REMUNERATION POLICY FOR BANCO POPULAR DIRECTORS

Transcription

1 REMUNERATION POLICY FOR BANCO POPULAR DIRECTORS

2 CONTENTS 1. Introduction Validity Principles behind the Director Remuneration Policy Directors remuneration system Remuneration for Directors in their capacity as such Remuneration for Executive Directors Fixed Remuneration Fixed Monetary Remuneration Remuneration in Kind Pension plans Variable Remuneration Variable Remuneration Components Procedure for paying Variable Remuneration Reduction of Variable Remuneration Reduction of Deferred Variable Remuneration: Malus clause Recovery or "clawback" clause Variable Remuneration in shares or options on shares during the term of this Policy Main contractual terms for Executive Directors Incorporation of new Executive Directors Variable Remuneration for Executive Directors

3 1. Introduction The Board of Directors of Banco Popular Español, S.A. (hereinafter the Bank or Banco Popular ), at the proposal of the Remuneration Committee, submits to the General Shareholders' Meeting the Remuneration Policy for Banco Popular Directors (hereinafter the Policy or the Remuneration Policy ), created pursuant to the provisions of: (i) Legislative Royal Decree 1/2010, dated 2 July, approving the revised Spanish Enterprises Act (hereinafter the LSC ), (ii) Act 10/2014, dated 26 June, on the organisation, supervision and solvency of credit institutions (hereinafter the LOSS ), which transposed into Spanish law Directive 2013/36/UE of the European Parliament and Council, dated 26 June 2013, regarding access to operations for credit institutions and due supervision of credit institutions and investment firms, amending Directive 2002/87/CE and repealing Directives 2006/48/CE and 2006/49/CE (hereinafter Directive CRD IV ), (iii) Royal Decree 84/2015, dated 13 February, which developed Act 10/2014, of 26 June, on the organisation, supervision and solvency of credit institutions (hereinafter RDLOSS ), (iv) Bank of Spain Circular 2/2016, of 2 February, for credit institutions on supervision and solvency, which completed the adjustment of Spanish law for Directive 2013/36/UE and Regulation (EU) no. 575/2013 (hereinafter Circular 2/2016 ) and (v) Directives on appropriate remuneration policies by virtue of articles 74, section 3, and 75, section 2, of Directive 2013/36/UE and disclosure of information under article 450 of regulation (EU) no. 575/2013 published by the European Bank Authority (hereinafter the EBA Guide ), in the version translated into Spanish, published in June 2016, adopted as its own by the Executive Committee of the Bank of Spain on 27 July 2016, and which came into effect on 1 January This Policy replaces that approved at the 2015 General Shareholders' Meeting and contains the amendments required to adapt the content of the same to the provisions of both Circular 2/2016 and the EBA Guide. 2. Validity This Policy shall apply to the remuneration of Banco Popular Directors for the years 2017, 2018 and 2019, unless otherwise agreed at the General Shareholders' Meeting. 3

4 This Policy has been designed taking into account the Bylaws, proposed amendments submitted to the Annual General Shareholder Meeting, and the prevailing Board of Directors regulations at the time. This Policy will be modified as necessary to reflect any changes to internal Banco Popular regulations and national regulations regarding director remuneration at credit institutions. 3. Principles behind the Director Remuneration Policy The Banco Popular Remuneration Policy is founded on the following principles: 1st. Transparency with regard to the information disclosed on Director remuneration. 2nd. Consistency with the business strategy, objectives, values and long-term interests of the Bank and its shareholders, including measures to avoid conflicts of interest. 3rd. Application of the principles of moderation and commitment to achieving results, based on a prudent and responsible approach to risk. 4th. Director remuneration should be reasonable and commensurate to their importance to Banco Popular, the Bank's economic position at any given time and market standards at peer institutions. 5th. A focus on underpinning the Bank's long-term profitability and sustainability. 6th. A balanced and efficient relationship between fixed and variable items, such that the fixed item represents a sufficiently high proportion of total remuneration. 7th. Only directors who perform executive functions at the Bank are eligible for variable remuneration. This remuneration is in all cases subject to the achievement of specific, quantifiable targets directly aligned with shareholders interests, with specific terms for payment consistent with prudent risk management and not simply the general performance of markets. 4

