporation and ChiefOperating Officer of HSBC North America Holdings Inc.. Mr. McDonagh served asChief Operating Officer of HSBC Finance Corporation prior to his appointment asChief Executive Officer in February 2007. From September 2006 to February 2007,Mr. McDonagh held the title of Group Executive of HSBC Finance Corporation. FromOctober 2004 to December 2006 he served as Chief Operating Officer of HSBC BankUSA. He is also a Group General Manager of HSBC Holdings plc having beenappointed as such in August 2005. An international manager for the HSBC Groupfor more than twenty five years, Mr. McDonagh began his career with HSBC in1979, completing various assignments throughout the world. In September 2002, hetransferred to the United States to run the retail and commercial bankingoperations of HSBC Bank USA. Mr. McDonagh is active in several US and Irelandorganizations including the Chicago Regional Board of the American Ireland Fundand USA Board of Co-operation Ireland. Mr. McDonagh is Chairman of the ConsumerBankers Association. LARREE M. RENDA, age 49, joined HSBC Finance Corporation's Board in September2001. Ms. Renda has been employed by Safeway Inc. since 1974. She becameExecutive Vice President, Chief Strategist and Administrative Officer of SafewayInc. in November 2005. Prior to her current position she served as ExecutiveVice President for Retail Operations, Human Resources, Public Affairs, Labor andGovernment Relations since 1999. Prior to this position, she was a Senior VicePresident from 1994 to 1999, and a Vice President from 1991 to 1994. She is alsoa director and Chairwoman of the Board of The Safeway Foundation and serves onthe Board of Directors for Casa Ley, S.A. de C.V. Ms. Renda is a member of theRetailing Initiative Advisory Board of the Wharton School of Business and servesas a Trustee on the National Joint Labor Management Committee. Additionally sheserves on 196 the Board of Directors for both the California and U.S. Chamber of Commerce andalso serves as a National Vice President of the Muscular Dystrophy Association. Ms. Renda is Chair of the Nominating & Governance Committee and a member of theExecutive and the Audit Committees. EXECUTIVE OFFICERS Information regarding the executive officers of HSBC Finance Corporation as ofMarch 3, 2008 is presented in the following table. ------------------------------------------------------------------------------------------ YEARNAME AGE APPOINTED PRESENT POSITION------------------------------------------------------------------------------------------Niall S. K. Booker 49 2008 Chief Executive OfficerAndrew C. Armishaw 45 2008 Chief Information Officer - North AmericaJames E. C. Binyon 44 2008 Executive Vice President and Chief Accounting OfficerPatrick J. Burke 46 2008 Senior Executive Vice President and Chief Operating Officer - Card and Retail ServicesJon N. Couture 42 2007 Senior Executive Vice President - Human ResourcesPatrick A. Cozza 52 2008 Senior Executive Vice President - InsuranceCurt A. Cunningham 44 2008 Executive Vice President - General ComplianceThomas M. Detelich 51 2008 President - Consumer & Mortgage LendingGary R. Esposito 47 2008 Executive Vice President and Head of Consumer & Mortgage Lending DistributionBruce A. Fletcher 48 2008 Senior Executive Vice President - Chief Retail Credit OfficerJohn J. Haines 44 2008 Senior Executive Vice President - Auto FinanceSusan B. Jewell 52 2008 Executive Vice President and General CounselWilliam H. Kesler 56 2008 Executive Vice President and TreasurerThomas M. Kimble 59 2008 Executive Vice President - Global Projects and OperationsIain J. Mackay 46 2008 Senior Executive Vice PresidentMark A. Melas 51 2007 Executive Vice President - Corporate Real EstateWalter G. Menezes 62 2008 President - Card & Retail Services and Auto FinanceAnthony J. Murphy 48 2007 Senior Executive Vice President - Portfolio ManagementFaye M. Polayes 56 2008 Executive Vice President and Head of Corporate TaxPatrick D. Schwartz 50 2008 Executive Vice President, Deputy General Counsel and Corporate SecretaryBeverley A. Sibblies 46 2008 Executive Vice President and Chief Financial OfficerLisa M. Sodeika 44 2005 Executive Vice President - Corporate Affairs------------------------------------------------------------------------------------------ Niall S. K. Booker, Director and Chief Executive Officer of HSBC FinanceCorporation and Chief Operating Officer of HSBC North America Holdings Inc. SeeDirectors for Mr. Booker's biography. Andrew C. Armishaw, Chief Information Officer-North America of HSBC FinanceCorporation and of HSBC North America Holdings Inc. since February 2008. FromJanuary 2004 to February 2008 he was Group Executive and Chief InformationOfficer of HSBC Finance Corporation and of HSBC North America Holdings Inc. FromJanuary 2001 to December 2003 Mr. Armishaw was Head of Global Resourcing forHSBC and from 1994 to 1999 was Chief Executive Officer of First Direct (asubsidiary of HSBC) and Chief Information Officer of First Direct. James E. C. Binyon, Executive Vice President and Chief Accounting Officer ofHSBC Finance Corporation since February 2008. From February 2006 to February2008, Mr. Binyon was Vice President and Chief Accounting Officer of HSBC FinanceCorporation. From September 2004 to February 2006 he was Vice President and 197 Controller of HSBC Finance Corporation. From November 2001 to August 2004 heserved as Finance Director of First Direct, and from February 1995 to October2001 was Senior Area Accounting Manager, and Manager - Balance Sheet Managementfor HSBC Hong Kong. Mr. Binyon was Manager-Asset Management & Funding, andManager - Treasury Audit Department between 1992 and 1995. Prior to joiningHSBC, Mr. Binyon spent five years at KPMG. Patrick J. Burke, Senior Executive Vice President and Chief OperatingOfficer - Card & Retail Services of HSBC Finance Corporation since February2008. From December 2007 to February 2008 he was Managing Director - Card andRetail Services of HSBC Finance Corporation. He was Managing Director - CardServices from July 2006 to December 2007. He was appointed President and ChiefExecutive Officer of HSBC Financial Limited Canada in January 2003 until July2006. Patrick was appointed Chief Financial Officer with HFC Bank Limited from2000 until 2003. From the start of his career with HSBC in 1989, Mr. Burke hasserved the company in many roles including Deputy Director of Mergers andAcquisitions and Vice President of Strategy and Development. Jon N. Couture, Senior Executive Vice President-Human Resources of HSBC FinanceCorporation since December 2007 and Senior Executive Vice President-HumanResources of HSBC North America Holdings Inc. since February 2008. Mr. Couturejoined HSBC in December 2007 as Executive Vice President and Head of HumanResources of HSBC North America Holdings Inc. Mr. Couture was formerly withNational City Corporation where he was Executive Vice President, Human Resourcesand Corporate Senior Vice President from May 2004 to December 2007. Prior tothat Mr. Couture was with Siemens Business Services, Inc. from 1998 until May2004 where he held the position of Senior Vice President, Human Resources. Mr.Couture has been a member of the Board of Directors of Banking AdministrationInstitute since 2006. Patrick A. Cozza, Senior Executive Vice President - Insurance of HSBC FinanceCorporation since February 2008. From April 2004 to February 2008 he was GroupExecutive of HSBC Finance Corporation. Mr. Cozza became President - RefundLending and Insurance Services in 2002 and Managing Director and Chief ExecutiveOfficer - Refund Lending in 2000. He also serves on the board of directors ofJunior Achievement in New Jersey, Cancer Hope Network, Somerset BusinessPartnership and American Council of Life Insurers PAC. Mr. Cozza serves as boardmember and officer of Household Life Insurance Company, First Central NationalLife Insurance Company and HSBC Insurance Company of Delaware, all subsidiariesof HSBC Finance Corporation. Curt A. Cunningham, Executive Vice President-General Compliance of HSBC FinanceCorporation since February 2008. From January 2007 to February 2008 Mr.Cunningham was Chief Compliance Officer of HSBC Finance Corporation. Prior tothat Mr. Cunningham was Assistant Vice President Corporate Complianceresponsible for Compliance oversight for non-bank finance company businesses.Mr. Cunningham served in a variety of Compliance roles, including LocalCompliance Officer for the Mortgage Services division between September 1997through February 2003. Mr. Cunningham joined HSBC in 1988 and has held a varietyof management positions in Operations, Training, Learning and Development andCompliance. Thomas M. Detelich, President-Consumer & Mortgage Lending of HSBC FinanceCorporation and of HSBC North America Holdings Inc. since February 2008. FromAugust 2006 to February 2008 he was Group Executive of HSBC Finance Corporationand of HSBC North America Holdings Inc. He became Group Executive, ConsumerLending in July 2002. Mr. Detelich also held the positions of Managing Directorat Beneficial Corporation from March 2000 to July 2002 and Managing Director ofHousehold Finance Corporation from January 1999 to July 2002 and regionalgeneral manager of consumer lending in 1998. Mr. Detelich was formerly withTransamerica for 21 years, becoming Executive Vice President of BranchOperations in 1997. Gary R. Esposito, Executive Vice President and Head of Consumer & MortgageLending Distribution of HSBC Finance Corporation since February 2008. FromSeptember 2005 to February 2008 he was Managing Director - Mortgage Services ofHSBC Finance Corporation. From 2002 to 2005, Mr. Esposito held the positions ofManaging Director - U.S. branch operations for the Consumer Lending business andwas the President, Chief Executive Officer and Chairman for HSBC Canada fromOctober 2000 to November 2003. He was also National Director, branch and retailoperations from 1998 through 2000. He has been with HSBC Finance Corporationsince 1982. Bruce A. Fletcher, Senior Executive Vice President-Chief Retail Credit Officerof HSBC Finance Corporation and of HSBC North America Holdings Inc. sinceFebruary 2008. Mr. Fletcher has been a Vice President of HSBC Bank 198 Nevada, N.A. since May 2006, and an Executive Vice President, Retail Credit ofHSBC Bank USA, Inc. since April 2005. From April 2005 to February 2008 Mr.Fletcher was Senior Vice President-Chief Retail Credit Officer of HSBC FinanceCorporation and of HSBC North America Holdings Inc. Prior to that Mr. Fletcherwas Managing Director and Senior Credit Officer of Citigroup, Inc. Hisemployment with Citigroup began with subsidiary Citibank, N.A. where he wasemployed beginning in June 1988. John J. Haines, Senior Executive Vice President - Auto Finance of HSBC FinanceCorporation since February 2008. From August 2004 to February 2008 he wasManaging Director - Auto Finance of HSBC Finance Corporation. From May 1989 toAugust 2004 Mr. Haines worked for General Electric where most recently he wasSenior Vice President - Products and Services for General Electric FleetServices and Senior Vice President - North American Operations for GeneralElectric Fleet Services. Susan B. Jewell, Executive Vice President and General Counsel of HSBC FinanceCorporation since February 2008. From December 2007 to February 2008 Ms. Jewellwas General Counsel of HSBC Finance Corporation. In this role, she manages thelegal function for the organization, which encompasses HSBC's non-bank financialoperations in the United States and Canada. Ms. Jewell has also been the VicePresident, General Counsel and Secretary of HSBC Bank Nevada, N.A. since March2004. Ms. Jewell joined HSBC in 1983 and has held a variety of positionsproviding or managing legal support of the HSBC businesses. William H. Kesler, Executive Vice President and Treasurer of HSBC FinanceCorporation since February 2008 and Executive Vice President - Asset andLiability Management of HSBC North America Holdings Inc. since April 1, 2006.From April 2006 to February 2008 he was Senior Vice President - Treasurer ofHSBC Finance Corporation. From May 2005 to April 2006 he was Vice President andAssistant Treasurer for HSBC Finance Corporation. Mr. Kesler joined HSBC FinanceCorporation in 1992 and since that time has held various treasury managementpositions. He is a trustee of the Hospice of Northeastern Illinois Foundationand serves on the Foundation's executive committee. Thomas M. Kimble, Executive Vice President-Global Projects and Operations ofHSBC Finance Corporation and of HSBC North America Holdings Inc. since February2008. From February 2007 to February 2008 he was Managing Director-StrategicCost Initiative and Global Resourcing of HSBC Finance Corporation and of HSBCNorth America Holdings Inc. Prior to his appointment to that position, sinceJuly 2006 Mr. Kimble served as the Managing Director - Global Projects andOperations for HSBC North America Holdings Inc. and prior to that, ManagingDirector of Operations for Household/HSBC Card Services for eight years. Mr.Kimble has been active in the Salinas Valley Chamber of Commerce and is a pastpresident of the Chamber. He is also a past president of Shelter Outreach Plus,a domestic violence shelter. Iain J. Mackay, Senior Executive Vice President of HSBC Finance Corporation andSenior Executive Vice President and Chief Financial Officer of HSBC NorthAmerica Holdings Inc. since February 2008. From July 2007 to February 2008 hewas Executive Vice President of HSBC Finance Corporation and Executive VicePresident and Chief Financial Officer of HSBC North America Holdings Inc. Priorto joining HSBC, Mr. Mackay was Vice President and Chief Financial Officer ofGeneral Electric's Healthcare Global Diagnostics Imaging Business since 2004.Mr. Mackay joined General Electric Company in 1996 where he held variouspositions until 2007. Mark A. Melas, Executive Vice President - Corporate Real Estate of HSBC FinanceCorporation and of HSBC North America Holdings Inc. since 2000. Prior to that,Mr. Melas held the position of Senior Vice President from April 1995. From 1978through March 1995 he was employed at New York Telephone as an Area OperationsManager in Corporate Real Estate. Walter G. Menezes, President - Card & Retail Services and Auto Finance of HSBCFinance Corporation and of HSBC North America Holdings Inc. since February 2008.From April 2004 to February 2008 he was Group Executive of HSBC FinanceCorporation and of HSBC North America Holdings Inc. Mr. Menezes is also a GroupGeneral Manager for HSBC since October 1, 2006 and is responsible for managingGroup Cards. Mr. Menezes held the title of President and Chief Executive Officerfor Auto Finance from 2002 to August 2004 and Managing Director and Chief CreditOfficer of Credit Card Services from 1998 to 2002. He joined HSBC FinanceCorporation in 1996 as National Director Collections - Credit Card Services. 199 Anthony J. Murphy, Senior Executive Vice President - Portfolio Management ofHSBC Finance Corporation and of HSBC North America Holdings Inc. since February2007. Prior to his appointment to this position, Mr. Murphy was President andChief Executive Officer of HSBC Securities (USA) Inc. and Chief OperatingOfficer of CIBM Americas. He was also Co-Head of Corporate, Investment Bankingand Markets (CIBM Americas) since November 2004. Mr. Murphy has been with theHSBC Group since 1990. Prior to his appointment as Chief Executive Officer ofHSBC Securities (USA) Inc. in April 2003, Mr. Murphy served as Chief StrategicOfficer of CIBM Americas from 2000. Prior to that assignment, he was Head ofMarket Risk Management for HSBC Bank plc and HSBC Investment Bank in London from1996. Faye M. Polayes, Executive Vice President and Head of Corporate Tax of HSBCFinance Corporation and of HSBC North America Holdings Inc. since February 2008.Ms. Polayes has been Vice President of HSBC Bank Nevada, National Associationsince January 2004. From June 2004 to February 2008 Ms. Polayes was VicePresident of HSBC Card Services Inc. From February 2004 to February 2008 Ms.Polayes was Senior Vice President - Taxes of HSBC Finance Corporation and fromSeptember 2003 to February 2008 was Executive Vice President - Tax of HSBC NorthAmerica Holdings Inc. and of HSBC Bank USA, N.A. Prior to that Ms. Polayes wasExecutive Vice President and Tax Director of HSBC Bank USA, N.A. from January2000 to September 2003. Patrick D. Schwartz, Executive Vice President, Deputy General Counsel andCorporate Secretary of HSBC Finance Corporation and of HSBC North AmericaHoldings Inc. since February 2008. From August 2007 to February 2008 Mr.Schwartz was Vice President, Deputy General Counsel - Corporate and CorporateSecretary of HSBC Finance Corporation, Senior Vice President and Secretary ofHSBC USA Inc. and Assistant General Counsel - Corporate, Chief GovernanceOfficer and Corporate Secretary of HSBC North America Holdings Inc. Mr. Schwartzcounsels management and the Board of Directors of HSBC Finance Corporation, HSBCUSA Inc. and HSBC North America Holdings Inc. with respect to corporatetransactions, securities issuance and compliance, and corporate governancematters. He manages the HSBC-North America legal team that provides legalsupport in these areas. Since joining HSBC in 1993, Mr. Schwartz has heldvarious positions providing or managing legal support of securities law, asset-backed funding, public financial reporting and corporate governance, as well asserving as General Counsel to the Mortgage Services operations from 2000 - 2001. Beverley A. Sibblies, Executive Vice President and Chief Financial Officer ofHSBC Finance Corporation since February 2008 and Executive VicePresident - Finance of HSBC North America Holdings Inc. since October 2005. FromOctober 2005 to February 2008 she was Senior Vice President - Chief FinancialOfficer of HSBC Finance Corporation. Ms. Sibblies joined HSBC FinanceCorporation in November 2004 as the Senior Vice President and Chief AccountingOfficer. Prior to joining HSBC Finance Corporation, she served as Executive VicePresident and Chief Financial Officer for EMC Mortgage from June 2000 toFebruary 2004. Prior to that, she served as a partner in the financial servicespractice of Deloitte & Touche, LLP from July 1997 to June 2000. Lisa M. Sodeika, Executive Vice President - Corporate Affairs of HSBC FinanceCorporation since July 2005 and of HSBC North America Holdings Inc. since June2005. Ms. Sodeika directs HSBC North America's public affairs, employeecommunications, government relations, consumer affairs, community developmentand philanthropic activities. From January 2003 to June 2005 Ms. Sodeika wasSenior Vice President - Corporate Affairs and Vice President - Consumer Affairs.Since joining HSBC Finance Corporation, Ms. Sodeika has held managementpositions in the consumer finance and retail services businesses includingmarketing, collections, quality assurance and compliance, underwriting and humanresources. Ms. Sodeika served as member, vice chair, and then chairperson of theFederal Reserve Board's Consumer Advisory Council from 2005-2007. CORPORATE GOVERNANCE-------------------------------------------------------------------------------- BOARD OF DIRECTORS - COMMITTEES AND CHARTERS The Board of Directors of HSBC Finance Corporation has four standing committees:the Audit Committee, the Compensation Committee, the Nominating & GovernanceCommittee and the Executive Committee. The charters of the above-mentionedcommittees, as well as our Corporate Governance Standards, are available on ourwebsite at www.hsbcusa.com or upon written request made to HSBC FinanceCorporation, 26525 N. Riverwoods Boulevard, Mettawa, Illinois 60045, Attention:Corporate Secretary. 