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Annual reports 14 Feb 2018

BBVA publishes its annual compensation report for board members

  • Good results: In 2017, the BBVA Group posted a net attributable profit of €3.52 billion (+1.3%). Excluding the accounting adjustment of Telefónica and the capital gains from extraordinary corporate operations, net profit in 2017 was €4.29 billion, up 23.3% from a year earlier. The main drivers behind this result were a positive performance of recurring revenue, cost containment efforts in operating expenses and an effective risk management strategy
  • Group Executive Chairman: Total remuneration of BBVA Executive Chairman for 2017 was €5.8 million, up 18% from 2016. The Chairman’s variable compensation rose 12% compared to the previous year. The deferred variable remuneration is subject to multi-annual indicators, based on which remuneration can be reduced or taken to zero, never increased. It also includes a Malus clause that could limit or prevent its collection, and clawback clauses intended to reduce or reclaim already paid amounts
  • CEO: Carlos Torres Vila’s total remuneration was €4.9 million in 2017. HIs variable compensation is also subject to the same deferral period and conditions as that of the Chairman

BBVA today published its annual compensation report for its board members. The compensation policy for executive board members (applicable for 2017, 2018 and 2019) is intended to generate value for BBVA Group and align the interests of its employees and shareholders with a prudent risk management strategy. The variable compensation of executive board members has been determined excluding capital gains from extraordinary corporate operations and the accounting adjustment of Telefónica.

For 2017, BBVA Chairman Francisco González’s total remuneration was €5.8 million, up 18% from a year earlier, with a €2 million deferral that will be paid starting 2021. The Chairman’s variable compensation increased 12% from 2016 to €3.3 million. The deferred variable remuneration is subject to the compensation policy in force, with multi-annual indicators based on which it can be reduced or even taken to zero, never increased. It also includes a Malus clause that could limit or prevent its collection, and clawback clauses intended to reclaim already paid amounts.

Chief Executive Officer Carlos Torres Vila’s total remuneration in 2017 was €4.9 million, vs. €4.4 million in 2016 (+11% y-o-y). His variable compensation for the period amounted to €2.8 million, up 19% from 2016.

The y-o-y increase is the result of higher net attributable profit on the back of a positive performance of recurring revenues, cost-containment efforts, and an effective risk management strategy, which has resulted in lower impairments on financial assets. Likewise RORC (Return on Regulatory Capital), efficiency, and customer satisfaction indicators have shown a favorable performance.

Variable compensation for executive board members has been determined excluding capital gains from corporate operations and the accounting adjustment related to BBVA’s stake in Telefónica. The latter comes as a result of the application of the IAS 39 accounting standard, which in 2018 is no longer applicable. The adjustment does not affect equity, the CET1, dividends, nor cash outflow. For that reason, and from a compensation standpoint, indicators to calculate the bonus have been based on a net attributable profit of €4.29 billion in 2017, up 23.3% from a year earlier.

The number of shares that each one is to receive as share-based variable remuneration for 2017 has been determined with a price of €7.25 per share, which equals the average closing price of BBVA stock between Dec. 15, 2017 and Jan. 15, 2018, inclusive.

Compensation policy

The compensation policy approved a year ago includes:

  • An increase in the percentage of variable remuneration deferred over time (60%), as well as an increase in the deferral period of five years for executive directors and senior managers (60% will be paid after three years, 20% on year four and 20% on year five). This deferred part may be reduced based on the performance of multi-annual indicators related to BBVA stock price trends, fundamental long-term profitability, liquidity and capital adequacy metrics.
  • An increase in the variable remuneration part to be paid in shares. The initial payment of the variable remuneration will made 50% in cash and 50% in BBVA shares. The deferred part will be paid 60% in BBVA stock and the remaining 40% in cash.
  • The review of malus and clawback clauses in order to increase their alignment with the scenarios envisaged in the new regulation. Throughout deferral and share withholding period (6 years), these clauses may kick in as a result of a deficient financial performance of the Group, the unit or the individual due to irregular conduct, risk mismanagement or restate of the financial statements, and other reasons.
  • Shares paid to executive directors as part of the share-based variable remuneration will be unavailable during a one-year period starting on the date they are granted. Also, executive directors shall not transfer ownership of a number of shares equivalent to two times their fixed annual pay for a three-year period starting on the date on which they are assigned, with the exception of sales required to cover tax expenses arising from their assignment.
  • A change in the balance between the fixed and variable structure of the remuneration, to increase its alignment with applicable regulations and ease the application thereof, providing a higher level of flexibility in variable payment arrangements, compared to the fixed ones. This change will in no case entail an increase in the overall remuneration of its beneficiaries.
  • A change in the CEO’s pension system, towards a simple and transparent model, fully aligned with the regulations. In this sense, the defined benefit system has been replaced by a new defined contribution system, where annual contributions to the pension plan are clearly established beforehand. Additionally, the possibility to perceive the retirement pension in advance has been eliminated. In compliance with Bank of Spain regulations (Circular 2/2016), 15% of annual contributions will be considered discretionary pension benefits.
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