5 8th. The variable remuneration components for directors who perform executive functions at the Bank may contain a component linked to medium- and long-term objectives entailing gradual payment over several years, in order to link collection of said remuneration over a period of time to reflect the Bank's underlying economic trends and appropriate risk management. 9th. In all cases, the variable remuneration components will only be paid if the same is sustainable pursuant to the situation of Banco Popular and if justified based on the Bank's results, and will also be subject to any applicable reductions ( malus clause) and recovery ( clawback clause). 4. Directors remuneration system Pursuant to article 26 of Bylaws and article 21 of the Board of Directors regulations, the Banco Popular Director Remuneration Policy distinguishes between remuneration for Directors in their capacity as such (hereinafter "Directors") and remuneration for Directors performing executive functions (hereinafter "Executive Directors"). The Banco Popular Remuneration Policy, therefore, distinguishes between remuneration for Directors in their capacity as such and for Executive Directors as stated below. 5. Remuneration for Directors in their capacity as such The remuneration of Directors in their capacity as such consists of a fixed annual amount in cash that is the same for all members of the Board of Directors. Exceptionally, and when duly justified, the Board of Directors may agree that remuneration for Directors in their capacity as such shall not be equal for all board members. In this case, they shall consider and assess the functions and responsibilities of each Director, and other objective circumstances that the Board of Directors considers relevant. Pursuant to article 26 of the Bylaws, the General Shareholders' Meeting is responsible for setting the total annual amount payable by the Bank to its Directors in their capacity as such, with the Board of Directors being responsible for distributing this amount, and being able to reduce this amount as it deems appropriate. 5

6 The maximum annual amount payable by the Bank to the Directors as a whole in their capacity as such is unchanged, and therefore remains two and a half million euros ( 2,500,000). This limit will remain in place until the General Shareholders' Meeting resolves otherwise. The Remuneration Committee resolved that members of the Board of Directors shall receive as of 2015 fixed remuneration for performing their functions of one hundred and twenty thousand euros ( 120,000), equally for all members of the Board of Directors, excluding per diems and other items, and not including remuneration for membership of committees of the Board of Directors. These amounts shall remain fixed until such time as the Board of Directors resolves to amend the same, which shall be set out in the Annual Report on Director Remuneration submitted annually for consideration to the General Shareholders' Meeting. This remuneration system shall also apply to any new members who join the Board of Directors whilst this policy remains in effect. 6. Remuneration for Executive Directors The remuneration system applicable to Executive Directors is compliant with the provisions of commercial law, enshrined in the Corporate Enterprise Act in its wording introduced by Act 31/2014, dated 3 December, amending the Corporate Enterprise Act to improve corporate governance (hereinafter Act 31/2014 ), and the specific regulation applicable to credit institutions, largely enshrined in the LOSS, RDLOSS and Circular 2/2016. Additionally, due to the EBA Guide coming into effect as of 1 January 2017, the Banco Popular Board of Directors has proposed certain amendments to the Remuneration Policy for Senior Management of the Bank, which includes Executive Directors and other professionals who, by the nature of their activity, may have an impact on the Bank's risk profile, in order to observe even more closely if possible the recommendations and directives of said EBA Guide. Thus, the Executive Director remuneration system included in this Remuneration Policy is duly coherent with regulations governing remuneration at credit institutions. The system includes the following elements: 1. Annual fixed remuneration (hereinafter "Fixed Remuneration"), which takes into account their level of responsibility and professional history at the Bank, comprised of: a) Fixed monetary remuneration (hereinafter "Fixed Monetary Remuneration"), 6