200 Audit Committee The primary purpose of the Audit Committee is to assist the Board of Directorsin fulfilling its oversight responsibilities relating to HSBC FinanceCorporation's system of internal controls over financial reporting and itsaccounting, auditing and financial reporting practices. The Audit Committee iscurrently comprised of the following independent Directors (as defined by HSBCFinance Corporation's Corporate Governance Standards which are based upon therules of the New York Stock Exchange): Robert K. Herdman (Chair), William R. P.Dalton, Louis Hernandez, Jr. and Larree M. Renda. In addition, Cyrus F.Freidheim, Jr., Lead Director, and Douglas J. Flint, Group Finance Director ofHSBC, are non-voting members of the Audit Committee. The Board has determinedthat each of these individuals is financially literate. The Board of Directorshas determined that Robert K. Herdman qualifies as an Audit Committee financialexpert. Compensation Committee The primary purpose of the Compensation Committee is to assist the Board ofDirectors in discharging its responsibilities related to the compensation of theChief Executive Officer of HSBC Finance Corporation and the officers that aredirect reports to the Chief Executive Officer and such other officers as may bedesignated by the Board of Directors. The Compensation Committee is currentlycomprised of the following directors: George A. Lorch (Chair), William R. P.Dalton and Cyrus F. Freidheim, Jr. All members of the Compensation Committee areindependent directors under HSBC Finance Corporation's Corporate GovernanceStandards. The Charter of the Compensation Committee lists the primary responsibilities,powers and authorities of the Compensation Committee. The listed items include(i) review and approve corporate goals and performance objectives relevant tothe compensation of the Chief Executive Officer and executive officers, evaluatethe performance of the Chief Executive Officer and executive officers in lightof those goals and objectives, and review its findings with the Board ofDirectors in executive session, (ii) submit recommendations concerning basesalary, performance-based cash and long term equity-based incentive awards forthe Chief Executive Officer and executive officers to the Remuneration Committeeof HSBC ("REMCO") for approval, (iii) recommend to REMCO equity incentives underHSBC plans to all employees, except those awards that the Chief ExecutiveOfficer may determine based upon a delegation of authority by REMCO, (iv) reviewand approve benefits and perquisites of the Chief Executive Officer andexecutive officers to the extent such benefits are not available to allemployees, (v) recommend to the Board of Directors and REMCO the creation oramendment of any welfare, or tax qualified employee benefit plan or program ofHSBC Finance Corporation, or any long-term executive compensation plan orprogram of HSBC Finance Corporation whose participants include the ChiefExecutive Officer or executive officers, (vi) review and recommend to REMCO anyemployment and severance contracts for the Chief Executive Officer and executiveofficers, as well as any severance payouts to such officers, (vii) review andconsider "best practices" of peer companies with respect to compensationphilosophies, policies and practices, (viii) review management's CompensationDiscussion and Analysis ("CD&A") to be included in HSBC Finance Corporation'sAnnual Report on Form 10-K, discuss the CD&A's content with management, preparethe Compensation Committee Report concerning the CD&A and recommend to the Boardof Directors that the CD&A be included in the annual report on Form 10-K and(ix) engage in an annual self assessment with the goal for continuingimprovement, and to review and assess the adequacy of this charter at leastannually and recommend any proposed changes to the Board of Directors forapproval. The Compensation Committee may in its discretion retain and dischargeconsultants to assist the Compensation Committee in evaluating director, ChiefExecutive Officer or executive officer compensation and to determine theappropriate terms of engagement and the fees to be paid to such consultants. In establishing executive compensation packages for 2007, in December 2006 theCompensation Committee provided advisory recommendations to HSBC's Group GeneralManager for submission to the HSBC CEO with respect to 2007 compensation for theChief Executive Officer and certain other executive officers. The packageincluded advisory recommendations for 2007 base salary, long-term incentiveshare awards and cash awards relating to 2006 performance. Final determinationof compensation, including performance-based cash awards relating to 2007performance, was proposed by the HSBC CEO and endorsed by REMCO. The ChiefExecutive Officer is given full authority, which may be delegated, to establishthe compensation and salary ranges for all other employees of HSBC FinanceCorporation and its subsidiaries whose salaries are not subject to review by the 201 Compensation Committee and approval by REMCO. For more information about thecompensation policy of HSBC Finance Corporation please see Item 11. ExecutiveCompensation - Compensation Discussion and Analysis. Nominating & Governance Committee The primary purpose of the Nominating & Governance Committee is to assist theBoard of Directors of HSBC Finance Corporation in discharging itsresponsibilities related to identifying and nominating members of the Board ofDirectors to the Board, recommending the composition of each committee of theBoard of Directors and the Chair of each committee, establishing and reviewingHSBC Finance Corporation's corporate governance and making recommendations tothe Board of Directors regarding compensation for service of the non-executiveBoard members. The Nominating & Governance Committee ensures that HSBC FinanceCorporation maintains "best practices" with respect to corporate governance inorder to ensure effective representation of its stakeholders. The Nominating & Governance Committee is currently comprised of the followingdirectors: Larree M. Renda (Chair), J. Dudley Fishburn, Cyrus F. Freidheim, Jr.(ex-officio member) and George A. Lorch. With the exception of Mr. Fishburn, allmembers of the Nominating & Governance Committee are independent directors underHSBC Finance Corporation's Corporate Governance Standards. Executive Committee The Executive Committee may exercise the powers and authority of the Board ofDirectors in the management of the business and affairs of the corporationduring the intervals between meetings of the Board of Directors. Cyrus F.Freidheim, Jr. (Chair), Niall S. K. Booker, William R. P. Dalton and Larree M.Renda are members of the Executive Committee. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Exchange Act, as amended, requires certain of ourDirectors, executive officers and any persons who own more than ten percent of aregistered class of our equity securities to report their initial ownership andany subsequent change to the SEC and the New York Stock Exchange ("NYSE"). Withrespect to the 6.36% Series B Preferred Stock of HSBC Finance Corporation, wereviewed copies of all reports furnished to us and obtained writtenrepresentations from our Directors and executive officers that no other reportswere required. Based solely on a review of copies of such forms furnished to usand written representations from the applicable Directors and executiveofficers, all required reports of changes in beneficial ownership were filed ona timely basis for the 2007 fiscal year. CODE OF ETHICS HSBC Finance Corporation's Board of Directors has adopted a Code of Ethics forSenior Financial Officers. That Code of Ethics is incorporated by reference inExhibit 14 to this Annual Report on Form 10-K. HSBC Finance Corporation also hasa general code of ethics applicable to all employees that is referred to as itsStatement of Business Principles and Code of Ethics. That document is availableon our website at www.hsbcusa.com or upon written request made to HSBC FinanceCorporation, 26525 N. Riverwoods Boulevard, Mettawa, Illinois 60045, Attention:Corporate Secretary. ITEM 11. EXECUTIVE COMPENSATION.-------------------------------------------------------------------------------- COMPENSATION DISCUSSION AND ANALYSIS The following compensation discussion and analysis (the "2007 CD&A") summarizesthe principles, objectives and factors considered in evaluating and determiningthe compensation of HSBC Finance Corporation's executive officers in 2007.Specific compensation information relating to our 2007 Chief Executive and ChiefFinancial Officers, our former Chief Executive Officer who left HSBC in February2007 and our next three most highly compensated executives is contained in thisportion of the Form 10-K. 202 OVERSIGHT OF COMPENSATION DECISIONS Role of HSBC Holdings plc's Remuneration Committee and HSBC CEO HSBC Finance Corporation is a wholly owned subsidiary of HSBC Holdings plc("HSBC"). The Board of Directors of HSBC has the authority to delegate any ofits powers, authorities and judgments to any committee consisting of one or moredirectors, and has established a Remuneration Committee ("REMCO") for thepurpose of setting the remuneration policy for HSBC and remuneration of the moresenior executives whose appointment requires HSBC Board of Directors approval. Compensation packages (including base salary, incentive awards and any long-termincentive awards) for certain senior executives whose appointment requires HSBCBoard of Directors approval, are initially determined by Mr. Michael F.Geoghegan, the HSBC Group Chief Executive (the "HSBC CEO"). The HSBC CEO thenforwards his determinations to REMCO which reviews the determinations to ensurethey are in line with the remuneration policy for HSBC and if they are, itendorses those determinations. In November 2006, REMCO delegated its authority for endorsement of base salariesand annual cash incentive awards relating to certain classes of executives tothe HSBC CEO. However, REMCO retained exclusive authority to endorse basesalaries and annual cash incentive award recommendations for the more seniorexecutives within HSBC and its subsidiaries. REMCO also has exclusive authoritywith respect to all long-term incentive plans involving interests in HSBCordinary shares. As a result, REMCO had final authority over the compensationrecommendations made by the HSBC CEO in respect of Messrs. McDonagh, Mehta,Detelich, Menezes and Booker in 2007. The members of REMCO in 2007 were Sir Mark Moody-Stuart (Chairman), William K.L. Fung (until May 2007), Sharon Hintze (until May 2007), Gwyn Morgan (as of May2007) and J.D. Coombe, all of whom were or are non-executive directors of HSBC.REMCO has retained the services of Mercer Limited as advisers on matters ofcorporate governance, and Towers Perrin, a human resource consulting firm, toprovide independent advice on global executive compensation issues. Role of HSBC Finance Corporation's Compensation Committee and Human ResourcesExecutives The Compensation Committee of the Board of Directors of HSBC Finance Corporation(the "Compensation Committee") generally seeks to ensure that our compensationpolicies and practices support the objectives of HSBC Finance Corporation'scompensation program, which are based upon the compensation strategy establishedby REMCO. As described below, in establishing executive compensation packagesfor 2007, other than for Ms. Sibblies whose compensation is proposed by theChief Financial Officer of HSBC North America Holdings Inc. and approved by theChief Executive Officer of HSBC Finance Corporation, the Compensation Committeeprovided advisory recommendations to HSBC's Group General Manager of HumanResources for submission to the HSBC CEO, the HSBC CEO further recommended finalremuneration under each element of compensation to REMCO, including base salaryand cash incentive awards, and REMCO endorsed the awards. Additional informationwith regard to the Compensation Committee, including a description of itsresponsibilities under its charter, is contained in the section of this Form 10-K entitled Item 10. Directors, Executive Officers and CorporateGovernance -- Corporate Governance. For purposes of proposing 2007 executive compensation packages to the HSBC CEO,the Compensation Committee retained the services of Strategic Apex Group, anexecutive compensation consulting firm, in December 2006, to provide comparatordata and to assist in the development of competitive compensation packages forour executives. In addition, our Human Resources executives worked with theCompensation Committee to prepare a comprehensive annual compensation packagefor our Chief Executive Officer and each executive officer that reported to himin 2007. 2007 Executive Officer Compensation Decision Process With respect to the executive officers reported in this 2007 CD&A, in December2006, Mr. Mehta, the Chief Executive Officer of HSBC Finance Corporation at thattime, made proposals to the Compensation Committee regarding 2007 base salary,long-term incentive share awards and cash awards relating to 2006 performancefor each of his direct reports. Mr. Mehta's recommendations concerning hisdirect reports, the Compensation 203 Committee's recommendation with respect to Mr. Mehta's salary, and itsendorsement of Mr. Mehta's compensation recommendations as to his directreports, were forwarded to HSBC's Group General Manager of Human Resources forsubmission to the HSBC CEO. Comparator and market data provided by StrategicApex Group was referenced by the Compensation Committee to evaluate thecompetitiveness of proposed executive compensation. The HSBC CEO reviewed the2007 compensation recommendations provided by the Compensation Committee,including incentive awards relating to 2006 performance, and forwarded therecommendations to REMCO for endorsement. The HSBC CEO was provided withcomparator information from Towers Perrin based on the following peer group:American Express Company, Bank of America Corporation, Barclays, BNP Paribas,Capital One Financial, Citigroup, Inc. Countrywide Financial Corporation,FifthThird Bancorp, Deutsche Bank, National City Corporation, Royal Bank ofScotland, JP Morgan Chase, Santander, UBS, Royal Bank of Canada, US Bancorp,Wachovia Corporation, and Wells Fargo &Company (collectively, the "ComparatorGroup"). Comparator and market data was referenced by the HSBC CEO to evaluatethe competitiveness of proposed executive compensation. REMCO reviewed andendorsed these final recommendations. In July 2007, Mr. McDonagh proposed the performance objectives relating to theperformance-based cash awards made to executive officers participating in theManagement Incentive Program and submitted these goals to the HSBC CEO. As theperformance-based cash awards were dependent upon satisfaction of objectivesthat could not be evaluated until the end of the performance measurement year(i.e., 2007), the final determination of this component of compensation was notmade until the HSBC CEO received reports from management concerning satisfactionof corporate, business unit and individual objectives in January 2008. REMCOreviewed and endorsed the HSBC CEO's recommendations. OBJECTIVES OF HSBC FINANCE CORPORATION'S COMPENSATION PROGRAM Our compensation program is designed to support the successful recruitment,development and retention of high performing executive talent and to provideincentive to those executives to achieve HSBC Finance Corporation's short-termbusiness objectives and to optimize its long-term financial returns. We focus ontotal compensation rather than individual elements of pay. Our compensationprogram is designed to be competitive with the benchmark financial institutionsincluded in the Comparator Group which is comprised of U.S.