21st Apr 2006 13:35
Banco Bilbao Vizcaya Argentaria SA21 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 BilbaoVizcaya Argentaria, S.A. Group (including executive directors and members of theBBVA Management Team) The establishment of permanent links between the interests of the managementteam and the shareholders is still widely recognised as necessary for listedcompanies in Spain and internationally. Thus, 70% of IBEX-35 companies currentlyhave some kind of medium-term incentive system for their management staff. Thispercentage is over 90% for Eurostoxx-50 companies. BBVA is very aware of the importance that management participation in sharecapital still has nowadays. It thus proposes implementing a long-termremuneration plan linked to the Bank's share performance and its comparativeperformance against its main peers in the European banking industry, in order tobring the management team's goals into line with BBVA shareholder interests. Theaim is not just to establish ties between the management and the shareholders, alink that shareholders value highly and that helps generate value for theenterprise, but also to motivate the management team to look forward, whilstshoring up their loyalty to their company. Accordingly, BBVA has acknowledged the importance of motivating and retainingmanagement talent, and the strong competition amongst international financialgroups for certain levels, resolving to propose a Long-Term Share RemunerationPlan for its management team (hereinafter the Plan), with the followingcharacteristics: Description of the Plan The Plan allocates a certain number of "theoretical shares" to each beneficiaryat the outset, which can then be materialised in a delivery of BBVA shares whenthe Plan concludes. The theoretical shares initially allocated are notconsidered shares for legal purposes. In no case do they engender voting oreconomic rights over Bank shares, since they merely constitute an expectedentitlement. Consequently, theoretical shares cannot be taxed, pledged ortransferred under any title. Only at the time of settlement, if all the termsand 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 theBBVA management team, including executive directors and members of the BBVAManagement committee. Initially, there will be 1,780 beneficiaries, but newbeneficiaries can be taken on board while the Plan is in force. Executives who have a special incentive plan are expressly excluded from thePlan, eg, management in the Global Markets and Distribution Area. Term Pursuant to the resolution of the AGM, 18th March 2006, the Plan shall bereferenced to compliance with the objectives over a time period running from 1stJanuary 2006 to 31st December 2008. Settlements will be made in the first halfof 2009. Maximum number of shares for the Plan A maximum of 22 million shares may be earmarked for this Plan, ie approximately0.65% of the BBVA shareholders funds. Of these, 1.380.000 may be set aside forexecutive directors in the Bank (ie 0.041% of BBVA shareholders funds) and3,500,000 for members of the Management committee (0.103% of BBVA shareholdersfunds). 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 ofearly retirement, declaration of disability or death) and 2. score an average of 100 points from 2006-2008 according to theevaluation 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 variouselements that are intended to reinforce each other and have clearlydifferentiated aims. Along with the fixed pay, which is intended to reward managers for theircontribution in keeping with the demands and responsibilities of their post,ordinary yearly variable pay enables directors to be rewarded for resultsobtained, using indicators to guarantee the best correlation between earningsgenerated and the investment made in remuneration. This variable pay takes intoaccount the importance of the post and the market benchmark for similar duties.This is obtained by BBVA's participation in different salary surveys, such thatBBVA has a reference for each post or function in order to calculate theordinary yearly variable pay (Reference Bonus). Considering the importance of this variable remuneration within the remunerationpolicy for BBVA management, the Bank has decided to benchmark the values in theLong-Term Share-Remuneration Plan to the ordinary yearly variable pay of eachmanager. In this way, to determine the number of theoretical shares (NA) to be allocatedto 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 forthe last three years. • CNR = Responsibility Level Coefficient. For managers between levels 0and 3 (Corporate Managers), this coefficient is set at 3. For managers betweenlevels 4 and 5 (Management Staff) the coefficient is 1. • PA: Future value of BBVA shares in 3 years determined at beginning2006, the date of reference for determining compliance with the Plan'sobjectives. This value is estimated at €15.02. In order to iron out imbalances in the general system deriving from one-offcircumstances that may arise amongst the group of beneficiaries, it has beenresolved that for levels 1 to 3 (Corporate Managers), the number of theoreticalshares may not be less than the minimum number established for such purpose, norhigher than the maximum number determined for each level. The same considerations shall hold for levels 4 and 5 (Management Staff), inaccordance 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 320,000President and COO 270,000Company Secretary 100,000 For members of the Management committee, the number of theoretical shares shallbe referenced to the value of the earlier pluri-annual bonus (2003-2005), andthe 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 thespread between BBVA, SA's Total Shareholder Return (TSR) during