The remuneration system applicable to the Identified Staff in BBVA contains a series of special features as compared with the one applicable to the rest of staff, since a special variable incentive system has been established for this group, aligned with legal requirements, recommendations and best market practices, as described later.
According to BBVA’s remuneration policy, the remuneration system is made up of:
1. Fixed remuneration
Fixed remuneration in BBVA is established by taking into consideration the employee’s level of responsibility and professional career history in the Group. A benchmark salary is fixed for each function that reflects its value for the Organization. This benchmark salary is defined by analyzing what is fair internally and comparing it with the market through the advice of leading firms specializing in remuneration.
The fixed component in the employee’s total remuneration represents a sufficiently high proportion to allow maximum flexibility with respect to the variable components.
2. Variable remuneration
BBVA’s variable remuneration represents a key element in the Bank’s remuneration policy, as it rewards the creation of value in the Group through each of the areas and units that make up BBVA. In short, it rewards individuals and teams and their combined contributions to the Group’s recurrent earnings.
The annual variable remuneration in BBVA for 2015 was made up of a single incentive paid in cash that is granted annually (hereinafter “Annual Variable Remuneration”). It has been designed so that it is aligned with prudent risk management and generation of long-term value.
The essential aspects of Annual Variable Remuneration in 2015 are detailed below:
2.a) Annual variable remuneration in cash.
BBVA’s annual variable remuneration model for 2015 is based on a series of value creation indicators established for each unit. The variable remuneration to be paid to the members of the unit in question depends on these indicators, and on the results for the unit’s area and those of the Group as a whole. The distribution of the remuneration between the staff members is based on individual performance, which is calculated through an individual evaluation of the indicators.
The unit indicators used are of two types: each unit’s own financial and non-financial indicators.
BBVA considers that prudent risk management is a key element within its variable remuneration policy. That is why it has established recurrent Economic Value Added (EVA) for 2015 as one of the financial indicators used to calculate the annual variable remuneration of all its workforce.
Technically, EVA is recurring economic profit minus the cost of capital used in each business or the rate of return expected by investors. Economic profit differs from accounting profit because of the use of economic criteria rather than regulatory accounting criteria in some operations.
It can therefore be said that conceptually, EVA is the recurring economic profit generated above market expectations in terms of capital remuneration.
It has also been established that indicators of the units themselves that are responsible for control functions (Internal Audit, Legal Compliance, Global Accounting & Information Management, General Secretary and Risks) should have a greater weight than the financial indicators. This is in order to make the staff who are responsible for the control functions more independent with respect to the areas supervised.
Thus, BBVA’s annual variable remuneration combines the employees’ results (financial and non-financial) with those of their Unit, the Area to which they belong and the Group as a whole; and it uses the EVA indicator, which takes into account both present and future risks, and the capital cost incurred to obtain those profits.
2.b) Settlement and payment system for annual variable remuneration
According to the specific settlement and payment system for annual variable remuneration in 2015 that applies to the Identified Staff:
- The variable remuneration in 2015 for the Identified Staff will be paid in equal proportion, in cash and in BBVA shares.
- Payment of 40% of the Annual Variable Remuneration –50% in the case of executive directors and members of senior management–, both in cash and in shares, will be deferred. The deferred amount will be paid at the end of the3-year period and subject to fulfillment of the following multi-year evaluation indicators approved by the Board of Directors for the 3-year deferment period:
Table 78. Settlement and payment system for annual variable remuneration
| Indicator | Weight |
|---|---|
| Relative TSR | 10% |
| ROE | 10% |
| Economic Capital/ECaR | 30% |
| Cost of risk | 20% |
| LSCD | 30% |
The deferred Annual Variable Remuneration may be reduced, and may even be zero, and under no circumstances may the application of the above indicators involve an increase.
- All the shares that are delivered according to the aforementioned rules may not be used for a period of six months starting from the date of their provision. This retention is applied on the net amount of the shares, after discounting the part necessary to make the tax payment for the shares received. Using the shares delivered which are unavailable and the shares pending delivery for hedging purposes is also prohibited.
- The deferred parts of the annual variable remuneration in 2015 will be updated as established by the Board of Directors.
- Lastly, the variable component of the remuneration for a year for the Identified Staff will be limited to a maximum amount of 100% of the fixed component of total remuneration, except for those positions approved by the General Meeting, which may reach up to 200%.
In addition, the parts of the annual variable remuneration that are deferred and pending payment in accordance with the above rules will not be paid to the members of the Identified Staff if one of the following circumstances occurs before the payment date (“malus clauses”):
i. If the beneficiary has not generated the right to annual variable remuneration for the year as a result of the effect on results for the year of transactions accounted for in previous years which generated the right to payment of the annual variable remuneration.
ii. If the beneficiary has been sanctioned for a serious breach of the code of conduct or other applicable internal rules, in particular related to risks.
iii. If the contractual relationship has been terminated, the beneficiaries will only be entitled to receive the deferred amounts under the same terms as if they had continued working in the event of retirement, early retirement, unfair dismissal, declaration of permanent incapacity for employment to any degree, or death, and in the event of termination by mutual agreement, where the situation will be resolved as agreed by the parties.
In addition, if in one year the BBVA Group had negative financial results (presented losses), not including one-off results, the beneficiaries will not receive either the Annual Variable Remuneration corresponding to the year of the losses, or the deferred amounts that were payable for the year in which the annual accounts reflecting these negative results were approved.
In any event, the variable remuneration shall be paid only if it is sustainable with respect to the BBVA Group’s situation as a whole and if it is justified by its results.
As indicated earlier, the remuneration system described applies to the Identified Staff, which includes the Bank’s executive directors.
Notwithstanding the foregoing, BBVA’s Remuneration Policy for directors makes a distinction between the remuneration system for executive directors and the system applicable to non-executive directors, as set out in the Bank’s Bylaws.
A detailed description of the remuneration system applicable to BBVA’s non-executive directors is included in the Remuneration Policy for BBVA directors, which was approved by the General Meeting, and in the Annual Report on the Remuneration of Directors. As set out in those documents, non-executive directors do not receive variable remuneration; they receive a fixed annual amount in cash for holding the position of director and another for the members of the various Committees, with a greater weight being given to the exercise of the function of chairman of each Committee, and the amount depending on the nature of the functions attributed to each Committee.
In addition, the Bank has a remuneration system for its non-executive directors with deferred delivery of shares, approved by the Annual General Meeting, that also constitutes fixed remuneration. It consists of the annual allocation to those directors, as part of their remuneration, of a number of “theoretical shares” of the Bank that will be effectively delivered, where applicable, on the date of their termination as directors for any cause other than serious breach of their obligations. The annual number of “theoretical shares” to be allocated to each non-executive director will be equivalent to 20% of the total remuneration in cash received by each in the previous year. This is based on the average closing prices of the BBVA share during the 60 trading sessions prior to the dates of the ordinary General Meetings approving the financial statements for each year. The extension of the remuneration system with deferred distribution of shares for executive directors, is submitted to the next Annual General Meeting for approval.