7 which constitutes a significant proportion of their total compensation. b) Certain remuneration in kind (hereinafter "Remuneration in Kind"). c) Contributions to the pensions plan envisaged in the Transitory Provision of the Bank's Bylaws (new Bylaws provision submitted for approval at the General Shareholders' Meeting) for Executive Directors who held said position at the time of the 2016 General Shareholders' Meeting, and contributions to the definedcontribution pension plans established in this Remunerations Policy for new Executive Directors (hereinafter "Pension Plan"). 2. Variable remuneration (hereinafter "Variable Remuneration"), the amount of which is determined based on targets for Group results, the performance of their functions and long-term value generation, structured via a single incentive that is linked: a) to compliance with specific annual indicators, which will be paid on a deferred basis, and b) to compliance with multi-year indicators, seeking to link the collection of a significant proportion of Variable Remuneration for executive directors to targets being met in accordance with medium- and long-term business performance. Both components of Variable Remuneration shall be paid on a deferred basis, by halves, in cash and in shares, or in options on shares that may be exercised in the medium and long term when so resolved at the Bank's General Shareholders' Meeting, provided that this is allowed by regulations governing remuneration applicable at any given moment to credit institutions. 7

8 Additionally, as part of the variable remuneration components, and seeking to comply with the provisions of Circular 2/2016, a proportion of contributions to the Executive Director pension plans will be considered discretionary pensions benefits. Below we detail the various components of remuneration for Executive Directors. 6.1 Fixed Remuneration Fixed Monetary Remuneration Fixed Monetary Remuneration reflects the individual's level of responsibility and professional track record at the Bank, and aims to be competitive with that received by persons in equivalent posts at comparable financial institutions. Fixed Monetary Remuneration will be structured into an annual fixed allocation and, if applicable, the so-called individual performance bonus. As a consequence of the foregoing, to determine and update the Fixed Monetary Remuneration for Executive Directors over the duration of this policy, the Board of Directors, at the proposal of the Remuneration Committee, will take into account the following aspects: a) the level of responsibility and dedication required by the position, establishing benchmark remuneration for each function, commensurate with the value of the same to the organisation. b) the professional's experience and their track record at the Bank; c) coherence with the remuneration perceived by the Bank's Senior Management; d) ensuring competitive remuneration compared to that paid for equivalent functions at leading international financial institutions; and e) it must constitute a significant proportion of total compensation. Within total remuneration, the Fixed Monetary Remuneration represents a sufficiently large portion to allow for maximum flexibility with respect to the variable components. 8

9 Considering the remuneration framework enshrined in this Policy, the Remuneration Committee determines the Fixed Monetary Remuneration for each Executive Director, and submits this to the Board of Directors for approval, which reports the same to the General Shareholders' Meeting every year, submitting for consideration the Annual Report on Director Remuneration. At the proposal of the Remuneration Committee, the Board of Directors has agreed that Board Members performing executive functions will receive the following Fixed Monetary Remuneration in 2017: Position Director Fixed Monetary Remuneration Chairman(*) Ángel Ron Güimil 187,500 (*) Chairman(**) Emilio Saracho Rodríguez de Torres 1,287,500 CEO Pedro Larena Landeta 1,000,000 Board Secretary Francisco María Aparicio Valls 650,000 (***) (*) From 1 January to 20 February 2017, and includes a performance bonus of 34,722 euros. (**) From 20 February to 31 December (***) Includes a performance bonus of 125,000 euros. These amounts shall remain fixed until such time as the Board of Directors, based on a proposal from the Remuneration Committee, agrees to amend the same, which will be set out in the Annual Report on Director Remuneration submitted annually for consideration to the General Shareholders' Meeting Remuneration in Kind Executive Directors will receive Remuneration in Kind and benefits provided to all management staff and members of Banco Popular general and senior management, together with that enshrined in their contracts, and the following Remuneration in Kind: a) Health insurance for Executive Directors and their families, under the terms stated in their contracts. b) Life insurance with guaranteed capital equivalent to one year's Fixed Monetary Remuneration. This insurance will remain in place until the 65th birthday of the Executive Director, or until they cease to provide their services to the Bank, should this be later. 9