-based organizationsthat compete with us for business, customers and executive talent. While most ofthese organizations are publicly-held companies, our operations are ofcomparable scale and complexity. Accordingly, our compensation program isdesigned to provide the flexibility to offer compensation that is competitivewith the Comparator Group so that we may attract and retain the highestperforming executives. The philosophy underlying our executive compensation program which is designedto promote the compensation strategy of our parent, HSBC, is discussed below.Across businesses, individual compensation recommendations reflect HSBC's strongstance with respect to diversity and equal opportunity for all employees withinthe context of meritocracy and performance. Link to Company Performance We seek to offer competitive base salaries with a significant portion ofvariable compensation components determined by measuring performance of theexecutive, his or her respective business unit, HSBC Finance Corporation andHSBC. The performance-based cash compensation plans, which are more fullydescribed under Elements of Compensation - Annual Performance-Based Awards,emphasize revenue and expense growth, profits and other key performancemeasures. Other considerations taken into account in setting compensationpolicies and making compensation decisions include demonstrated leadership,future potential, adherence to HSBC's ethical standards and the ability toleverage capabilities across businesses. Corporate, business unit and/orindividual goals are established at the beginning of each year. Compensation plans motivate our executives to improve the overall performanceand profitability of HSBC as well as the specific region, unit, or function towhich they are assigned. Each executive's individual performance andcontribution is considered in making salary adjustments and determining theamount of annual performance bonus paid and the value of HSBC equity-basedawards granted each year. 204 In 2005, HSBC began to award long-term incentive share awards called "RestrictedShares" which vest on a specified date if the executive remains employed throughthat date, and "Performance Shares" which require continued employment andsatisfaction of corporate performance conditions designed to reinforce a long-term focus on HSBC's business strategy and delivering value to its shareholders.Performance Share awards may be granted to the most senior executives whosebusiness units have the ability to have a direct impact on HSBC's consolidatedresults. Restricted Share awards may be granted to other high performingexecutives. Competitive Compensation Levels and Marketplace Research We endeavor to maintain a compensation program that is competitive. We operatein a highly competitive business environment, in which our Comparator Group andother financial services companies continuously look to gain market share andcompetitive advantage by hiring top executive talent. On an annual basis, and asneeded when recruiting, we compare the compensation for our executive officersto that of executives with similar responsibilities for companies of similarindustry, size and complexity. We research the types of compensation programs provided by other companies,compensation levels for executives, details of certain compensation programs,marketplace compensation trends, marketplace practices regarding compensationmix, stock vesting terms, equity ownership levels, the amount of compensationthat is derived from equity incentives and the benefits provided to executives.We also research different aspects of performance, including the relationshipbetween performance and compensation, a comparison of HSBC Finance Corporation'shistorical performance to our Comparator Group, and types of performancemeasures that are used by other companies for their annual and long-termincentive programs. Research data is gathered from several different sources,including general surveys of the marketplace and through retained compensationconsultants including Towers Perrin and Strategic Apex Group. Our 2007 compensation program generally provided executives with the opportunityto earn a base salary that was targeted near the median of the market. Webelieve this represented a competitive base salary for meeting general businessobjectives. Total compensation, which includes incentive awards, was alsotargeted to be in the 50th percentile if we, HSBC and the executive metestablished performance goals, with the possibility of reaching the 75thpercentile if we, HSBC and the executive exceeded established performance goals.This provided greater incentive to achieve higher performance standards and thespecific compensation strategy established by REMCO. The level of compensationpaid to an executive from year to year will differ based on performance. Thisyear-to-year difference stems mainly from HSBC Finance Corporation's and/or anindividual business unit's performance results and, for individuals eligible forperformance-based equity awards, awards may vary based upon HSBC's performanceresults. Compensation levels will also increase or decrease based on theexecutive's individual performance and level of responsibility. Repricing of Stock Options and Timing of Option Grants The exercise price of stock options under historical Household International,Inc. option plans was based upon the stock price on the date the option grantwas approved. For HSBC discretionary option plans, the exercise price of awardsmade in 2003 and 2004 was the higher of the average market value for HSBCordinary shares on the five business days preceding the grant date or the marketvalue on the date of the grant. HSBC also offers employees a plan in which options to acquire HSBC ordinaryshares are awarded when an employee commits to contribute up to 250 GBP (or theequivalent) each month for one, three or five years. At the end of the term, theaccumulated amount, plus interest, may be used to purchase shares under theoption, if the employee chooses to do so. The exercise price for such options isthe average market value of HSBC ordinary shares on the five business dayspreceding the date of the invitation to participate, less a 15 to 20 percentdiscount (depending on the term). We do not, and our parent, HSBC, does not reprice stock option grants. Inaddition, neither HSBC Finance Corporation nor HSBC has ever engaged in thepractice known as "back-dating" of stock option grants, nor have we attempted totime the granting of historical stock options in order to gain a lower exerciseprice. 205 Dilution from Equity-Based Compensation While dilution is not a primary factor in determining award amounts, there arelimits to the number of shares that can be issued under HSBC's equity-basedcompensation programs. These limits were established by vote of HSBCshareholders in 2005. Perquisites It is our philosophy to provide few perquisites to executives. The perquisiteswe provide are intended to help executives be more productive and efficient orto protect HSBC Finance Corporation and its executives from certain businessrisks and potential threats. Our review of competitive market data indicatesthat the perquisites provided to executives are reasonable and within marketpractice. See the Summary Compensation Table below for further information onperquisites awarded to our executives. Retirement Benefits HSBC North America Holdings Inc. offers a pension retirement plan in which HSBCFinance Corporation executives may participate that provides a benefit equal tothat provided to all eligible employees of HSBC Finance Corporation with likedates of hire. However, both qualified and non-qualified defined benefit plansare maintained so that this level of pension benefit can be continued withoutregard to certain Internal Revenue Service limits. Executives and certain otherhighly compensated employees can elect to participate in a nonqualified deferredcompensation plan, where such employees can elect to defer the receipt of earnedcompensation to a future date. We also maintain a qualified 401(k) plan withcompany matching contributions. Another nonqualified deferred compensation planprovides executives and certain other highly compensated employees with abenefit measured by the company matching contribution that could not beallocated to the 401(k) plan because of certain Internal Revenue Service limits.We do not pay any above-market or preferential interest in connection withdeferred amounts. As international managers, Mr. McDonagh and Mr. Booker areaccruing pension benefits under a foreign-based defined benefit plan thatincludes member contributions. Additional information concerning this plan iscontained below in this 2007 CD&A in the table entitled Pension Benefits. Employment Contracts and Severance Protection There are no employment agreements between our executive officers and HSBCFinance Corporation. However, Mr. Menezes has entered into an agreement thatonly provides additional severance benefits upon a change of control of HSBCFinance Corporation. The terms of Mr. Menezes' agreement is contained in thedescription of his compensation under the heading Compensation of OfficersReported in the Summary Compensation Table. Accounting Considerations We adopted the fair value method of accounting under Statement of FinancialAccounting Standards No. 123 (revised 2004), "Share Based Payment" ("SFAS123(R)") effective January 1, 2006. SFAS 123(R) applies to all equityinstruments granted to employees beginning January 1, 2006 and does not apply toawards granted in prior periods before the effective date, except to the extentthat prior periods' awards are modified, repurchased or cancelled after therequired effective date. Prior to 2006, we adopted the fair value method ofaccounting prospectively in 2002 for all new equity instruments granted toemployees as provided under Statement of Financial Accounting Standards No. 148,"Accounting for Stock-Based Compensation - Transition and Disclosure (anamendment of FASB Statement No. 123)." The Board of Directors believes that thistreatment reflects greater accuracy and transparency of the cost of theseincentives and promotes better corporate governance. Tax Considerations Limitations on the deductibility of compensation paid to executive officersunder Section 162(m) of the Internal Revenue Code are not applicable to HSBCFinance Corporation, as it is not a public corporation as defined by Section162(m). As such, all compensation to our executive officers is deductible forfederal income tax purposes, unless there are excess golden parachute paymentsunder Section 4999 of the Internal Revenue Code following a change in control. 206 ELEMENTS OF COMPENSATION The primary elements of executive compensation are base salary, annual non-equity performance-based awards, and long-term equity-based incentives. Inlimited circumstances, discretionary bonuses may also be awarded. While the basesalary is generally fixed and not subject to fluctuation, the size of the cashincentive and amount of equity compensation an individual receives isdiscretionary. HSBC conducts an internal comparison of its executives globally,and then compares business performance relative to the market. In addition,executives are eligible to receive company funded retirement benefits that areoffered to employees at all levels who meet the eligibility requirements.Perquisites are not a significant component of compensation. As discussed abovein the section entitled Oversight of Compensation Decisions, in establishingexecutive compensation packages for 2007, other than for Ms. Sibblies whosecompensation is proposed by the Chief Financial Officer of HSBC North AmericaHoldings Inc. and approved by the Chief Executive Officer of HSBC FinanceCorporation, the Compensation Committee provided advisory recommendations toHSBC's Group General Manager of Human Resources for submission to the HSBC CEO,the HSBC CEO further recommended final remuneration under each element ofcompensation to REMCO and REMCO endorsed the awards. The HSBC CEO based hisdecision on what he considered was an appropriate balance between performance-based compensation and other forms of compensation, the level of responsibilityand individual contribution of the executive and competitive practice in themarketplace for executives from companies of similar industry, size, andcomplexity as HSBC Finance Corporation. HSBC's philosophy is to focus on total compensation versus the individualelements of pay. HSBC has adopted a market-driven orientation that strives toleverage variable pay to motivate outstanding business results. We haveimplemented a process that aids in determining final total individual pay basedon an evaluation of business performance against goals, individual performanceagainst goals, and a comparison against the marketplace. Individual totalcompensation for each of our executives is targeted at the 50th percentile, andadjusted upward or downward based on performance. Base Salary Base salary is reviewed annually and increases, if any, are based on individualperformance and market position. When establishing base salaries for executives,consideration is given to compensation paid for similar positions at companiesincluded in compensation surveys and our Comparator Group, targeting the 50thpercentile, which, when combined with significant performance-based compensationopportunities, enables HSBC Finance Corporation to attract and retain highperforming executives. In addition, other factors such as individual andcorporate performance, potential for future advancement, specific jobresponsibilities, length of time in current position, individual pay history,and comparison to comparable internal positions (internal equity) influences thefinal base salary recommendations for individual executives. Annual Performance-Based Awards Annual non-equity performance-based awards are paid in cash upon satisfaction ofindividual, business unit, corporate financial and operational goals. Superiorperformance is encouraged by placing a significant part of the executive's totalcompensation at risk. In the event certain quantitative or qualitativeperformance goals are not met, annual non-equity performance awards may be lessthan the maximum permitted. Performance goals are set based on prior year'sperformance, expectations for the upcoming year, our annual business plan,HSBC's business strategies, and objectives related to building value for HSBCshareholders. This is consistent with our strategy of targeting individual totalcompensation for each of our executives at the 50th percentile, and adjusting itupward or downward based on the factors mentioned above. In support of our pay-for performance philosophy, we have an annual non-equityperformance-based award program entitled the Management Incentive Program. TheManagement Incentive Program is an annual cash incentive plan that usesquantitative and qualitative goals to motivate employees who have a significantrole in the corporation. The quantitative objectives may include meeting revenueand/or receivable targeted growth, a targeted loss reserve ratio, a targetedequity to managed assets ratio, a targeted earnings per share, reduction inexpenses and charge-offs by specified percentages, specified net income andoperating efficiency ratios for HSBC Finance Corporation and/or the executive'srespective business unit, and an increase in the number of our products used by 207 each customer. Qualitative objectives may include key strategic businessinitiatives or projects for the executive's respective business unit. Thequalitative objective goals may also include cross-business initiatives thatcreate revenue, leverage talent across businesses and share and supportexecution of "best practices" and/or adopt another business' "best practice."Award opportunity and payouts have historically been determined as a percentageof base salary and are based on comparison to other internal comparablepositions (internal equity) and external market practices. Cash incentive awardsunder the Management Incentive Program are paid in February of the yearfollowing the measurement year. The specific objectives for Ms. Sibblies and Messrs. Detelich and Menezes aredescribed below in the discussions of their compensation awards. Long-term Incentives Long-term incentive compensation is awarded through grants of HSBC equityinstruments. The purpose of equity-based incentives is to help HSBC attract andretain outstanding employees and to promote the growth and success of HSBCFinance Corporation's business over a period of time by aligning the financialinterests of these employees with those of HSBC's shareholders. Historically, equity incentives were awarded through stock options andrestricted share grants. All stock options granted prior to November 2002 vestedin full upon the merger of HSBC Finance Corporation and HSBC, and optionsgranted in November 2002 have subsequently vested in full. From the time of themerger in March 2003 to 2005, options on HSBC ordinary shares were granted tocertain executives and restricted shares to others. Awarded options have anexercise price equal to the greater of the average market value of HSBC ordinaryshares on the five business days prior to the grant of the option and the marketvalue of HSBC ordinary shares on the grant date. Options without a performancecondition typically vest in three, four or five equal installments subject tocontinued employment, and expire ten years from the grant date. However, certainoptions awarded to key executives had a "total shareholder return" performancevesting condition and only vest if and when the condition is satisfied. No stockoptions were granted to executive officers in 2005, 2006 or 2007 as HSBC shiftedto Restricted Share and Performance Share grants for equity based compensation. Awarding restricted shares is another form of long-term incentive compensationutilized to compensate and provide an incentive to our employees. Whenrestricted shares are granted to an executive officer, the underlying shares areheld in a trust for the benefit of the employee and are released only after thedefined vesting conditions are met at the end of the holding period. While insuch trust, dividend equivalents are paid on all underlying shares of restrictedstock at the same rate paid to ordinary shareholders. The dividend equivalentsare paid in the form of additional shares for awards made after 2004 and in cashpaid to the executive for all prior awards. There are two types of long-term incentive share awards used by HSBC: (i) thosewith a time vesting condition awarded to recognize significant contribution toHSBC Finance Corporation ("Restricted Shares") and (ii) those with time andcorporate performance-based vesting conditions ("Performance Shares").Restricted Shares are awarded to key executives as part of the annual pay reviewprocess in recognition of past performance and to further motivate and retainexecutives. Restricted Share awards comprise a number of shares to which theemployee will become entitled, normally after three years, subject to theindividual remaining in employment. The level of 2007 grants to most HSBC GroupGeneral Managers and other senior executives reflect the fact that these awardsdo not carry the uncertainty of performance conditions for future vesting. Theamount granted is based on general guidelines endorsed by REMCO addressingindividual performance, goal achievement and potential for growth as part of anindividual executive's total compensation package. In March 2007, certain HSBCFinance Corporation executives received Restricted Share awards for 2006performance. In January 2008, certain HSBC Finance Corporation executives wereawarded Restricted Shares for 2007 performance. No Performance Shares wereawarded to executive officers for 2007 performance. Performance Shares which were awarded in 2005 and 2006 to key executives, wereawarded based on achievement of defined levels of future performance of HSBC.Performance Shares were divided into two equal parts subject to distinctperformance conditions measured over a three year period. A total shareholderreturn award, which accounts for 50 percent of each Performance Share award,will vest in whole or in part (based on a sliding scale of 0 percent to 100percent) depending upon how the growth in HSBC's share value, plus declareddividends, compares 208 to the average shareholder return of a defined competitor group comprised of 28major banking institutions including: ABN AMRO Holding N.V., Banco BilbaoVizcaya Argentaria, S.A., Banco Santander Central Hispano S.A., Bank of AmericaCorporation, The Bank of New York Mellon Company, Inc., Barclays PLC, BNPParibas S.A., Citigroup, Inc., Credit Agricole SA, Credit Suisse Group, DeutscheBank AG, HBOS plc, JP Morgan Chase, Lloyds TSB Group plc, Mitsubishi TokyoFinancial Group Inc., Mizuho Financial Group Inc., Morgan Stanley, NationalAustralia Bank Limited, Royal Bank of Canada, The Royal Bank of Scotland Groupplc, Societe Generale, Standard Chartered PLC, UBS AG, Unicredito Italiano, USBancorp, Wachovia Corporation, Wells Fargo & Company and Westpac BankingCorporation. The earnings per share award accounts for 50 percent of each Performance Shareaward and is measured using a defined formula based on HSBC's earnings per sharegrowth over the three-year period as compared to the base-year earnings pershare, which is earnings per share for the year prior to the year