Share-Remuneration Plan
Banco Bilbao Vizcaya Argentaria SA
21 April 2006
Long-Term BBVA's
Share-Remuneration
Plan for the
management team
Long-Term Share-Remuneration Plan for the management team of the Banco Bilbao
Vizcaya Argentaria, S.A. Group (including executive directors and members of the
BBVA Management Team)
The establishment of permanent links between the interests of the management
team and the shareholders is still widely recognised as necessary for listed
companies in Spain and internationally. Thus, 70% of IBEX-35 companies currently
have some kind of medium-term incentive system for their management staff. This
percentage is over 90% for Eurostoxx-50 companies.
BBVA is very aware of the importance that management participation in share
capital still has nowadays. It thus proposes implementing a long-term
remuneration plan linked to the Bank's share performance and its comparative
performance against its main peers in the European banking industry, in order to
bring the management team's goals into line with BBVA shareholder interests. The
aim is not just to establish ties between the management and the shareholders, a
link that shareholders value highly and that helps generate value for the
enterprise, but also to motivate the management team to look forward, whilst
shoring up their loyalty to their company.
Accordingly, BBVA has acknowledged the importance of motivating and retaining
management talent, and the strong competition amongst international financial
groups for certain levels, resolving to propose a Long-Term Share Remuneration
Plan for its management team (hereinafter the Plan), with the following
characteristics:
Description of the Plan
The Plan allocates a certain number of 'theoretical shares' to each beneficiary
at the outset, which can then be materialised in a delivery of BBVA shares when
the Plan concludes. The theoretical shares initially allocated are not
considered shares for legal purposes. In no case do they engender voting or
economic rights over Bank shares, since they merely constitute an expected
entitlement. Consequently, theoretical shares cannot be taxed, pledged or
transferred under any title. Only at the time of settlement, if all the terms
and conditions are met, will the Plan deliver BBVA shares to its beneficiaries,
who will then become full shareholders in the Bank.
Beneficiaries of the Plan
The Plan is addressed to employees who on 1st January 2006 are members of the
BBVA management team, including executive directors and members of the BBVA
Management committee. Initially, there will be 1,780 beneficiaries, but new
beneficiaries can be taken on board while the Plan is in force.
Executives who have a special incentive plan are expressly excluded from the
Plan, eg, management in the Global Markets and Distribution Area.
Term
Pursuant to the resolution of the AGM, 18th March 2006, the Plan shall be
referenced to compliance with the objectives over a time period running from 1st
January 2006 to 31st December 2008. Settlements will be made in the first half
of 2009.
Maximum number of shares for the Plan
A maximum of 22 million shares may be earmarked for this Plan, ie approximately
0.65% of the BBVA shareholders funds. Of these, 1.380.000 may be set aside for
executive directors in the Bank (ie 0.041% of BBVA shareholders funds) and
3,500,000 for members of the Management committee (0.103% of BBVA shareholders
funds).
Requirements to obtain shares
In order to receive the shares, beneficiaries are required to:
1. Remain in BBVA's employ when the Plan is settled (except in the event of
early retirement, declaration of disability or death) and
2. score an average of 100 points from 2006-2008 according to the
evaluation method used for the Group's management staff.
Determining the initial number of 'theoretical shares'
The remuneration of the BBVA management is structured according to various
elements that are intended to reinforce each other and have clearly
differentiated aims.
Along with the fixed pay, which is intended to reward managers for their
contribution in keeping with the demands and responsibilities of their post,
ordinary yearly variable pay enables directors to be rewarded for results
obtained, using indicators to guarantee the best correlation between earnings
generated and the investment made in remuneration. This variable pay takes into
account the importance of the post and the market benchmark for similar duties.
This is obtained by BBVA's participation in different salary surveys, such that
BBVA has a reference for each post or function in order to calculate the
ordinary yearly variable pay (Reference Bonus).
Considering the importance of this variable remuneration within the remuneration
policy for BBVA management, the Bank has decided to benchmark the values in the
Long-Term Share-Remuneration Plan to the ordinary yearly variable pay of each
manager.
In this way, to determine the number of theoretical shares (NA) to be allocated
to each manager, we have used the following formula (duly adjusted):
Where:
• NAT= Number of 'theoretical shares' allocated to each manager.
• aRVA03-05/3 = Average ordinary yearly variable pay of each manager for
the last three years.
• CNR = Responsibility Level Coefficient. For managers between levels 0
and 3 (Corporate Managers), this coefficient is set at 3. For managers between
levels 4 and 5 (Management Staff) the coefficient is 1.
• PA: Future value of BBVA shares in 3 years determined at beginning
2006, the date of reference for determining compliance with the Plan's
objectives. This value is estimated at €15.02.
In order to iron out imbalances in the general system deriving from one-off
circumstances that may arise amongst the group of beneficiaries, it has been
resolved that for levels 1 to 3 (Corporate Managers), the number of theoretical
shares may not be less than the minimum number established for such purpose, nor
higher than the maximum number determined for each level.
The same considerations shall hold for levels 4 and 5 (Management Staff), in
accordance with the characteristics of each country.
The number of shares to be allocated to Executive Directors shall be as follows:
Number of theoretical shares to be
allocated.
Chairman and CEO 320,000
President and COO 270,000
Company Secretary 100,000
For members of the Management committee, the number of theoretical shares shall
be referenced to the value of the earlier pluri-annual bonus (2003-2005), and
the level of responsibility for each member.
