10.5. Description of the criteria used for taking into consideration present and future risks in the remuneration process

As explained above the remuneration policy for Identified Staff is aligned with shareholders’ interests and with prudent risk management, and includes the following elements:

• Use of the Group’s recurring EVA as a metric for evaluating earnings used as a base to determine ordinary variable remuneration. EVA considers the level of risk incurred and the cost of capital, measuring the sustained generation of value for shareholders and complying with the principle of prudent risk management. Indicator that is also included in the calculation of variable share-based remuneration (Management Team Incentive).
  • The indicator is based on the level of risk assumed and the cost of capital.
  • EVA takes into consideration the majority of risks assumed through the calculation of Economic Capital at Risk (ECaR).
  • ECaR reflects the minimum level of protection demanded against unexpected future losses by the different types of risk. Thus EVA not only includes the expected losses for the year, but also the risk of future losses.
  • BBVA measures and monitors liquidity risk, which is also taken into account for incentive payments, to the extent that a premium is transferred to the income statements of the business areas that includes the liquidity cost.
• Use of TSR, which measures the shareholder return on investment, as the main indicator determining variable share-based remuneration for the management team.
• Payment in shares of at least 50% of the variable remuneration.
• Deferment clauses, designed to ensure that a substantial part of the variable remuneration (between 40% and 50%) is deferred for a period of 3 years, thus taking into account the economic cycle and business risks.
• Obligatory withholding periods of any shares delivered as variable remuneration, so that beneficiaries may not freely dispose of them until one year after their delivery date.
• Clauses that prevent or limit the payment of variable remuneration (both deferred remuneration and remuneration corresponding to a year), as a result of either actions involving the individual recipient or the results of the Group as a whole (“malus clauses”).
• Limitation of the amount of ordinary variable remuneration for executive directors to a percentage of their fixed remuneration.