thePerformance Shares are granted. None of the earnings per share PerformanceShares will vest unless a minimum earnings per share is reached at the end ofthree years. REMCO maintains discretion to determine that a Performance Share award will notvest unless satisfied that HSBC's financial performance has shown sustainedimprovement since the date of the award. REMCO may also waive, amend or relaxperformance conditions if it believes the performance conditions have becomeunfair or impractical and believes it appropriate to do so. Due to theprobability of one or both of the performance conditions not being met in partor in full, grants of Performance Shares are for a greater number of shares thanRestricted Share grants. The expected value of Performance Shares is equal to 44percent of the face value. COMPENSATION OF OFFICERS REPORTED IN THE SUMMARY COMPENSATION TABLE Below is a summary of the factors that affected the compensation earned in 2007by the executive officers listed in the Summary Compensation Table. Indetermining the compensation of each of our executives, management, theCompensation Committee and the HSBC CEO evaluated competitive levels ofcompensation for executives managing operations or functions of similar size andcomplexity and the importance of retaining executives with the requiredstrategic, leadership and financial skills to ensure our continued growth andsuccess and their potential for assumption of additional responsibilities. TheHSBC CEO then forwarded his recommendations to REMCO and REMCO endorsed thefinal awards. Compensation of Brendan P. McDonagh Mr. McDonagh served as Chief Executive Officer of HSBC Finance Corporation andas Chief Operating Officer of HSBC North America Holdings Inc. until hisappointment as Chief Executive Officer of HSBC North America Holdings Inc. inFebruary 2008. Prior to his appointment as Chief Executive Officer of HSBCFinance Corporation, Mr. McDonagh served as Chief Operating Officer of HSBCFinance Corporation. From September 2006 to February 2007, Mr. McDonagh servedas Group Executive of HSBC Finance Corporation and of HSBC North AmericaHoldings Inc. Mr. McDonagh participates in general benefits available to executives of HSBCFinance Corporation and certain additional benefits available to HSBC'sinternational staff executives. Compensation packages for international staffexecutives are compared as a total package, consisting of base salary, cashincentive awards, stock awards and perquisites, against the Comparator Group aswell as internal peers on a global basis and are awarded on a discretionarybasis. In addition, in determining Mr. McDonagh's total compensation, the HSBCCEO considered his individual performance, the performance of HSBC FinanceCorporation measured against its annual operating plan and Mr. McDonagh'sleadership of HSBC Finance Corporation through a very difficult U.S. businessenvironment. For 2007, Mr. McDonagh's goals included implementing the annualoperating plan of HSBC Finance Corporation, improving collaboration across theHSBC North America business entities, achieving a targeted net income goal,executing cost containment initiatives to achieve profit before tax target,managing reputational risk and developing talent and creating strong talentpools and succession plans. Mr. McDonagh's cash compensation for 2007 wasdetermined by REMCO on the recommendation of the HSBC CEO who consulted withHSBC Human Resources executives. Mr. McDonagh's base salary for 2007 was $643,287. In determining Mr. McDonagh'sbase salary, the HSBC CEO reviewed the salary levels of Mr. McDonagh's internalpeers on a global basis and found Mr. McDonagh's salary to 209 be slightly below the 50th percentile among internal peers of equivalentexperience level. As a result, a recommendation was made to REMCO and REMCOendorsed a base salary increase of three percent to $643,287. No salaryadjustment was made on Mr. McDonagh's appointment as Chief Executive Officer ofHSBC Finance Corporation. This approach is in line with the HSBC reward strategywhere the focus is on using variable compensation to reward performance withbase salary being positioned around the 50th percentile of the market rate. In March 2007, the HSBC CEO proposed and REMCO endorsed an award to Mr. McDonaghof Restricted Shares with a grant date value of $630,240. The award was made inrecognition of Mr. McDonagh's 2006 performance. In January 2008, the HSBC CEOproposed and REMCO endorsed an award to Mr. McDonagh of Restricted Shares with agrant date value of $1,701,288. The January 2008 discretionary equity award,which is to be awarded in March 2008 in recognition of Mr. McDonagh's 2007performance, reflects the HSBC CEO's view of the value of Mr. McDonagh's long-term contribution to and leadership within HSBC, including HSBC FinanceCorporation and HSBC North America Holdings Inc., and HSBC's desire to retainMr. McDonagh and to motivate and reward his outstanding performance. The 2008Restricted Share award is also consistent with maintaining Mr. McDonagh's totalcompensation at a competitive market pay level in respect of his performance andlong term value to the HSBC Group. The awards are each subject to a three-yearvesting schedule. In January 2008, the HSBC CEO proposed and REMCO endorsed a discretionary cashbonus award to Mr. McDonagh of $1,701,288. The HSBC CEO proposed the award inrecognition of Mr. McDonagh's performance in his role as Chief Executive Officerof HSBC Finance Corporation in 2007. In considering Mr. McDonagh's bonus award,the HSBC CEO considered Mr. McDonagh's personal contribution to the achievementof the business objectives of HSBC Finance Corporation as set out in the annualoperating plan of HSBC Finance Corporation and his personal leadership of HSBCFinance Corporation through a very difficult business environment. Thediscretionary cash bonus award was considered as part of the overall assessmentof Mr. McDonagh's total compensation which was based on his 2007 performance andbenchmarked against HSBC Finance Corporation's Comparator Group. In conformance with HSBC's total compensation philosophy, Mr. McDonagh alsoreceived perquisites relating to housing, education, travel and taxequalization, that were significant when compared to other compensation receivedby other executive officers within HSBC Finance Corporation. These amounts areconsistent, however, with perquisites paid to similarly-placed HSBCinternational staff executives, who are subject to appointment to HSBC locationsglobally as deemed appropriate by HSBC senior management. The additionalperquisites and benefits available to HSBC international staff executives, asdescribed below in the Summary Compensation Table, are intended to compensateexecutives for the significant cost and expense incurred in connection withglobal postings. Compensation of Siddharth N. Mehta On February 15, 2007, Mr. Mehta resigned as the Chief Executive Officer of HSBCFinance Corporation. Until that time, he participated in the same programs andgenerally received compensation based on the same factors as the other executiveofficers. However, Mr. Mehta's overall compensation level reflected his greaterdegree of policy-and decision-making authority, his higher level ofresponsibility with respect to the strategic direction of HSBC FinanceCorporation and his ultimate responsibility for our financial and operationalresults. Mr. Mehta had an employment agreement pursuant to which Mr. Mehta was to serveas Chairman and Chief Executive Officer of HSBC Finance Corporation and alsoChief Executive Officer of HSBC North America Holdings Inc. until March 28,2008. However, upon Mr. Mehta's resignation, the employment agreement wasterminated and replaced with a separation agreement entered into on February 15,2007 between Mr. Mehta and HSBC Finance Corporation. Pursuant to the separation agreement, Mr. Mehta received $115,385, representingall base salary earned but unpaid as of February 15, 2007, and $71,795 inrespect of vacation earned but not taken prior to his departure. In addition,Mr. Mehta was entitled to receive $2,271,372 on the first day of September 2007,reflecting, in substantial part, a bonus pursuant to the 2006 executive bonuspool to which he was entitled in accordance with the terms of his employmentagreement but did not receive. In addition, Mr. Mehta continues to receive hisbase salary, at a rate of $1,000,000 per annum through March 28, 2008. OnJanuary 2, 2008 he received payments for guaranteed bonuses 210 in the amounts of $1,875,000 for the period January 1, 2007 through December 31,2007 and $468,750 for the period January 1, 2008 through March 28, 2008. Mr.Mehta is also to receive interest on all payments to which he is entitled to buthas not received at a rate of seven percent from the date they would be dueuntil the date each such payment is made. Pursuant to the separation agreement, Mr. Mehta was entitled to the payment ofpremiums for medical and dental insurance, continued coverage in HSBC FinanceCorporation's life insurance plan and allowances for umbrella liabilityinsurance, automobile and financial counseling until the earlier of such time asMr. Mehta becomes eligible to participate in similar plans or policies ofanother employer and March 28, 2008. Due to his subsequent employment, suchbenefits terminated on November 1, 2007. All options to purchase shares grantedto Mr. Mehta prior to November 20, 2002 pursuant to the Household International1996 Long-Term Executive Incentive Compensation Plan are fully vested and remainexercisable for the full ten-year and one-day term. All options to purchaseshares granted on and after November 20, 2002 pursuant to the 1996 plan arefully vested and exercisable for the full ten-year and one-day term. Mr. Mehta's separation agreement included a non-competition provision for thethree-month period following his termination. In addition, the agreementcontained a non-solicitation provision that stated that, subject to someexceptions, during the one-year period starting February 15, 2007, Mr. Mehtawould not directly or indirectly induce any employee of HSBC Finance Corporationor its affiliates to terminate employment with any such entity, and would not,directly or indirectly, hire, employ or offer employment or assist in hiring,employing or offering employment, to any person who is or was employed by HSBCFinance Corporation or an affiliate. Compensation of Beverley A. Sibblies The Chief Financial Officer of HSBC Finance Corporation, Ms. Beverley A.Sibblies, participates in general benefits available to officers of thecorporation and the Management Incentive Program. Her base salary for 2007 wasdetermined in December 2006 by Mr. Mehta, the former Chief Executive Officer,upon recommendation of the Chief Financial Officer of HSBC North AmericaHoldings Inc. in consultation with Human Resources executives. ManagementIncentive Plan awards earned by Ms. Sibblies in 2007 and paid in February 2008and Restricted Share awards were recommended by the Chief Financial Officer ofHSBC North America Holdings Inc. and approved by Mr. McDonagh. Ms. Sibblies' 2007 compensation was determined as a total compensation packagewhich included base salary, a cash incentive award, stock awards andperquisites. In determining her 2007 compensation, the Chief Financial Officerof HSBC North America Holdings Inc. reviewed Ms. Sibblies' performanceobjectives, including corporate, individual and departmental goals furtherdescribed below. In addition, he reviewed Ms. Sibblies' performance against theperformance objectives, her expertise and contribution to the organization. Thepackage was compared against the Comparator Group data as well as internalpeers. Ms. Sibblies' base salary in 2007 was $400,000 of which $396,154 was received in2007. This was a $25,000 increase from her 2006 base salary. To determine Ms.Sibblies' base salary, Human Resources executives reviewed competitivecompensation levels and found Ms. Sibblies' then current base salary level to bebelow the 50th percentile among similarly-placed executives reported in salarysurvey data as well as internal peers on a global basis. The CompensationCommittee recommended the $25,000 increase and the HSBC CEO approved theCompensation Committee's proposal. In March 2007, Ms. Sibblies was granted Restricted Shares (formerly referred toas Achievement Shares), with a grant date value of $550,000. The grant was madein recognition of Ms. Sibblies' 2006 performance. In January 2008, Ms. Sibblieswas awarded Restricted Shares with a grant date value of $300,000. The awardsare each subject to a three-year vesting schedule. The January 2008discretionary equity award, which is to be awarded in March 2008, reflectsmanagement's recognition of the value of Ms. Sibblies' contribution to andleadership of HSBC Finance Corporation, HSBC's desire to retain Ms. Sibblies andto motivate and reward outstanding performance. This award is also consistentwith maintaining Ms. Sibblies' compensation level at a competitive market paylevel. Ms. Sibblies' cash incentive compensation under the Management Incentive Programof $304,000 earned in 2007 and paid in February 2008 was determined based uponsatisfaction of quantitative and qualitative objectives that provide for atarget cash award equal to 150 percent of her base salary, with a maximum of twotimes that amount. Ms. Sibblies' cash incentive compensation requiredsatisfaction of objectives that included the following: 211 (i) individual objectives such as facilitating collaboration among the chieffinancial officers for HSBC Finance Corporation and its subsidiaries, developingtalent management and succession planning for all critical finance functionswithin HSBC Finance Corporation, establishing a process that ensures ouraccounting policies are consistent and properly applied, enhancing the planningand forecasting functions within the corporate finance department, developingand supporting a strategy to mitigate control gaps, working with the treasurydepartment to allocate transaction costs, continuing to provide leadership andguidance with respect to Sarbanes-Oxley reporting and disclosure controls andsupporting HSBC with the implementation of a Basel Committee on BankingSupervision framework, (ii) common goal objectives such as achieving a targetednet income goal, improving employee engagement, meeting internal audit andoperational risk goals and (iii) business unit goals such as increasingdiversity, maintaining collaboration among HSBC North America management,meeting expense controls, establishing a process that ensures that HSBC'saccounting policies are consistently applied, leading process improvementprograms, overseeing development of an economic capital model and providingsupport to the Chief Executive Officer. The Chief Financial Officer of HSBC North America Holdings Inc., in consultationwith Human Resources executives, assessed Ms. Sibblies' and HSBC FinanceCorporation's performance against the above-mentioned objectives and found thatthere was complete or substantial satisfaction of the majority of the goals. Itwas deemed that Ms. Sibblies' most significant accomplishments in 2007 includedestablishing a process to ensure HSBC Group accounting policies were applied,preparing and submitting an annual operating plan in accordance with significantrevised HSBC requirements, and establishing process improvement programs thatpositively impact the timeliness and accuracy of the month-end closing process.Ms. Sibblies was therefore awarded cash incentive compensation equal to seventy-six percent of her base salary, or $304,000, which was paid to her in February2008. Other compensation paid to Ms. Sibblies, including perquisites such as anexecutive physical examination, is consistent with perquisites paid tosimilarly-placed executive officers within and outside of HSBC. Compensation of Mr. Thomas M. Detelich Mr. Detelich's 2007 compensation was determined as a total compensation packagewhich included base salary, a cash incentive award, stock awards andperquisites. In recommending Mr. Detelich's 2007 compensation to REMCO, the HSBCCEO reviewed Mr. Detelich's performance objectives, including corporate,individual and departmental goals further described below. In addition, hereviewed Mr. Detelich's performance against the performance objectives, hisexpertise and contribution to the organization. The package was compared againstthe Comparator Group data as well as internal peers. In 2007, Mr. Detelich's base salary remained the same as 2006, at $650,000. InDecember 2006, the Compensation Committee reviewed competitive compensationlevels and found Mr. Detelich's then current base salary level was above the50th percentile among similarly-placed executives reported in salary survey dataas well as internal peers on a global basis. In keeping with the goal ofmaintaining executive base salaries in the 50th percentile, it did not recommendan increase to his salary. The HSBC CEO recommended and REMCO endorsed theCompensation Committee's assessment. In March 2007, the HSBC CEO proposed and REMCO endorsed an award to Mr. Detelichof Restricted Shares with a grant date value of $440,000. The award was made inrecognition of Mr. Detelich's 2006 performance. The award is subject to a three-year vesting schedule. Mr. Detelich's cash incentive compensation under the Management IncentiveProgram of $520,000 earned in 2007 and paid in February 2008 was determinedbased upon satisfaction of certain quantitative and qualitative objectives thatprovide for a target cash award equal to 150 percent of his base salary, with amaximum of two times that amount. Mr. Detelich's cash incentive compensationrequired satisfaction of objectives that included: (i) individual objectivessuch as improving collaboration across the HSBC North America business entities,developing talent and creating strong talent pools and succession plans,ensuring Consumer and Mortgage Lending is focused on customer values, executingmarketing, cost containment, credit quality and compliance initiatives toachieve profit before tax target and managing reputational risk, (ii) commongoal objectives such as achieving a targeted net income goal, improving employeeengagement, meeting internal audit and operational risk goals and (iii) businessunit goals such as supporting HSBC North America's diversity goals, achievingthe overall senior management 212 committee goals, achieving expense budgets, achieving profits before taxtargets, achieving delinquency and charge-off targets. The HSBC CEO assessed Mr. Detelich's, the Consumer Lending and Mortgage Servicesbusinesses' and HSBC Finance Corporation's performance against the above-mentioned objectives and found that Mr. Detelich did not attain the majority ofthe goals. However, Mr. Detelich's accomplishments in 2007 included provenleadership skills through a very difficult business environment resulting in ahigh score on an employee engagement study of the Consumer Lending and MortgageServices