Final number of shares to be delivered in settlement of the Plan
The total number of shares to be given at the end of the Plan will depend on the
spread between BBVA, SA's Total Shareholder Return (TSR) during the time it has
been in force and that of 14 benchmark peers.
TSR measures return on shareholders' investment as a sum of gains in the listed
stock price plus dividends and other similar items payable during the term of
the Plan.
The benchmark banks for the Plan are:
To calculate TSR and in order to avoid atypical fluctuations in the indicator,
we take a rolling average of the listed value from 31 stock-exchange trading
sessions at the beginning and the end of the Plan. These 31 sessions shall
cover, apart from that day's session, the 15 trading sessions prior to and the
15 trading sessions after the date in question at the beginning and at the end
of the plan.
A multiplier coefficient will be established as a function of the ranking of the
BBVA's TSR against the benchmark banks at the end of the Plan. This is included
in the following table and is applicable to the number of theoretical shares
initially allocated in order to calculate the number of BBVA shares that will be
delivered to the Plan's beneficiaries.
The BBVA board of directors will take due measures so that, should anything
happen to the company during the Plan that could affect the shares (eg, mergers,
share splits, etc.) or the benchmark peers (eg mergers or takeovers changing the
number of companies in the benchmark group and therefore BBVA's comparative
position), the monetary benefits that the managers receive from the Plan on its
settlement date will be equivalent to what they would have got without such
events.
Implementing the Plan internationally
The Plan is addressed to the Group management worldwide. Should it not be
possible to deliver the shares to the beneficiaries on the settlement date, due
to specific legislation in each country or the existence of operational
constraints, the Bank shall adapt the Plan in order to suit the specific needs
of each country. It may decide to substitute the delivery of shares with the
equivalent value in cash.
New incorporations, level changes and leavers
The Plan envisages the possibility of new beneficiaries joining the Plan as a
consequence of internal promotion to management or when hired from outside for a
management post. In such cases, the number of theoretical shares to be allocated
will be determined according to a scale as a function of the time that has
passed since the Plan came into force and the date on which the internal
promotion or engagement took place.
In cases in which there are changes of the Management Team, the number of
theoretical shares initially allocated will be altered accordingly, up or down,
as a function of the time that has passed since the Plan came into force and the
date on which the change took place.
Should the change entail an employee leaving the management team but without
ending their employ in the Bank, the number of theoretical shares initially
assigned shall be reduced according to a scale as a function of the date on
which the manager left the team and the date on which he/she joined the Plan.
In cases in which employees leave the management team due to early retirement,
being declared disabled or death, the number of shares initially allocated to
the manager shall be reduced as a function of the date on which the manager left
the team, using the same scale as was mentioned in the preceding paragraph. The
settlement date shall be the date established in the Plan.
Finally, should the manager leave and his/her employment contract be terminated,
the beneficiary shall lose all the theoretical shares initially allocated, and
therefore all rights to receive the shares that may ensue on the conversion of
theoretical shares into Bank shares.
Early settlement of the Plan
Should there be a change in BBVA ownership or control; or any event or operation
that the board deems to have a significant impact on the Plan, the Plan will be
liquidated taking into account the date of said event in order to calculate the
TSR ranking as a function of the time passed and the terms and conditions
established in the Plan.
If the change in ownership or control is due to a public takeover bid, the Plan
shall be liquidated in cash, using the price offered under the public bid as the
reference price.
When liquidating the Plan, the board shall consider the amount of time passed
since 1st January 2006 and the date on which the board deems that the
significant event or operation took place leading to early liquidation of the
Plan.
Accountancy implications and cover
The Plan will entail an obligation for the Bank to record a personnel cost which
shall be determined when the Plan is initiated. This shall be calendared over
the term of the Plan, and payable to a patrimonial account. The cost shall be
determined in view of the fair value of the rights assigned to the beneficiaries
of the Plan in accordance with the general rules of valuation laid out in the
Bank of Spain's circular 4/2004. The estimated cost, on the date of this
report, should the Plan be implemented now, would be €141.1m (using an average
expected multiplier of 0.896 and a share value of €15.02).
The Bank shall meet its obligations to deliver the shares ensuing on this Plan
by buying treasury stock, pursuant to a resolution from the General Shareholders
Meeting in compliance with article 75 of the Companies Act or by engaging the
corresponding financial instrument to hedge the obligations.
Tax implications for beneficiaries of the Plan
In Spain, according to prevailing tax regulations on the date of initiation for
the Plan, income deriving from it will become subject to taxation when the
shares are delivered on settlement of the Plan. The way this income is valued
will take into account the listed price of the shares on the date on which their
ownership is effectively handed over to the beneficiaries of the Plan. The
income obtained by the beneficiaries shall be considered remuneration in kind
from work and be subject to income tax payable by the beneficiaries. The income
obtained may be subject to a 40% reduction established under tax regulations for
irregular remuneration from work, under the currently prevailing scheme.
Whatever the case, the tax treatment shall be in compliance with the prevailing
tax regulations in each country of the settlement date for the Plan.
Employment implications
The Plan is considered to be an extraordinary plan, such that the Bank shall not
consider its benefits to be part of the basic salary package and shall not
include these in calculations for pensions, severance pay or any other perks
that beneficiaries may be entitled to as a BBVA Group employee.
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