10 6.1.3 Pension plans For Executive Directors who held said status on the date of the Bank's 2016 General Shareholders' Meeting, the required annual contributions will be made to cover the retirement, widowhood and/or orphan pensions to which they are entitled under the Transitory Provision of the Banco Popular Bylaws (new Bylaws provision submitted for approval at the General Shareholders' Meeting). For the remaining Executive Directors not included in said Transitory Provision, the Bank will be able to assume a fixed-contribution pensions commitment to cover the contingencies of retirement, death and incapacity, whereby the Bank will be able to make annual contributions to an insurance policy or alternative instruments, without this implying any guarantee from the Bank to pay a specific benefit or retirement pension. The eligibility conditions for this benefit may be fully or partially linked to Executive Directors remaining at the Bank until the end of their respective contracts. In application of the provisions of Circular 2/2016, as established in each case by the Bank of Spain, at least 15 percent of annual contributions to pension plans shall be considered discretionary pensions benefits. As a result of the foregoing, said contributions shall be considered variable remuneration, and: (i) shall be paid in shares of the Bank, (ii) shall be withheld by the Bank for a period of five (5) years starting from the date on which the Executive Directors relationship with the Bank is terminated, (iii) shall be subject to the reduction clause ( malus ) and recovery clause ( clawback ) established for Variable Remuneration, and (iv) shall be subject to the maximum limits for Variable Remuneration as a proportion of Fixed Remuneration. 6.2 Variable Remuneration Variable Remuneration rewards value creation at the Bank and the individual contributions made by employees. Variable Remuneration has a component linked to annual targets and another component that depends on multi annual targets being met, and is paid on a deferred basis, by halves, in cash and in shares, or in options on shares that may be exercised in the medium and long term when so resolved at the Bank's General Shareholders' Meeting, provided that this is allowed by regulations governing remuneration applicable at any given moment to credit institutions. 10

11 Variable Remuneration is linked to the Bank's results. The amount of the same is dependent on certain quantifiable objectives, directly aligned with the long-term interests of the Bank, its shareholders and other stakeholders being achieved, to the extent that they generate value for the Bank Variable Remuneration Components The Variable Remuneration System for Executive Directors is based on a unique incentive, simplifying the previous system, and aligned with the directives of the EBA Guide. Said system, which guarantees the Bank's long-term sustainability and the interests of shareholders, is made up of the following components: a) An annual variable component, paid on a deferred basis, conditional on certain associated annual indicators being achieved (hereinafter "Annual Indicators"). b) A multi-year component, linked, as well as to Annual Indicators on which its initial determination shall depend, to achievement of specific multi-year indicators, on which payment of the same shall depend (hereinafter "Multi-year Indicators"). This Variable Remuneration component will likewise be paid on a deferred basis. Alternatively, the Executive Directors will be able to receive a proportion of the multi-year component of their Variable Remuneration in options on Banco Popular stock, which shall be liquidated based on the provisions of the corresponding General Shareholders' Meeting resolution, provided that this is possible pursuant to the requisites established in applicable legislation. According to the provisions of article 34 of the LOSS, the sum of all variable components of remuneration for Executive Directors corresponding to one year may reach up to 200 percent of the fixed component, provided that the Board of Directors agrees to submit the corresponding proposal to the General Shareholders' Meeting and this approves the same. Considering all of the above, the Board of Directors, at the proposal of the Remuneration Committee, has established that Variable Remuneration for Executive Directors is calculated based on financial and non-financial indicators, pursuant to the corresponding degree to which these indicators are achieved, according to the weighting allocated to each indicator, and depending on whether these are evaluated on an annual or multi-annual basis, with the following details: 11