the time it hasbeen in force and that of 14 benchmark peers. TSR measures return on shareholders' investment as a sum of gains in the listedstock price plus dividends and other similar items payable during the term ofthe 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 tradingsessions at the beginning and the end of the Plan. These 31 sessions shallcover, apart from that day's session, the 15 trading sessions prior to and the15 trading sessions after the date in question at the beginning and at the endof the plan. A multiplier coefficient will be established as a function of the ranking of theBBVA's TSR against the benchmark banks at the end of the Plan. This is includedin the following table and is applicable to the number of theoretical sharesinitially allocated in order to calculate the number of BBVA shares that will bedelivered to the Plan's beneficiaries. The BBVA board of directors will take due measures so that, should anythinghappen 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 thenumber of companies in the benchmark group and therefore BBVA's comparativeposition), the monetary benefits that the managers receive from the Plan on itssettlement date will be equivalent to what they would have got without suchevents. Implementing the Plan internationally The Plan is addressed to the Group management worldwide. Should it not bepossible to deliver the shares to the beneficiaries on the settlement date, dueto specific legislation in each country or the existence of operationalconstraints, the Bank shall adapt the Plan in order to suit the specific needsof each country. It may decide to substitute the delivery of shares with theequivalent value in cash. New incorporations, level changes and leavers The Plan envisages the possibility of new beneficiaries joining the Plan as aconsequence of internal promotion to management or when hired from outside for amanagement post. In such cases, the number of theoretical shares to be allocatedwill be determined according to a scale as a function of the time that haspassed since the Plan came into force and the date on which the internalpromotion or engagement took place. In cases in which there are changes of the Management Team, the number oftheoretical 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 thedate on which the change took place. Should the change entail an employee leaving the management team but withoutending their employ in the Bank, the number of theoretical shares initiallyassigned shall be reduced according to a scale as a function of the date onwhich 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 tothe manager shall be reduced as a function of the date on which the manager leftthe team, using the same scale as was mentioned in the preceding paragraph. Thesettlement 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, andtherefore all rights to receive the shares that may ensue on the conversion oftheoretical shares into Bank shares. Early settlement of the Plan Should there be a change in BBVA ownership or control; or any event or operationthat the board deems to have a significant impact on the Plan, the Plan will beliquidated taking into account the date of said event in order to calculate theTSR ranking as a function of the time passed and the terms and conditionsestablished in the Plan. If the change in ownership or control is due to a public takeover bid, the Planshall be liquidated in cash, using the price offered under the public bid as thereference price. When liquidating the Plan, the board shall consider the amount of time passedsince 1st January 2006 and the date on which the board deems that thesignificant event or operation took place leading to early liquidation of thePlan. Accountancy implications and cover The Plan will entail an obligation for the Bank to record a personnel cost whichshall be determined when the Plan is initiated. This shall be calendared overthe term of the Plan, and payable to a patrimonial account. The cost shall bedetermined in view of the fair value of the rights assigned to the beneficiariesof the Plan in accordance with the general rules of valuation laid out in theBank of Spain's circular 4/2004. The estimated cost, on the date of thisreport, should the Plan be implemented now, would be €141.1m (using an averageexpected multiplier of 0.896 and a share value of €15.02). The Bank shall meet its obligations to deliver the shares ensuing on this Planby buying treasury stock, pursuant to a resolution from the General ShareholdersMeeting in compliance with article 75 of the Companies Act or by engaging thecorresponding 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 forthe Plan, income deriving from it will become subject to taxation when theshares are delivered on settlement of the Plan. The way this income is valuedwill take into account the listed price of the shares on the date on which theirownership is effectively handed over to the beneficiaries of the Plan. Theincome obtained by the beneficiaries shall be considered remuneration in kindfrom work and be subject to income tax payable by the beneficiaries. The incomeobtained may be subject to a 40% reduction established under tax regulations forirregular remuneration from work, under the currently prevailing scheme. Whatever the case, the tax treatment shall be in compliance with the prevailingtax 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 notconsider its benefits to be part of the basic salary package and shall notinclude these in calculations for pensions, severance pay or any other perksthat beneficiaries may be entitled to as a BBVA Group employee. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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