Home > Compensation > BBVA`s Remuneration Policy, 2015

BBVA`s Remuneration Policy, 2015

 

1.- Regulatory picture

 As determined by Spanish legislation, the proxy to be voted by BBVA`s shareholders in their annual General Meeting includes a report of the Remuneration Policy, and also a report of last year`s remuneration packages. We will mainly refer here to the first one, (1).

 2.- Principles

 The Compensation policy is said to pursue “long-term value creation”, to align shareholders and employees`interests, while attracting and retaining talent, rewarding it with internal fairness, and assuring a prudent risk management.

An external firm has been hired to help determine the remuneration policy, (McLagan, a company inside the McLagan/AonHewitt group).

3.- Remuneration policy for Executive Directors (ED`s)

 As determined in the company bylaws, ED`s compensation package is made of:

  • A fixed salary payment, that rewards responsibility in a competitive manner, (compared with other European and USA banks).
  • A variable pay: made of a unique amount, which is nevertheless determined as a result of a combination of annual and pluriannual indicators, both financial and non-financial ones. In any case, it will not surpass 200% of the fixed component.

 Annual Financial Indicators. One of the annual indicators is the so-called “Economic Profit added by Continued Operations”, which takes into account results, but also the cost of capital and includes certain adjustments for current and future risks; other indicators are referred to the bank`s efficiency and capacity to generate profits and absorb losses.

Annual Non-Financial Indicators. They include customer satisfaction metrics, specific tactical employee objectives and some other group metrics.

The Annual Variable pay so determined will be released only partially; 50% will be paid, half in cash and half in shares. The price of share used to determined the number of shares to be granted to the executive will be an average of prices in a month around December 31st each year, (perhaps a too short period as per our comments in our previous post), (3).

The rest of variable pay will be deferred for three years; pluriannual indicators (Relative TSR, ROE, Risk Cost, Loan to Stable Deposit Ratio,…) linked to the stock price evolution, solvency, liquidity and profitability will be measured so that the deferred amount could eventually diminish, (but not increase).

The indicators structure and the compensation link to performance will be disclosed every year.

There are some other key features that shape the Remuneration Policy:

  • Share retention periods. Each year, the bank will determine the length (six months in 2015, probably not enough) of a retention period for shares granted to the executive, (deferred and not deferred, with the exception of the amount to be released for tax purposes), (separation of vesting and unwinding, see (3)).
  • Hedging. No hedging will be allowed in relation with shares given as Variable pay, (or expected to be given in the case of deferral).
  • Malus clauses. Breach of Code of Conduct and other internal rules, (risk related for example), and non access to variable pay in a year, for results originated by operations booked in a previous year where the executive got access to variable pay, (not very clearly explained) could lead to reduce or eliminate deferred variable pay. If a certain year the bank recognized losses, no variable pay will be established and no deferred pay will be paid this year. In any case, variable pay will only be released if the bank situation is considered sustainable.
  • Retirement, incapacity and decease provisions. The bank establishes compensation schemes for these circumstances. The amounts can be released as a capital amount or as a rent.

4.- Remuneration policy for Non Executive Directors (NED`s)

 Shareholders are to vote on the amount to be paid to Neds, but the board is charged with distributing it in connection with responsibility, dedication and incompatibilities.

Neds are paid fixed cash amounts that are determined in connection with their respective tasks, (director, commission membership, chairmanship, etc).

Neds are also granted Restricted Stock units, equivalent to 20% of their respective cash pay the previous year. Shares will only be granted when the concerned director ceases, (if not for cause).

  1.  http://accionistaseinversores.bbva.com/TLBB/fbinir/mult/14PoliticaderemuneraciondeConsejerosBBVA_tcm926-498895.pdf
  2. https://joaquinbarquero.wordpress.com/2015/01/24/performance-metrics-and-long-term-alignment-iii/
  3. https://joaquinbarquero.wordpress.com/2015/02/07/paying-for-long-term-performance-a-normative-view/
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