businesses, exceeding the plan for charge-off and expense reduction andleading his business unit through the closure of the Mortgage Services andDecision One businesses and the significant restructuring within HSBC.Therefore, despite not meeting all of his goals, the HSBC CEO recommended andREMCO endorsed a cash incentive award equal to eighty percent of his basesalary, or $520,000, which was paid to him in February 2008. Other compensation paid to Mr. Detelich, including perquisites such as anexecutive physical examination, is consistent with perquisites paid tosimilarly-placed executive officers within and outside of HSBC. Compensation of Mr. Walter G. Menezes Mr. Menezes' 2007 compensation was determined as a total compensation packagewhich included base salary, a cash incentive award, stock awards andperquisites. In recommending Mr. Menezes' 2007 compensation to REMCO, the HSBCCEO reviewed Mr. Menezes' performance objectives, including corporate,individual and departmental goals further described below. In addition, hereviewed Mr. Menezes' performance against the performance objectives, hisexpertise and contribution to the organization. The package was compared againstthe Comparator Group data as well as internal peers. In 2007, Mr. Menezes' base salary remained the same as 2006, at $650,000. InDecember 2006, the Compensation Committee reviewed competitive compensationlevels and found Mr. Menezes' then current base salary level was above the 50thpercentile among similarly-placed executives reported in salary survey data aswell as internal peers on a global basis. In keeping with the goal ofmaintaining executive base salaries in the 50th percentile, it did not recommendan increase to his salary. The Compensation Committee also considered that Mr.Menezes' base salary was equal to Mr. Detelich's who the Compensation Committeedeemed to have comparable responsibilities. The HSBC CEO recommended and REMCOendorsed the Compensation Committee's assessment. In March 2007, the HSBC CEO proposed and REMCO endorsed an award to Mr. Menezesof Restricted Shares with a grant date value of $440,000. The award was made inrecognition of Mr. Menezes' 2006 performance. In January 2008, the HSBC CEOproposed and REMCO endorsed an award to Mr. Menezes of Restricted Shares with agrant date value of $900,000. The January 2008 discretionary equity award, whichis to be awarded in March 2008 in recognition of Mr. Menezes' 2007 performance,reflects the HSBC CEO's view of the value of Mr. Menezes' expected long-termcontribution to and leadership of HSBC North America, and HSBC's desire toretain Mr. Menezes and to motivate and reward exceptional performance. Thisaward is also consistent with maintaining Mr. Menezes' compensation at acompetitive market pay level in respect of his performance and long term valueto the HSBC Group. The awards are each subject to a three-year vesting schedule. Mr. Menezes' cash incentive compensation under the Management Incentive Programof $940,000 earned in 2007 and paid in February 2008 was determined based uponsatisfaction of certain quantitative and qualitative objectives that provide fora target cash award equal to 150 percent of his base salary, with a maximum oftwo times that amount. Mr. Menezes' cash incentive compensation requiredsatisfaction of objectives that included: (i) individual objectives such aspromoting cross-selling opportunities between Card Services and Retail Servicesunits, developing talent and creating strong talent pools and succession plans,ensuring delivery of extraordinary customer care, increasing revenue, managingexpenses and mitigating losses, supporting HSBC's global reach with focus ondistribution of profitable credit card products across certain regions andmanaging reputational risk, (ii) common goal objectives such as achieving atargeted net income goal, improving employee engagement, meeting internal auditand operational risk goals and (iii) business unit goals such as supporting HSBCNorth America's diversity goals, achieving the overall senior managementcommittee goals, achieving expense budgets, achieving profits before taxtargets, achieving delinquency and charge-off targets. 213 The HSBC CEO assessed Mr. Menezes', the Credit Card Services, Retail Servicesand Auto Finance businesses and HSBC Finance Corporation's performance againstthe above-mentioned objectives and found that Mr. Menezes attained approximatelyhalf of the goals. In addition, Mr. Menezes' accomplishments in 2007 includeddeveloping the global card strategy and starting its implementation, reductionof future exposure on deterioration of credit quality attributable to the U.S.economic environment and solid results for the U.S. domestic card business.Therefore, the HSBC CEO recommended and REMCO endorsed a cash incentive awardequal to one hundred forty-four percent of his base salary, or $940,000, whichwas paid to him in February 2008. Other compensation paid to Mr. Menezes, including perquisites such as anexecutive physical examination, is consistent with perquisites paid tosimilarly-placed executive officers within and outside of HSBC. Mr. Menezes, has an employment protection agreement pursuant to which if, duringthe 18 month period following a change in control of HSBC Finance Corporation,Mr. Menezes' employment is terminated due to a "qualifying termination" (whichincludes a termination other than for "cause" or disability, or resignation byMr. Menezes for "good reason"), he will be entitled to receive a cash paymentconsisting of: - A pro rata annual bonus through the date of termination, based on the highest of the annual bonuses payable during the three years preceding the year in which the termination occurs; - A payment equal to 1.5 times the sum of the applicable base salary and highest annual bonus; and - A payment equal to the value of 18 months of additional employer contributions under HSBC North America's tax-qualified and supplemental defined contribution plans. In addition, upon a qualifying termination following a change in control, Mr.Menezes will be entitled to continued welfare benefit coverage for 18 monthsafter the date of termination, 18 months of additional age and service creditunder HSBC North America's tax-qualified and supplemental defined benefitretirement plans, and outplacement services. If any amounts or benefits receivedunder the employment protection agreement or otherwise are subject to the excisetax imposed under section 4999 of the Internal Revenue Code, an additionalpayment will be made to restore Mr. Menezes to the after-tax position in whichhe would have been if the excise tax had not been imposed. However, if a smallreduction in the amount payable would render the excise tax inapplicable, thenthis reduction will be made instead. Compensation of Niall S. K. Booker Mr. Booker served as Chief Operating Officer of HSBC Finance Corporation untilhis appointment as Chief Executive Officer of HSBC Finance Corporation inFebruary 2008. Mr. Booker participates in general benefits available toexecutives of HSBC Finance Corporation and certain additional benefits availableto HSBC's international staff executives. Compensation packages forinternational staff executives are compared as a total package, consisting ofbase salary, cash incentive awards, stock awards and perquisites, against theComparator Group as well as internal peers on a global basis and are awarded ona discretionary basis. In addition, in determining Mr. Booker's totalcompensation, the HSBC CEO considered his individual performance and theperformance of HSBC Finance Corporation measured against its annual operatingplan. For 2007, Mr. Booker's goals included supporting the implementation of theannual operating plan of HSBC Finance Corporation, improving collaborationacross the HSBC North America business entities, meeting internal audit, creditand operational risk goals, enhancing the planning and forecasting functions atHSBC Finance Corporation, executing cost containment initiatives to achieveprofit before tax target, managing reputational risk and developing talent andcreating strong talent pools and succession plans. Mr. Booker's cashcompensation for 2007 was determined by REMCO on the recommendation of the HSBCCEO who consulted with HSBC Human Resources executives. Mr. Booker's base salary for 2007 was $561,080, of which $374,053 was earnedfrom April 30, 2007, the effective date of his appointment as Chief OperatingOfficer of HSBC Finance Corporation. In determining Mr. Booker's base salary,the HSBC CEO reviewed competitive compensation levels and found Mr. Booker'scurrent compensation level was above the 50th percentile among similarly-placedexecutives at HSBC Finance Corporation's Comparator Group as well as internalpeers on a global basis. On appointment as Chief Operating Officer of HSBCFinance Corporation, Mr. Booker's base salary remained unchanged. This approachis in line with the HSBC reward strategy where the focus is on using variablecompensation to reward performance with base salary being positioned around the50th percentile of the market rate. 214 In January 2008, the HSBC CEO proposed and REMCO endorsed an award to Mr. Bookerof Restricted Shares with a grant date value of $1,209,666. The January 2008discretionary equity award, which is to be awarded in March 2008 in recognitionof Mr. Booker's 2007 performance, reflects the HSBC CEO's view of the value ofMr. Booker's long-term contribution to and leadership within HSBC, includingHSBC Finance Corporation and HSBC North America Holdings Inc., and HSBC's desireto retain Mr. Booker and to motivate and reward his outstanding performance. The2008 Restricted Share award is also consistent with maintaining Mr. Booker'stotal compensation at a competitive market pay level in respect of hisperformance and long term value to the HSBC Group. The award is subject to athree-year vesting schedule. In January 2008, the HSBC CEO proposed and REMCO endorsed a discretionary cashbonus award to Mr. Booker of $1,209,666. The HSBC CEO proposed the award inrecognition of Mr. Booker's performance in his role as Chief Operating Officerof HSBC Finance Corporation in 2007. In considering Mr. Booker's bonus award,the HSBC CEO considered Mr. Booker's personal contribution to the achievement ofthe business objectives of HSBC Finance Corporation as set out in the annualoperating plan of HSBC Finance Corporation and his personal leadership skillsthrough a very difficult business environment. The discretionary cash bonusaward was considered as part of the overall assessment Mr. Booker's totalcompensation which was based on his 2007 performance and benchmarked againstHSBC Finance Corporation's Comparator Group. In conformance with HSBC's total compensation philosophy, Mr. Booker alsoreceived perquisites relating to housing, education and tax equalization, thatwas significant when compared to other compensation received by other executiveofficers within HSBC Finance Corporation. These amounts are consistent, however,with perquisites paid to similarly-placed HSBC international staff executives,who are subject to appointment to HSBC locations globally as deemed appropriateby HSBC senior management. The additional perquisites and benefits available toHSBC international staff executives, as described below in the SummaryCompensation Table, are intended to compensate executives for the significantcost and expense incurred in connection with global postings. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The primary purpose of the Compensation Committee is to assist the Board ofDirectors in discharging its responsibilities related to the compensation of theChief Executive Officer of HSBC Finance Corporation and the officers that aredirect reports to the Chief Executive Officer and such other officers as may bedesignated by the Board of Directors. The Compensation Committee is comprised ofthe following directors: George A. Lorch (Chair), William R. P. Dalton and CyrusF. Freidheim, Jr. All members of the Compensation Committee are independentdirectors under HSBC Finance Corporation's Corporate Governance Standards.Additional information with regard to the Compensation Committee is contained inthe section of this Form 10-K entitled Item 10. Directors, Executive Officersand Corporate Governance - Corporate Governance. 215 COMPENSATION COMMITTEE REPORT The Compensation Committee has reviewed and discussed the CompensationDiscussion and Analysis ("2007 CD&A") with management. Based on such review anddiscussion, the Compensation Committee has recommended to the Board of Directorsthat the 2007 CD&A be included in this Annual Report on Form 10-K. Compensation Committee George A. Lorch (Chair) William R.P. Dalton Cyrus F. Freidheim, Jr. 216 EXECUTIVE COMPENSATION The following tables and narrative text discuss the compensation awarded to,earned by or paid to (i) Mr. Brendan P. McDonagh, who served as our ChiefExecutive Officer from February 2007 through February 21, 2008, (ii) Mr.Siddharth N. Mehta, who served as Chief Executive Officer until February 2007,(iii) Ms. Beverley A. Sibblies, who served as our Chief Financial Officer during2007 and (iv) our three other most highly compensated executive officers whoserved as executive officers, all as of December 31, 2007. SUMMARY COMPENSATION TABLE CHANGE IN PENSION VALUE AND NON-EQUITY NONQUALIFIED INCENTIVE DEFERRED STOCK OPTION PLAN COMPENSATION ALL OTHERNAME AND SALARY BONUS AWARDS AWARDS COMPENSATION EARNINGS COMPENSATION TOTALPRINCIPAL POSITION YEAR ($) ($)(2) ($)(3) ($)(4) ($)(5) ($)(6) ($)(7) ($)----------------------------------------------------------------------------------------------------------------------------------BRENDAN P. 2007 $643,287 $1,701,288 $ 938,756 $ - $ - $ 479,374 $ 924,943 $4,687,648 MCDONAGH(1)..........Chief Executive Officer 2006 $676,553 $ - $ 272,515 $ - $710,444 $ 488,925 $ 635,401 $2,783,838 SIDDHARTH N. MEHTA(1).. 2007 $115,385 $ - $ - $ - $ - $ 191,774 $5,846,248 $6,153,407Former Chairman & Chief 2006 $984,615 $ - $3,684,906 $1,575,292 $ - $ 351,288 $ 290,962 $6,887,063Executive Officer BEVERLEY A. SIBBLIES... 2007 $396,154 $ - $ 498,259 $ - $304,000 $ 20,376 $ 60,493 $1,279,282Executive Vice 2006 $375,000 $ - $ 216,824 $ - $543,750 $ 17,269 $ 54,303 $1,207,146President and ChiefFinancial Officer THOMAS M. DETELICH..... 2007 $650,000 $ - $2,775,965 $ 247,265 $520,000 $ 321,566 $ 174,906 $4,689,702President - Consumer & 2006 $650,000 $2,000,000 $2,069,519 $ 787,646 $ - $1,158,293 $ 162,774 $6,828,232Mortgage LendingWALTER G. MENEZES(9)... 2007 $650,000 $ - $1,965,709 $ 204,326 $940,000 $ 994,560 $ 162,386 $4,916,981President - Card & 2006 $642,308 $2,000,000 $1,476,173 $ 394,302 $ - $1,311,749 $ 151,568 $5,976,100Retail Services andAuto FinanceNIALL S. BOOKER(8)..... 2007 $374,053 $1,209,666 $ 869,941 $ - $ - $ 579,077 $ 346,700 $3,379,437Chief Operating Officer -------- (1) Brendan P. McDonagh was appointed Chief Executive Officer as of February 26, 2007. Mr. McDonagh's compensation is tied to an international reserve asset denominated in Special Drawing Rights (SDRs). Because the value of the U.S. dollar increased against the SDR in 2007, due to the exchange, it appears as though his salary was reduced when he actually received an increase of three percent. Mr McDonagh succeeded Siddharth N. Mehta who resigned as of February 15, 2007. The salary amount shown for Mr. Mehta is the prorated portion of his annual base salary of $1,000,000. (2) The amounts disclosed for Messrs. McDonagh and Booker represent the discretionary incentive bonuses relating to 2007 performance paid in February 2008. The amounts disclosed for Messrs. Detelich and Menezes represent the discretionary incentive bonus relating to 2006 performance paid in February 2007. (3) The values reflected in the table above are the amounts of compensation expense amortized in 2007 for accounting purposes under FAS 123R for outstanding restricted stock grants made in the years 2003, 2004, 2005, 2006 and 2007. A portion of the expense reflected for Messrs. McDonagh, Detelich and Menezes relates to Performance Shares granted in 2005 and 2006 that will vest in whole or in part three years from the date of grant if all or some of the performance conditions are met as follows: 50% of the award is subject to a total shareholder return measure ("TSR") against a comparator group. HSBC Finance Corporation's comparator group is comprised of U.S.-based organizations that compete with us for business, customers, and executive talent. The Performance Share comparator group includes: ABN AMRO Holding N.V., Banco Santander Central Hispano S.A., Banco Bilbao Vizcaya Argentina, S.A., Bank of America Corporation, The Bank of New York Mellon Corporation, Barclays PLC, BNP Paribas S.A., Citigroup, Inc., Credit Agricole SA, Credit Suisse Group, Deutsche Bank AG, HBOS plc, JP Morgan Chase, Lloyds TSB Group plc, Mitsubishi Tokyo Financial Group Inc., Mizuho Financial Group Inc., Morgan Stanley, National Australia Bank Limited, Royal Bank of Canada, The Royal Bank of Scotland Group plc, Societe Generale, Standard Chartered PLC, UBS AG, Unicredito Italiano, US Bancorp, Wachovia Corporation, Wells Fargo & Company and Westpac Banking Corporation. Depending on HSBC's ranking against the comparator group at the end of the performance period, the TSR portion of the grant may vest on a sliding scale from 100% to 0%. The remaining 50% of the award is subject to satisfaction of an earnings per share measure ("EPS") and may vest based on an incremental EPS percentage in accordance with a defined formula. If the aggregate incremental EPS is less than 24%, the EPS portion will be forfeited and if it is 52% or more, the EPS component will vest in full. We have reduced the amount of expense related to the Performance Shares that would have been recorded by 50% due to the probability of a 0% vest on the TSR portion and a 100% vest on the EPS portion for both years 2005 and 2006. HSBC Finance Corporation records expense over the three year period based on the fair value which is 100% of the face value on the date of the award. The remaining grants are non- performance-based awards and are subject to various time vesting conditions as disclosed in the footnotes to the Outstanding Equity Awards at Fiscal Year End 217 Table and will be released as long as the named executive officer is still in the employ of HSBC Finance Corporation at the time of vesting. HSBC Finance Corporation records expense based on the fair value over the vesting period which is 100% of the face value on the date of the award. Dividend equivalents, in the form of cash or additional shares, are paid on all underlying shares of restricted stock at the same rate as paid to ordinary share shareholders. (4) HSBC and HSBC Finance Corporation's current philosophy is to reward executive officers with restricted shares, called "Restricted Shares" or "Performance Shares." HSBC last issued stock options to HSBC Finance Corporation's named executive officers in 2004. The amounts reflected above are the amounts of compensation expense amortized in 2007 for accounting purposes under FAS 123R for outstanding stock option grants made in 2003. The methodology of the valuation of these options was based on a Black-Scholes model. The stock option grant made to certain named executive officers in 2004 is performance-based with 100% of the condition tested on Total Shareholder Return. The performance condition was not met in 2007, and will be subject to a re-test in 2008, and again in 2009, and must be satisfied in order for the options to vest. (5) The amounts disclosed represent the incentive bonuses earned in 2007 but paid in February 2008 under the Management Incentive Program. (6) The HSBC-North America (U.S.) Retirement Income Plan ("RIP"), the Household Supplemental Retirement Income Plan ("SRIP"), the HSBC International Staff Retirement Benefit Scheme (Jersey) ("ISRBS"), the NonQualified Deferred Compensation Plan and the Supplemental Tax Reduction Investment Plan are described under Savings and Pension Plans on page 223. Increase in retirement plan values for each participant are: Mr. Mehta - $18,634 (RIP), $202,721 (SRIP); Ms. Sibblies - $5,088 (RIP), $15,085 (SRIP); Mr. Detelich - $20,123 (RIP), $78,546 (SRIP); Mr. Menezes - $68,992 (RIP), $822,536 (SRIP); and Mr. McDonagh $479,374 and Mr. Booker $579,077 (both in ISRBS, net of mandatory 2007 contribution). Changes in values under the deferred compensation plans for each participant are: Mr. Mehta $(29,581); Ms. Sibblies $203; Mr. Detelich $222,897, and Mr. Menezes $103,032. (7) Components of All Other Compensation are disclosed in the aggregate. All Other Compensation includes such items as financial planning services, physical exams, club initiation fees, expatriate benefits and car allowances. The following itemizes benefits that individually or in the aggregate for each executive officer exceeds $10,000: Club initiation fees and dues for Messrs. McDonagh $15,112 and Booker $8,766; physical exams for each named executive officer as follows: Mr. McDonagh $709; Ms. Sibblies $3,795; Mr. Detelich $12,276; Mr. Menezes $1,766; and Mr. Booker $584; car allowances for Messrs. McDonagh $15,808, Mehta $11,000, and Booker $7,845; personal use of aircraft by Mr. McDonagh $1,678; executive umbrella liability insurance coverage in the amount of $10 million for Mr. Mehta at a cost of $1,750, and Messrs. Detelich and Menezes each at cost of $583; children's educational allowances for Mr. McDonagh $33,492, and Mr. Booker $48,198; housing and furniture allowances for Mr. McDonagh $172,310 and Mr. Booker $146,261; loan subsidy for Mr. McDonagh of $30,179 as additional income; medical expenses for Mr. McDonagh $7,225; relocation expense for Mr. Booker $16,644; international travel plan costs of $56,105 for Mr. McDonagh; and expatriate benefits for Mr. McDonagh were $592,325 and for Mr. Booker were $118,403. The total in the All Other Compensation column also includes HSBC Finance Corporation's contribution for the named executive officers' participation in the HSBC-North America (U.S.) Tax Reduction Investment Plan ("TRIP") and the Supplemental Household International Tax Reduction Investment Plan ("STRIP") in 2007 as follows: Mr. Mehta, $11,966; Mr. Detelich, $158,547; Mr. Menezes, $160,037 and Ms. Sibblies, $56,698. In addition, under the terms of his severance agreement, Mr. Mehta received the balance of his salary for 2007 in the amount of $884,615, pay for vacation earned but not taken in the amount of $71,795, $2,271,372 reflecting in part a bonus pursuant to the 2006 executive bonus pool to which he was entitled in accordance with the terms of his employment agreement but did not receive, $250,000 covering salary to be received in 2008 along with a prorated 2008 bonus of $468,750. TRIP and STRIP are described under Savings and Pension Plans - Deferred Compensation Plans on page 223. (8) Niall S. Booker joined HSBC Finance Corporation and was appointed Chief Operating Officer as of April 30, 2007. His base salary reflects amounts earned by Mr. Booker after that date but his cash bonus and stock awards reflect the awards for the entire year as they were primarily based on his performance with HSBC Finance Corporation. (9) In February 2006, Mr. Menezes' base salary was increased to $650,000. The amount shown for 2006 is what Mr. Menezes actually received during 2006. 218 GRANTS OF PLAN-BASED AWARDS TABLE ALL OTHER ESTIMATED FUTURE PAYOUTS ESTIMATED FUTURE PAYOUTS STOCK AWARDS: UNDER NON-EQUITY UNDER EQUITY NUMBER OF INCENTIVE PLAN AWARDS(1) INCENTIVE PLAN AWARDS(2) SHARES OF --------------------------------- ---------------------------- STOCK OR THRESHOLD TARGET MAXIMUM THRESHOLD TARGET MAXIMUM UNITSNAME GRANT DATE ($) ($) ($) (#)(4) (#) (#) (#)----------------------------------------------------------------------------------------------------------------------BRENDAN P. MCDONAGH.... 03/30/07 N/A N/A N/A N/A N/A N/A 36,054Chief Executive Officer SIDDHARTH N. MEHTA..... N/A N/A N/A N/A N/A N/A N/A N/AFormer Chairman & ChiefExecutive Officer BEVERLEY A. SIBBLIES... 03/30/07 $ - $300,000 $ 600,000 N/A N/A N/A 31,464Executive VicePresident and ChiefFinancial Officer THOMAS M. DETELICH..... 03/30/07 $ - $975,000 $1,950,000 N/A N/A N/A 25,171President - Consumer &Mortgage Lending WALTER G. MENEZES...... 03/30/07 $ - $975,000 $1,950,000 N/A N/A N/A 25,171President - Card &Retail Services andAuto Finance NIALL S. BOOKER........ N/A N/A N/A N/A N/A N/A N/A N/AChief Operating Officer ALL OTHER OPTION AWARDS: GRANT DATE NUMBER OF FAIR VALUE SECURITIES OF STOCK UNDERLYING AND OPTION OPTIONS AWARDSNAME (#) ($)(3)(4)----------------------------------------------------BRENDAN P. MCDONAGH.... N/A $630,240Chief Executive Officer SIDDHARTH N. MEHTA..... N/A N/AFormer Chairman & ChiefExecutive Officer BEVERLEY A. SIBBLIES... N/A $550,000Executive VicePresident and ChiefFinancial Officer THOMAS M. DETELICH..... N/A $440,000President - Consumer &Mortgage Lending WALTER G. MENEZES...... N/A $440,000President - Card &Retail Services andAuto Finance NIALL S. BOOKER........ N/A N/AChief Operating Officer -------- (1) As discussed in the 2007 CD&A, the Management Incentive Program is an annual cash incentive plan that is comprised of both quantitative and qualitative individual, business unit or company objectives which are determined at the beginning of the year with each objective being assigned a target and maximum payout based upon a percentage of base salary. The percentage of target and maximum payout is determined by the market data for the position the executive officer holds and will not change unless the executive officer changes into a position which has a different target and maximum payout. Typically the maximum payout is a 1x or 2x multiplier of target. Actual 2007 awards are reported in the Summary Compensation Table on page 217. (2) As discussed in the 2007 CD&A, no Performance Shares were awarded in 2007. (3) The total grant date fair value reflected for Messrs. McDonagh, Detelich and Menezes and Ms. Sibblies is based on 100% of the fair market value of the underlying HSBC ordinary shares on March 30, 2007 (the date of grant) of GBP 8.25 and converted into U.S. dollars using the GBP exchange rate as of the time of funding the grant (1.96254). These amounts reflect the awards of Restricted Shares which consist of shares of restricted stock that vest in full at the end of a three year period from the date of grant. The award amount of Restricted Shares is based on the executive officer's position within the organization, base salary, performance rating and scope for growth. At the executive level, officers eligible to receive Restricted Shares are eligible for awards ranging from 50% up to 300% of base salary. (4) In January 2008, Restricted Shares were approved to be awarded to Messrs. McDonagh, Menezes and Booker and to Ms. Sibblies. The awards are expected to be made in March 2008. 219 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE OPTION AWARDS-------------------------------------------------------------------------------------------- EQUITY INCENTIVE PLAN AWARDS: STOCK AWARDS NUMBER OF NUMBER OF NUMBER OF ------------------------------- SECURITIES SECURITIES SECURITIES NUMBER OF MARKET VALUE UNDERLYING UNDERLYING UNDERLYING OPTION SHARES OR OF SHARES OR UNEXERCISED UNEXERCISED UNEXERCISED EXERCISE OPTION UNITS OF STOCK UNITS OFSTOCK OPTIONS (#) OPTIONS (#) UNEARNED PRICE EXPIRATION THAT HAVE NOT THAT HAVE NOTNAME EXERCISABLE UNEXERCISABLE OPTIONS (#) ($)/(GBP) DATE VESTED (#) VESTED ($)(1)------------------------------------------------------------------------------------------------------------------------------BRENDAN P. MCDONAGH... 18,900(2) GBP6.3754 03/29/09 $Chief Executive Officer 9,000(2) GBP6.2767 03/16/08 36,054(3) $ 602,383------------------------------------------------------------------------------------------------------------------------------SIDDHARTH N. MEHTA.... 535,000(2) $21.37 11/12/11Former Chairman & 408,000(2) GBP9.1350 11/03/13Chief Executive Officer 204,000(7) GBP8.2930 04/30/14------------------------------------------------------------------------------------------------------------------------------BEVERLEY A. SIBBLIES.. 31,464(3) $ 525,694Executive Vice President and 29,513(8) $ 493,097Chief Financial Officer 19,957(9) $ 333,438------------------------------------------------------------------------------------------------------------------------------THOMAS M. DETELICH.... 60,188(2) $16.96 11/08/09President - Consumer & 66,875(2) $18.40 11/13/10Mortgage Lending 93,625(2) $21.37 11/12/11 267,500(2) $10.66 11/20/12 204,000(2) GBP9.1350 11/03/13 102,000(7) GBP8.2830 04/30/14 25,171(3) $ 420,552 70,711(10) $1,181,425 151,240(11) $2,526,888------------------------------------------------------------------------------------------------------------------------------WALTER G. MENEZES..... 48,150(2) $13.71 11/09/08President - Card & Retail 66,875(2) $16.96 11/08/09Services and Auto Finance 74,900(2) $18.40 11/13/10 107,000(2) $21.37 11/12/11 107,000(2) $10.66 11/20/12 150,000(2) GBP9.1350 11/03/13 150,000(7) GBP8.2830 04/30/14 25,171(3) $ 420,552 22,292(10) $ 372,450 151,240(11) $2,526,888------------------------------------------------------------------------------------------------------------------------------NIALL S. BOOKER....... 19,759(3) $ 330,129Chief Operating Officer------------------------------------------------------------------------------------------------------------------------------ STOCK AWARDS ----------------------------------- EQUITY INCENTIVE EQUITY INCENTIVE PLAN AWARDS: PLAN AWARDS: NUMBER OF MARKET OR UNEARNED PAYOUT VALUE SHARES, UNITS OF UNEARNED OR OTHER SHARES, UNITS OR OPTION AWARDS RIGHTS THAT OTHER RIGHTS---------------------- HAVE NOT THAT HAVE NOTNAME VESTED (#) VESTED ($)(1)------------------------------------------------------------BRENDAN P. MCDONAGH... $Chief Executive Officer 14,612(4) $ 244,134 23,734(5) $ 396,543 35,319(6) $ 590,103------------------------------------------------------------SIDDHARTH N. MEHTA....Former Chairman &Chief Executive Officer------------------------------------------------------------BEVERLEY A. SIBBLIES..Executive Vice President andChief Financial Officer------------------------------------------------------------THOMAS M. DETELICH....President - Consumer &Mortgage Lending 95,040(5) $1,587,909 100,848(6) $1,684,948------------------------------------------------------------WALTER G. MENEZES.....President - Card & RetailServices and Auto Finance 95,040(5) $1,587,909 100,848(6) $1,684,948------------------------------------------------------------NIALL S. BOOKER.......Chief Operating Officer 13,765(4) $ 229,983 40,791(12) $ 681,528 40,365(13) $ 674,410------------------------------------------------------------ (1) The market value of the shares on December 31, 2007 was GBP8.42 and the exchange rate from GBP to U.S. dollars was 1.9843, which equates to a U.S. dollars share price of $16.7078 per share. (2) Reflects fully vested options. (3) These awards will vest in full on March 30, 2010. (4) This award will vest in full on April 2, 2008 if the performance conditions are met. (5) These awards vest in part or in full on March 31, 2008 if performance conditions are met. (6) These awards vest in part or in full on March 31, 2009 if performance conditions are met. (7) These awards will vest in full subject to satisfaction of performance conditions on the fourth and fifth anniversaries of the date of grant, April 30, 2004. If the performance conditions are not met on the fifth anniversary of the date of grant, the options will be forfeited. (8) This award will vest in full on March 31, 2009. (9) One-third of this award vested on November 30, 2007. The next one-third will vest on November 30, 2008, and the final third will vest on November 30, 2009. (10) Twenty percent of this award vested on each of March 31, 2004, March 31, 2005, March 31, 2006 and March 30, 2007. The final twenty percent will vest March 31, 2008. (11) Twenty percent of this award vested on May 26, 2006 and on May 25, 2007. Twenty percent of this award will vest on each of May 26, 2008, May 26, 2009, and May 26, 2010. (12) This award will vest in full on May 27, 2008 if performance conditions are met. (13) This award will vest in full on March 6, 2009 if performance conditions are met. 220 OPTION EXERCISES AND STOCK VESTED TABLE OPTION AWARDS STOCK AWARDS ------------------------------- ------------------------------- NUMBER OF VALUE NUMBER OF VALUE SHARES ACQUIRED REALIZED SHARES ACQUIRED REALIZED ON EXERCISE ON EXERCISE ON VESTING ON VESTINGNAME (#) ($)(1) (#)(2) ($)(1)(2)----------------------------------------------------------------------------------------------------------BRENDAN P. MCDONAGH.................. - $ - 14,216(3) $ 261,924Chief Executive Officer SIDDHARTH N. MEHTA................... 2,428,900(4) $7,823,587 644,162(5) $11,177,548Former Chairman &Chief Executive Officer BEVERLEY A. SIBBLIES................. - $ - 11,308(6) $ 189,203Executive Vice President andChief Financial Officer THOMAS M. DETELICH................... 53,500(7) $ 295,930 141,980(8) $ 2,540,050President - Consumer &Mortgage Lending WALTER G. MENEZES.................... - $ - 78,923(9) $ 1,425,523President - Card & RetailServices and Auto Finance NIALL S. BOOKER...................... - $ - 14,216(3) $ 261,924Chief Operating Officer -------- (1) Value realized on exercise or vesting uses the GBP fair market value on the date of exercise/release and the exchange rate from GBP to U.S. dollars on the date of settlement. (2) Includes the release of additional awards accumulated over vesting period. (3) Includes the release of 11,392 shares granted on April 15, 2002, together with additional shares accumulated over the vesting period as reinvested dividends. (4) Includes the exercise of 802,500 shares granted June 15, 1998, 358,450 shares granted November 9, 1998, 331,700 shares granted November 8, 1999, 401,250 shares granted November 13, 2000 and 535,000 shares granted November 20, 2002. (5) Includes the release of 215,825 shares granted April 15, 2003 and 428,337 shares granted May 26, 2005. (6) Includes the release of 9,879 shares granted December 7, 2004. Remaining shares are release of additional awards accumulated over the vesting period. (7) Represents the exercise of shares granted November 9, 1998. (8) Includes the release of 70,710 shares granted April 15, 2003 and 50,413 shares granted May 26, 2005. Remaining shares are release of additional awards accumulated over the vesting period. (9) Includes the release of 22,292 shares granted February 14, 2003 and 50,413 shares granted May 26, 2005. Remaining shares are release of additional awards accumulated over the vesting period. 221 PENSION BENEFITS NUMBER OF PRESENT VALUE OF PAYMENTS YEARS ACCUMULATED DURING LAST CREDITED BENEFIT FISCAL YEARNAME PLAN NAME SERVICE ($) ($)----------------------------------------------------------------------------------------------------------BRENDAN P. MCDONAGH............... ISRBS 27.0 $3,138,240(1) $-Chief Executive Officer SIDDHARTH N. MEHTA................ RIP-Household New 9.5 $ 151,796 $-Former Chairman & SRIP-Household New 9.5 $1,931,899Chief Executive Officer BEVERLEY A. SIBBLIES.............. RIP-Account Based 3.2 $ 17,541 $-Executive Vice President and SRIP-Account Based 3.2 $ 31,337Chief Financial Officer THOMAS M. DETELICH................ RIP-Household New 31.4 $ 421,331 $-President - Consumer & SRIP-Household New 31.4 $3,791,670Mortgage Lending WALTER G. MENEZES................. RIP-Household New 11.2 $ 432,470 $-President - Card & Retail SRIP-Household New 11.2 $3,542,614(2)Services and Auto Finance NIALL S. BOOKER................... ISRBS 25.9 $2,923,163(3) $-Chief Operating Officer -------- (1) Value of age 53 benefit. Participant is also eligible for an immediate early retirement benefit at a value of $3,764,246. Plans described under Savings and Pension Plans on page 223. (2) Value of age 65 benefit. Participant is also eligible for an immediate early retirement benefit at a value of $484,452 (RIP) and $3,983,921 (SRIP). Plans are described under Saving and Pension Plans on page 223. (3) Value of age 53 benefit. Participant is also eligible for an immediate early retirement benefit at a value of $3,530,447. Plans are described under Savings and Pension Plans on page 223. 222 SAVINGS AND PENSION PLANS Retirement Income Plan (RIP) The HSBC-North America (U.S.) Retirement Income Plan ("RIP") is a non-contributory, defined benefit pension plan for employees of HSBC North Americaand its U.S. subsidiaries who are at least 21 years of age with one year ofservice and not part of a collective bargaining unit. Benefits are determinedunder a number of different formulas that vary based on year of hire andemployer. Supplemental Retirement Income Plan (SRIP) The Household Supplemental Retirement Income Plan ("SRIP") is a non-qualifiedretirement plan that is designed to provide benefits that are precluded frombeing paid to legacy Household employees by the RIP due to legal constraintsapplicable to all qualified plans. For example, the maximum amount ofcompensation during 2007 that can be used to determine a qualified plan benefitis $225,000, and the maximum annual benefit commencing at age 65 in 2007 is$180,000. SRIP benefits are calculated without regard to these limits. Theresulting benefit is then reduced by the value of qualified benefits payable byRIP so that there is no duplication of payments. Benefits are paid in a lump sumfor retired executives covered by a Household Old, Household New, or AccountBased Formula. Formulas for Calculating Benefits HOUSEHOLD OLD FORMULA: Applies to executives who were hired prior to January 1,1990 by Household International, Inc. The benefit at age 65 is determined underwhichever formula, A or B below, provides the higher amount. A. The normal retirement benefit at age 65 is the sum of (i) 51% of average salary that does not exceed the integration amount and (ii) 57% of average salary in excess of the integration amount. For this purpose, the integration amount is an average of the Social Security taxable wage bases for the 35 year period ending with the year of retirement. The benefit is reduced pro rata for executives who retire with less than 15 years of service. If an executive has more than 30 years of service, the benefit percentages in the formula, (the 51% and 57%) are increased 1/24 of 1 percentage point for each month of service in excess of 30 years, but not more than 5 percentage points. The benefit percentages are reduced for retirement prior to age 65. B. The normal retirement benefit at age 65 is determined under (a) below, limited to a maximum amount determined in (b): a. 55% of average salary, reduced pro rata for less than 15 years of service, and increased 1/24 of 1 percentage point for each month in excess of 30 years, but not more than 5 percentage points; the benefit percentage of 55% is reduced for retirement prior to age 65. b. The amount determined in (a) is reduced as needed so that when added to 50% of the primary Social Security benefit, the total does not exceed 65% of the average salary. This maximum is applied for payments following the age at which full Social Security benefits are available. Both formulas use an average of salaries for the 48 highest consecutive monthsselected from the 120 consecutive months preceding date of retirement; for thispurpose, salary includes total base wages and bonuses. For executives who were participants on January 1, 1978, had attained age 35 andhad at least 10 years of employment, the minimum normal retirement benefit is55% of final average salary. For this purpose, salary does not include bonusesand the average is based on 60 consecutive months, rather than 48. Executives who are at least age 50 with 15 years of service or at least age 55with 10 years of service may retire before age 65, in which case the benefitsare reduced. HOUSEHOLD NEW FORMULA: Applies to executives who were hired after December 31,1989, but prior to January 1, 2000, by Household International, Inc. The normalretirement benefit at age 65 is the sum of (i) 51% of average salary that doesnot exceed the integration amount and (ii) 57% of average salary in excess ofthe integration amount. For this purpose, salaries include total base wages andbonuses and are averaged over the 48 highest consecutive months selected fromthe 120 consecutive months preceding date of retirement. The integration amount 223 is an average of the Social Security taxable wage bases for the 35 year periodending with the year of retirement. The benefit is reduced pro rata forexecutives who retire with less than 30 years of service. If an executive hasmore than 30 years of service, the percentages in the formula, (the 51% and 57%)are increased 1/24 of 1 percentage point for each month of service in excess of30 years, but not more than 5 percentage points. Executives who are at least age55 with 10 or more years of service may retire before age 65 in which case thebenefit percentages (51% and 57%) are reduced. ACCOUNT BASED FORMULA: Applies to executives who were hired by HouseholdInternational Inc. after December 31, 1999. It also applies to executives whowere hired by HSBC Bank USA, National Association after December 31, 1996 andbecame participants in the Retirement Income Plan on January 1, 2005, or werehired by HSBC after March 28, 2003. The formula provides for a notional accountthat accumulates 2% of annual salary for each calendar year of employment. Forthis purpose, salary includes total base wages and bonuses. At the end of eachcalendar year, interest is credited on the notional account using the value ofthe account at the beginning of the year. The interest rate is based on thelesser of average yields for 10-year and 30-year Treasury bonds during Septemberof the preceding calendar year. The notional account is payable at terminationof employment for any reason after three years of service although payment maybe deferred to age 65. PROVISIONS APPLICABLE TO ALL FORMULAS: The amount of salary used to determinebenefits is subject to an annual maximum that varies by calendar year. The limitfor 2007 is $225,000. The limit for years after 2007 will increase from time-to-time as specified by IRS regulations. Benefits are payable as a life annuity, orfor married participants, a reduced life annuity with 50% continued to asurviving spouse. Participants (with spousal consent, if married) may choosefrom a variety of other optional forms of payment, which are all designed to beequivalent in value if paid over an average lifetime. Retired executives coveredby a Household Old, Household New or Account Based Formula may elect a lump sumform of payment (spousal consent is needed for married executives). Present Value of Accumulated Benefits For the Account Based formula: The value of the notional account balancescurrently available on December 31, 2007. FOR OTHER FORMULAS: The present value of benefit payable at assumed retirementusing interest and mortality assumptions consistent with those used forfinancial reporting purposes under SFAS 87 with respect to HSBC FinanceCorporation's audited financial statements for the period ending December 31,2007. However, no discount has been assumed for separation prior to retirementdue to death, disability or termination of employment. Further, the amount ofthe benefit so valued is the portion of the benefit at assumed retirement thathas accrued in proportion to service earned on December 31, 2007. Deferred Compensation Plans TAX REDUCTION INVESTMENT PLAN HSBC North America maintains the HSBC-NorthAmerica (U.S.) Tax Reduction Investment Plan ("TRIP"), which is a deferredprofit-sharing and savings plan for its eligible employees. With certainexceptions, a U.S. employee who has been employed for 30 days and who is notpart of a collective bargaining unit may contribute into TRIP, on a pre-tax andafter-tax basis, up to 40% (15% if highly compensated) of the participant's cashcompensation (subject to a maximum annual pre-tax contribution by a participantof $15,500, as adjusted for cost of living increases, and certain otherlimitations imposed by the Internal Revenue Code) and invest such contributionsin separate equity or income funds. Employees who will be age 50 or older on orbefore December 31 of the plan year may also elect to contribute an additional$5,000 in catch-up contributions. If the employee has been employed for at least one year, HSBC FinanceCorporation contributes 3% of compensation each payroll period on behalf of eachparticipant who contributes 1% and matches any additional participantcontributions up to 4% of compensation. However, matching contributions will notexceed 6% of a participant's compensation if the participant contributes 4% ormore of compensation. The plan provides for immediate vesting of allcontributions. With certain exceptions, a participant's after-tax contributionswhich have not been matched by us can be withdrawn at any time. Both ourmatching contributions made prior to 1999 and the participant's after-taxcontributions which have been matched may be withdrawn after five years ofparticipation in the plan. A participant's pre-tax contributions and ourmatching contributions after 1998 may not be withdrawn 224 except for an immediate financial hardship, upon termination of employment, orafter attaining age 59 1/2. Participants may borrow from their TRIP accountsunder certain circumstances. SUPPLEMENTAL TAX REDUCTION INVESTMENT PLAN HSBC North America also maintains theSupplemental Household International Tax Reduction Investment Plan ("STRIP")which is an unfunded plan for eligible employees of HSBC Finance Corporation andits participating subsidiaries whose participation in TRIP is limited by theInternal Revenue Code. Only matching contributions required to be made by uspursuant to the basic TRIP formula are invested in STRIP through a credit to abookkeeping account maintained by us which deems such contributions to beinvested in equity or income funds selected by the participant. NON-QUALIFIED DEFERRED COMPENSATION PLAN HSBC North America Holdings Inc.maintains a Non-Qualified Deferred Compensation Plan for the highly compensatedemployees in the organization, including executives of HSBC Finance Corporation.The named executive officers are eligible to contribute up to 80% of theirsalary and/or cash bonus compensation in any plan year. Participants arerequired to make an irrevocable election with regard to an amount or percentageof compensation to be deferred and the timing and manner of future payout. Twotypes of distributions are permitted under the plan, either a scheduled in-service withdrawal which must be scheduled at least 2 years after the end of theplan year in which the deferral is made, or payment upon termination ofemployment. For either the scheduled in-service withdrawal or payment upontermination, the participant may elect either a lump sum payment or if theparticipant has made at least $25,000 of contributions and has over 10 years ofservice, he may request installment payments over 10 years. Due to the unfundednature of the plan, participant elections are deemed investments whose gains orlosses are calculated by reference to actual earnings of the investment choices.The deemed investment choices are reviewed on a periodic basis by the InvestmentCommittee for the Plan which consists of members chosen by the Board orDirectors or Chief Executive Officer of HSBC North America Holdings Inc. and arechosen based on a conservative mix of funds. In order to provide theparticipants with the maximum amount of protection under an unfunded plan, aRabbi Trust has been established where the participant contributions aresegregated from the general assets of HSBC Finance Corporation. The InvestmentCommittee for the plan endeavors to invest the contributions in a mannerconsistent with the participant's deemed elections reducing the likelihood of anunderfunded plan. HSBC International Staff Retirement Benefits Scheme The HSBC International Staff Retirement Benefits Scheme (Jersey) ("ISRBS") is adefined benefit plan maintained for certain international managers. Each memberduring his service must contribute five percent of his salary to the plan buteach member who has completed 20 years of service or who enters the seniormanagement or general management sections during his service shall contribute6 2/3 percent of his salary. In addition, a member may make voluntarycontributions, but the total of voluntary and mandatory contributions cannotexceed 15 percent of his total compensation. Upon leaving service, the value ofthe member's voluntary contribution fund, if any, shall be commuted for aretirement benefit. The annual pension payable at normal retirement is 1/480 of the member's finalsalary for each completed month in the executive section, 1.25/480 of his finalsalary for each completed month in the senior management section, and 1.50/480of his final salary for each completed month in the general management section.A member's normal retirement date is the first day of the month coincident withor next following his 53rd birthday. Payments may be deferred or suspended butnot beyond age 75. If a member leaves before normal retirement with at least 15 years of service,he will receive a pension which is reduced by .25 percent for each completemonth by which termination precedes normal retirement. If he terminates with atleast 5 years of service, he will receive an immediate lump sum equivalent ofhis reduced pension. 225 NONQUALIFIED DEFINED CONTRIBUTION AND OTHER NONQUALIFIED DEFERRED COMPENSATION PLANS SUPPLEMENTAL NONQUALIFIED TAX DEFERRED REDUCTION COMPENSATION INVESTMENT PLAN(1) PLAN(2) EXECUTIVE REGISTRANT AGGREGATE AGGREGATE AGGREGATE CONTRIBUTIONS CONTRIBUTIONS EARNINGS WITHDRAWALS/ BALANCE ATNAME IN 2007 ($) IN 2007 ($) IN 2007 ($) DISTRIBUTIONS ($) 12/31/2007 ($)-----------------------------------------------------------------------------------------------------------------BRENDAN P. MCDONAGH(4)......... N/A N/A N/A N/A N/AChief Executive Officer SIDDHARTH N. MEHTA............. $ - $ 1,812 $(29,581) $ - $2,371,877Former Chairman &Chief Executive Officer BEVERLEY A. SIBBLIES........... $19,856 $ 43,198 $ 203 $ - $ 110,129Executive Vice President andChief Financial Officer THOMAS M. DETELICH............. $ - $145,047 $222,897 $193,424(3) $3,301,746President - Consumer &Mortgage Lending WALTER G. MENEZES.............. $ - $146,537 $103,032 $ - $2,011,364President - Card & RetailServices and Auto Finance NIALL S. BOOKER(4)............. N/A N/A N/A N/A N/AChief Operating Officer -------- (1) The NonQualified Deferred Compensation Plan is described under Savings and Pension Plans on page 223. (2) The Supplemental Tax Reduction Investment Plan (STRIP) is described under Savings and Pension Plans on page 223. Company contributions are invested in STRIP through a credit to a bookkeeping account, which deems such contributions to be invested in equity or income mutual funds selected by the participant. For this purpose, compensation includes amounts that would be compensation but for the fact they were deferred under the terms of the HSBC North America Non-Qualified Deferred Compensation Plan. Distributions are made in a lump sum upon termination of employment. (3) Amount represents a scheduled in-service withdrawal from the HSBC Non- Qualified Deferred Compensation Plan. (4) Messrs. McDonagh and Booker are not eligible to participate in the NonQualified Deferred Compensation Plan and STRIP. 226 POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL BRENDAN P. MCDONAGH EXECUTIVE BENEFITS AND INVOLUNTARY VOLUNTARY FORPAYMENTS UPON VOLUNTARY NORMAL NOT FOR CAUSE FOR CAUSE GOOD REASONTERMINATION TERMINATION DISABILITY RETIREMENT TERMINATION TERMINATION TERMINATION DEATH----------------------------------------------------------------------------------------------------------------------------CASH COMPENSATIONBase Salary........... - - - - - - -Short Term Incentive.. - - - $1,701,288(1) - - -LONG TERM INCENTIVEPerformance Shares.... - $1,078,856(2) $1,078,856(2) $1,078,856(2) - $1,078,856(2) $1,392,516(4)Restricted Stock:Unvested and Accelerated......... - $ 153,453(3) $ 153,453(3) $ 153,453(3) - $ 153,453(3) $ 613,811(4)EXECUTIVE BENEFITS AND CHANGE INPAYMENTS UPON CONTROLTERMINATION TERMINATION------------------------------------CASH COMPENSATIONBase Salary........... -Short Term Incentive.. -LONG TERM INCENTIVEPerformance Shares.... $1,078,856(2)Restricted Stock:Unvested and Accelerated......... $ 153,453(3) -------- (1) Assumes a termination date of December 31, 2007, and represents the 2007 cash incentive awarded but not paid until 2008. (2) Assumes performance conditions have been met. Value based on prorated number of shares at an assumed retirement date of December 31, 2007, and calculated using the closing price of HSBC ordinary shares and exchange rate on that date. (3) This amount represents accelerated vesting of a pro-rata portion of the outstanding restricted shares assuming a termination date of December 31, 2007, and are calculated using the closing price of HSBC ordinary shares and exchange rate on December 31, 2007. (4) This amount represents a full vesting of the outstanding restricted shares assuming a termination date of December 31, 2007, and is calculated using the closing price of HSBC ordinary shares and exchange rate on December 31, 2007. BEVERLEY A. SIBBLIES EXECUTIVE BENEFITS AND INVOLUNTARY VOLUNTARY FORPAYMENTS UPON VOLUNTARY NORMAL NOT FOR CAUSE FOR CAUSE GOOD REASONTERMINATION TERMINATION DISABILITY RETIREMENT TERMINATION TERMINATION TERMINATION DEATH-----------------------------------------------------------------------------------------------------------------------------CASH COMPENSATIONBase Salary............ - - - $200,000(1) - - -Short Term Incentive... - - - $600,000(1) - - -LONG TERM INCENTIVERestricted Stock:Unvested and Accelerated.......... - $460,367(2) $460,367(2) $460,367(2) - $460,367(2) $1,444,920(3)EXECUTIVE BENEFITS AND CHANGE INPAYMENTS UPON CONTROLTERMINATION TERMINATION-------------------------------------CASH COMPENSATIONBase Salary............ -Short Term Incentive... -LONG TERM INCENTIVERestricted Stock:Unvested and Accelerated.......... $460,367(2) -------- (1) Under the terms of the HSBC Severance Policy, Ms. Sibblies would receive 26 weeks of her current salary upon separation from HSBC and a pro-rata amount of her earned bonus. The figures above represent the bonus payment at maximum assuming a termination date of December 31, 2007. (2) This amount represents accelerated vesting of a pro-rata portion of the outstanding restricted shares assuming a termination date of December 31, 2007, and are calculated using the closing price of HSBC ordinary shares and exchange rate on December 31, 2007. (3) This amount represents a full vesting of the outstanding restricted shares assuming a termination date of December 31, 2007, and is calculated using the closing price of HSBC ordinary shares and exchange rate on December 31, 2007. THOMAS M. DETELICH EXECUTIVE BENEFITS AND INVOLUNTARY VOLUNTARY FORPAYMENTS UPON VOLUNTARY NORMAL NOT FOR CAUSE FOR CAUSE GOOD REASONTERMINATION TERMINATION DISABILITY RETIREMENT TERMINATION TERMINATION TERMINATION DEATH----------------------------------------------------------------------------------------------------------------------------CASH COMPENSATIONBase Salary........... - - - $ 650,000(1) - - -Short Term Incentive.. - - - $1,950,000(1) - - -LONG TERM INCENTIVEPerformance Shares.... - $2,647,832(2) $2,647,832(2) $2,647,832(2) - $2,647,832(2) $3,601,663(3)Stock Options:Unvested and Accelerated......... - $ 27,729(4) $ 27,729(4) $ 27,729(4) - $ 27,729(4) $ 27,729(4)Restricted Stock:Unvested and Accelerated......... - $3,886,336(5) $3,886,336(5) $3,886,336(5) - $3,886,336(5) $4,595,793(6)EXECUTIVE BENEFITS AND CHANGE INPAYMENTS UPON CONTROLTERMINATION TERMINATION------------------------------------CASH COMPENSATIONBase Salary........... -Short Term Incentive.. -LONG TERM INCENTIVEPerformance Shares.... $2,647,832(2)Stock Options:Unvested and Accelerated......... $ 27,729(4)Restricted Stock:Unvested and Accelerated......... $3,886,336(5) -------- (1) Under the terms of the HSBC Severance Policy, Mr. Detelich would receive 52 weeks of his current salary upon separation from the company and a pro-rata amount of his earned bonus. The figures represent the bonus payment at maximum assuming a termination date of December 31, 2007. (2) Assumes performance conditions have been met. This amount represents accelerated vesting of a pro-rata portion of the outstanding restricted shares assuming a termination date of December 31, 2007, and are calculated using the closing price of HSBC ordinary shares and exchange rate on December 31, 2007. 227 (3) Assumes performance conditions have been met. This amount represents a full vesting of the outstanding restricted shares assuming a termination date of December 31, 2007, and is calculated using the closing price of HSBC ordinary shares and exchange rate on December 31, 2007. (4) Assumes performance conditions have been met. This amount represents accelerated vesting of 100% of the outstanding, unvested stock options, the value of which has been calculated based on the spread between the strike price and the fair market value of HSBC ordinary shares on December 31, 2007. (5) This amount represents accelerated vesting of a pro-rata portion of the outstanding restricted shares assuming a termination date of December 31, 2007, and are calculated using the closing price of HSBC ordinary shares and exchange rate on December 31, 2007. (6) This amount represents a full vesting of the outstanding restricted shares assuming a termination date of December 31, 2007, and is calculated using the closing price of HSBC ordinary shares and exchange rate on December 31, 2007. WALTER G. MENEZES EXECUTIVE BENEFITS AND EARLY INVOLUNTARY VOLUNTARYPAYMENTS UPON VOLUNTARY RETIREMENT/ NORMAL NOT FOR CAUSE FOR CAUSE GOOD REASONTERMINATION TERMINATION DISABILITY RETIREMENT TERMINATION TERMINATION TERMINATION DEATH---------------------------------------------------------------------------------------------------------------------------CASH COMPENSATIONBase Salary........... - - - $ 450,000(1) - - -Short Term Incentive.. - - - $1,950,000(1) - - -LONG TERM INCENTIVEPerformance Shares.... - $2,647,832(2) $2,647,832(2) $2,647,832(2) - $2,647,832(2) $3,601,663(3)Stock Options:Unvested and Accelerated......... - $ 27,729(4) $ 27,729(4) $ 27,729(4) - $ 27,729(4) $ 27,729(4)Restricted Stock:Unvested and Accelerated......... - $3,886,336(5) $3,886,336(5) $3,886,336(5) - $3,886,336(5) $4,595,793(6)BENEFITS AND PERKSIncremental Retirement Benefit............. - - - - - - -Healthcare............ - - - - - - -Life Insurance........ - - - - - - -EXECUTIVE BENEFITS AND CHANGE INPAYMENTS UPON CONTROLTERMINATION TERMINATION------------------------------------CASH COMPENSATIONBase Salary........... $ 975,000(1)Short Term Incentive.. $3,000,000(1)LONG TERM INCENTIVEPerformance Shares.... $2,647,832(2)Stock Options:Unvested and Accelerated......... $ 27,729(4)Restricted Stock:Unvested and Accelerated......... $3,886,336(5)BENEFITS AND PERKSIncremental Retirement Benefit............. $ 893,660(7)Healthcare............ $ 21,479(8)Life Insurance........ $ 105,120(9) -------- (1) See the description of Mr. Menezes' Employment Protection Agreement on page 214. Under the terms of the HSBC Severance Policy, Mr. Menezes would receive 36 weeks of his current salary upon separation from the company and a pro- rata amount of his earned bonus. The figures represent the bonus payment at maximum assuming a termination date of December 31, 2007. (2) Assumes performance conditions have been met. This amount represents accelerated vesting of a pro-rata portion of the outstanding restricted shares assuming a termination date of December 31, 2007, and are calculated using the closing price of HSBC ordinary shares and exchange rate on December 31, 2007. (3) Assumes performance conditions have been met. This amount represents a full vesting of the outstanding restricted shares assuming a termination date of December 31, 2007, and is calculated using the closing price of HSBC ordinary shares and exchange rate on December 31, 2007. (4) Assuming performance conditions are met, represents accelerated vesting of 100% of the outstanding, unvested stock options, the value of which has been calculated based on the spread between the strike price and the fair market value of HSBC ordinary shares on December 31, 2007. (5) This amount represents accelerated vesting of a pro-rata portion of the outstanding restricted shares assuming a termination date of December 31, 2007, and are calculated using the closing price of HSBC ordinary shares and exchange rate on December 31, 2007. (6) This amount represents a full vesting of the outstanding restricted shares assuming a termination date of December 31, 2007, and is calculated using the closing price of HSBC ordinary shares and exchange rate on December 31, 2007. (7) Mr. Menezes has an employment agreement providing an additional 18 months of service and pay toward his retirement benefit. He would be entitled to an additional $6,137 per month if a termination due to a change in control occurred on December 31, 2007. The present value of this benefit was determined by HSBC Finance Corporation's actuaries to be $893,660. (8) Mr. Menezes has an employment agreement providing an additional 18 months of healthcare coverage for himself and his family with a total value of $16,179 if a termination due to a change in control occurred on December 31, 2007. The value of this healthcare is calculated based on the medical plan's COBRA rates. In addition, Mr. Menezes' agreement provides for annual physicals at the company's expense throughout the 18 month period. The value of two physicals is $5,300. This value is based on a rate negotiated through HSBC Finance Corporation's executive physical program. (9) Mr. Menezes' employment agreement provides for $2 million of life insurance coverage for himself for 18 months, if a termination due to a change in control occurred on December 31, 2007, with a total value of $105,120. This value is based on the cost to convert the company-provided group life insurance to an individual policy for 18 months. 228 NIALL S. BOOKER EXECUTIVE BENEFITS AND EARLY INVOLUNTARY VOLUNTARY FORPAYMENTS UPON VOLUNTARY RETIREMENT/ NORMAL NOT FOR CAUSE FOR CAUSE GOOD REASONTERMINATION TERMINATION DISABILITY RETIREMENT TERMINATION TERMINATION TERMINATION DEATH-----------------------------------------------------------------------------------------------------------------------------CASH COMPENSATIONBase Salary........... - - - - - - -Short Term Incentive.. - - - $1,209,666 - - -LONG TERM INCENTIVEPerformance Shares.... - $1,394,235(2) $1,394,235(2) $1,394,235(2) - $1,394,235(2) $1,788,402(3)Stock Options:Unvested and Accelerated......... - - - - - - -Restricted Stock:Unvested and Accelerated......... - $ 84,099(4) $ 84,099(4) $ 84,099(4) - $ 84,099(4) $336,395(5)EXECUTIVE BENEFITS AND CHANGE INPAYMENTS UPON CONTROLTERMINATION TERMINATION------------------------------------CASH COMPENSATIONBase Salary........... -Short Term Incentive.. -LONG TERM INCENTIVEPerformance Shares.... $1,394,235(2)Stock Options:Unvested and Accelerated......... -Restricted Stock:Unvested and Accelerated......... $ 84,099(4) -------- (1) Assumes a termination date of December 1, 2007, and represents the 2007 cash incentive awarded but not paid until 2008. (2) Assumes performance conditions have been met. This amount represents accelerated vesting of a pro-rata portion of the outstanding restricted shares assuming a termination date of December 31, 2007, and are calculated using the closing price of HSBC ordinary shares and exchange rate on December 31, 2007. (3) Assumes performance conditions have been met. This amount represents a full vesting of the outstanding restricted shares assuming a termination date of December 31, 2007, and is calculated using the closing price of HSBC ordinary shares and exchange rate on December 31, 2007. (4) This amount represents accelerated vesting of a pro-rata portion of the outstanding restricted shares assuming a termination date of December 31, 2007, and are calculated using the closing price of HSBC ordinary shares and exchange rate on December 31, 2007. (5) This amount represents a full vesting of the outstanding restricted shares assuming a termination date of December 31, 2007, and is calculated using the closing price of HSBC ordinary shares and exchange rate on December 31, 2007. 229 DIRECTOR COMPENSATION The following table and narrative text discusses the compensation awarded to,earned by or paid to our Directors in 2007. DIRECTOR COMPENSATION CHANGE IN PENSION VALUE AND NONQUALIFIED FEES EARNED STOCK OPTION DEFERRED ALL OTHER OR PAID IN AWARDS AWARDS COMPENSATION COMPENSATION TOTALNAME CASH(1) ($)(2) ($)(3) EARNINGS ($)(4) ($)--------------------------------------------------------------------------------------------------------Niall S.K. Booker(5)........ - - - - $ - $ -William R. P. Dalton........ $178,750 - - - $1,750 $180,500J. Dudley Fishburn.......... $170,000 - - (2,276) $ - $167,724Douglas J. Flint............ - - - $ - $ -Cyrus F. Freidheim, Jr...... $270,689 - - (8,576) $1,750 $263,863Robert K. Herdman........... $195,000 - - $ - $195,000Louis Hernandez, Jr. ....... $127,444 - - - $1,750 $129,194George A. Lorch............. $185,000 - - (16,988) $1,750 $169,762Brendan P. McDonagh(5)...... - - - - $ - $ -Larree M. Renda............. $200,000 - - (69) $1,750 $201,681 -------- (1) In 2007, the non-management Directors of HSBC Finance Corporation received an annual cash retainer of $170,000 (with the exception of Mr. Freidheim, who as Chair of the Executive Committee receives a retainer of $182,000). HSBC Finance Corporation pays additional compensation to committee chairs and audit committee members. In addition to the Board retainer, Mr. Dalton received an additional $11,250 for his membership in the Audit Committee since April 2007, Mr. Freidheim received an additional $50,000 as the Lead Director and Chair of the Executive Committee, Mr. Herdman received an additional $25,000 as Chair of the Audit Committee, Mr. Hernandez received and additional $11,250 for his membership in the Audit Committee since April 2007, Mr. Lorch received an additional $15,000 as Chair of the Compensation Committee, Ms. Renda received an additional $15,000 as Chair of the Nominating & Governance Committee, and an additional $15,000 for her membership on the Audit Committee. HSBC Finance Corporation does not pay meeting attendance fees to its Directors. Directors who are employees of HSBC Finance Corporation or any of its affiliates do not receive additional compensation related to their Board service. In February 2006, the Board reviewed its directors' compensation scheme relative to other same sized financial and professional service organizations and determined to make no changes to the current compensation structure. Directors have the ability to defer up to 100% of their annual retainers and/or fees into the HSBC-North America Directors Non-Qualified Deferred Compensation Plan. Under this plan, pre-tax dollars may be deferred with the choice of receiving payouts while still serving HSBC Finance Corporation according to a schedule established by the Director at the time of deferral or a distribution after leaving the Board in either lump sum, quarterly or annual installments. (2) HSBC Finance Corporation does not grant stock awards to its non-management directors nor do any portion of employee directors stock awards reflect services related to the Board. Prior to the merger with HSBC, non-management Directors could elect to receive all or a portion of their cash compensation in shares of common stock of Household International, Inc., defer it under the Deferred Fee Plan for Directors or purchase options to acquire common stock (as reflected in Footnote 3 below). Under the Deferred Fee Plan, Directors were permitted to invest their deferred compensation in either units of phantom shares of the common stock of HSBC Finance Corporation (then called Household International, Inc.), with dividends credited toward additional stock units, or cash, with interest credited at a market rate set under the plan. Prior to 1995, HSBC Finance Corporation offered a Directors' Retirement Income Plan where the present value of each Director's accrued benefit was deposited into the Deferred Phantom Stock Plan for Directors. Under the Deferred Phantom Stock Plan, Directors with less than ten years of service received 750 phantom shares of common stock of Household International, Inc. annually during the first ten years of service as a Director. In January 1997, the Board eliminated this and all future Director retirement benefits. All payouts to Directors earned under the Deferred Phantom Stock Plan will be made only when a Director leaves the Board due to death, retirement or resignation and will be paid in HSBC ordinary shares either in a lump sum or in installments as selected by the Director. Following the acquisition, all rights to receive common stock of Household International, Inc. under both plans described above were converted into rights to receive HSBC ordinary shares. In May 2004, when the plans were rolled into a non-qualified deferred compensation plan for Directors, those rights were revised into rights to receive American Depository Shares in HSBC ordinary shares, each of which represents five ordinary shares. No new shares may be issued under the plans. As of December 31, 2007, 17,911 American Depository Shares were held in the deferred compensation plan account for Directors. Specifically, Messrs. Fishburn, Freidheim Jr. and Lorch held 810, 3,459 and 6,038 American Depository Shares, respectively, and Ms. Renda held 26 American Depository Shares. 230 (3) HSBC Finance Corporation does not grant stock option awards to its non- management directors. As referenced in Footnote 2 above, as of December 31, 2007, 417,426 Stock Options were outstanding which were granted pursuant to the historical Directors Deferred Fee Plan. Specifically, Messrs. Fishburn, Freidheim and Lorch held options to purchase 90,950, 111,138 and 105,663 HSBC ordinary shares respectively, and Ms. Renda held options to purchase 40,125 HSBC ordinary shares. (4) Components of All Other Compensation are disclosed in the aggregate. We provide each Director with $250,000 of accidental death and dismemberment insurance and a $10,000,000 personal excess liability insurance policy for which the company paid premium is $1,750 per annum for each participating director. Under HSBC Finance Corporation's Matching Gift Program, for all directors who were members of the Board in 2006 and continue to be on the Board, we match charitable gifts to qualified organizations (subject to a maximum of $10,000 per year), with a double match for the first $500 donated to higher education institutions (both public and private) and eligible non- profit organizations which promote neighborhood revitalization or economic development for low and moderate income populations. Each current independent Director, other than Mr. Hernandez who joined the Board in 2007, may ask us to contribute up to $10,000 annually to charities of the Director's choice which qualify under our philanthropic program. (5) Employee Directors do not derive any compensation from their Board service. 231 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ANDRELATED STOCKHOLDER MATTERS.-------------------------------------------------------------------------------- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS HSBC Finance Corporation's common stock is 100% owned by HSBC Investments (NorthAmerica) Inc. ("HINO"). HINO is an indirect wholly owned subsidiary of HSBC. SECURITY OWNERSHIP BY MANAGEMENT-------------------------------------------------------------------------------- The following table lists the beneficial ownership, as of January 31, 2008, ofHSBC ordinary shares or interests in ordinary shares and Series B PreferredStock of HSBC Finance Corporation held by each director and the executiveofficers named in the Summary Compensation Table on page 217, individually, andthe directors and executive officers as a group. Each of the individuals listedbelow and all directors and executive officers as a group own less than 1% ofthe ordinary shares of HSBC and the Series B Preferred Stock of HSBC FinanceCorporation. NUMBER OF HSBC SHARES HSBC SHARES THAT MAY BE RESTRICTED SERIES B BENEFICIALLY ACQUIRED WITHIN SHARES NUMBER OF TOTAL PREFERRED OF OWNED OF 60 DAYS BY RELEASED ORDINARY HSBC HSBC HSBC EXERCISE OF WITHIN SHARE ORDINARY FINANCE HOLDINGS PLC(1)(2) OPTIONS(4) 60 DAYS(5) EQUIVALENTS(6) SHARES CORPORATION------------------------------------------------------------------------------------------------------------------------------DIRECTORSNiall S.K. Booker........ 40,929 -- 16,860 -- 57,789 -William R. P. Dalton..... 61,104 -- -- -- 61,104 -J. Dudley Fishburn....... 15,678 90,950 -- 810 107,438 -Douglas J. Flint......... 113,943 -- -- -- 113,943 -Cyrus F. Freidheim, Jr... -- 111,138 -- 3,459 114,597 -Robert K. Herdman........ 690 -- -- -- 690 -Louis Hernandez, Jr. .... -- -- -- -- -- -George A. Lorch.......... 13,605 105,663 -- 6,038 125,306 -Brendan P. McDonagh...... 78,139 27,900 17,898 -- 123,937 -Larree M. Renda.......... 1,650 40,125 -- 26 41,801 50(3)NAMED EXECUTIVE OFFICERSSiddharth N. Mehta....... -- 943,000 -- 10,678 953,678 -Beverley A. Sibblies..... 7,978 -- -- -- 7,978 -Thomas M. Detelich....... -- 692,188 82,194 81 774,463 -Walter G. Menezes........ 128,108 553,925 22,292 -- 704,325 -ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP.................. 762,229 3,538,902 376,378 22,982 4,700,491 50 -------- (1) Directors and executive officers have sole voting and investment power over the shares listed above, except that the number of ordinary shares held by spouses, children and charitable or family foundations in which voting and investment power is shared (or presumed to be shared) is as follows: Mr. Dalton, 49,149; Mr. Lorch, 13,605; Mr. Flint, 29,610 and Mr. Booker, 30,000; and Directors and executive officers as a group, 123,864. (2) Some of the shares included in the table above were held in American Depository Shares, each of which represents five HSBC ordinary shares. (3) Represents 2000 Depositary Shares, each representing one-fortieth of a share of 6.36% Non-Cumulative Preferred Stock, Series B. (4) Represents the number of ordinary shares that may be acquired by HSBC Finance Corporation's Directors and executive officers through April 1, 2008 pursuant to the exercise of stock options. (5) Represents the number of ordinary shares that may be acquired by HSBC Finance Corporation's Directors and executive officers through April 1, 2008 pursuant to the satisfaction of certain conditions. (6) Represents the number of ordinary share equivalents owned by executive officers under the HSBC-North America (U.S.) Tax Reduction Investment Plan (TRIP) and the HSBC North America Employee Non-Qualified Deferred Compensation Plan and by Directors under the 232 HSBC North America Directors Non-Qualified Deferred Compensation Plan. Some of the shares included in the table above were held in American Depository Shares, each of which represents five HSBC ordinary shares. MORE TO FOLLOW This information is provided by RNS The company news service from the London Stock Exchange

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