12 a) Annual Indicators During the term of this policy, annual financial evaluation indicators shall be established, which shall consist of the management metrics for the group that at any given time are considered most apposite for evaluating results, profitability and sensitivity to scenario change, capacity to absorb losses, liquidity, risk management and profitability for shareholders. Likewise, the Bank will establish non-financial indicators to annually evaluate aspects such as the Bank's reputation, good governance, corporate and environmental responsibility, client perception, and any other aspect that over the term of this Policy may be determined by the Board of Directors as the most adequate indicators, upon proposal by the Remuneration Committee. Based on the established Annual Indicators and the degree to which the same are achieved, the Remuneration Committee will determine the Variable Remuneration due to each Executive Director, which it will then submit for approval to the Board of Directors. b) Multi-Year Indicators Once the Variable Remuneration for each Executive Director has been determined, a significant proportion will only be paid should certain requisites and conditions be met measured in multi-year terms. The Board of Directors, once a report is submitted by the Remuneration Committee, shall establish on an annual basis the Multi-Year Indicators on which collection of the Variable Remuneration will depend. The time window for the said targets is established in a minimum term of three (3) years, without prejudice to the payment obligations of said Remuneration, which must be coherent with prevailing legislation at all times. Among others, these Multi-Year Indicators may be linked to Total Shareholder Returns (TSR), Return on Equity (ROE) or Return on Risk-Weighted Assets (RORWA) at Banco Popular, as well as any other multi-year indicator that the Board of Directors, at the proposal of the Remuneration Committee, deems appropriate to approve. 12

13 At the proposal of the Remuneration Committee, the Board of Directors will annually evaluate the structure of Multi-Year Indicators, and may adjust these in response to circumstances during the Policy period, reporting the indicators applicable in each year in the corresponding Annual Report on Director Remuneration submitted annually to the General Shareholders' Meeting Procedure for paying Variable Remuneration In all cases, the payment of 40 percent of total Variable Remuneration will be paid in equal parts in cash and in shares during the first quarter of the year following the year to which the remuneration relates. The benchmark used to calculate the number of shares to be delivered will be the weighted average closing price for Banco Popular shares in trading sessions between 15 December of the year to which the variable remuneration relates and 15 January in the following year (both inclusive). 60 percent of the Variable Remuneration (hereinafter "Differed Variable Remuneration"), divided in equal parts into cash and in shares, or, if applicable, partly in shares and partly in options on shares, will be deferred for a period of five (5) years (hereinafter the "Consolidation Period"), with both the payments due and the stock options, if applicable, being subject to compliance with the Multi-Year Indicators established by the Board of Directors and, if applicable, the General Shareholders' Meeting. In the case of granting stock options, the procedure established in the agreement of the General Meeting of Shareholders shall be followed. The deferment percentages established herein will be subject to automatic amendment should the competent authorities establish absolute or relative thresholds for determining the amounts of Variable Remuneration that should be deferred, under the provisions of the EBA Guide or implementing regulations. Regarding annual and multi-year Variable Remuneration corresponding to previous years that is pending payment, the rules for payment envisaged in the previous Remuneration Policy shall remain applicable. For example, the Variable Remuneration corresponding to 2017, leaving aside stock options, would be as follows: 1st. In the first quarter of 2018, the Board of Directors, based on a proposal from the Remuneration Committee, will establish the remuneration corresponding to 2017 according to the degree to which the established Annual Indicators are achieved. 2nd. 50 percent of total Variable Remuneration payments will be made in cash and 50 percent in Banco Popular shares. 13

14 3rd. Payment of 40 percent of Variable Remuneration, both the proportion paid in cash and that paid in shares, will be delivered in the first quarter of th. The remaining 60 percent will be deferred, with the Deferred Variable Remuneration being delivered, both the proportion paid in cash and that paid in shares, in fifths during 2019, 2020, 2021, 2022 and th. The payments in the years 2021, 2022 and 2023 will depend on compliance with the established Multi-Year Indicators for the period between 1 January 2017, when this policy comes into effect, and 31 December The Deferred Variable Remuneration may be less, but never more, than that established by the Board of Directors, in accordance with the provisions of the above section 1. 6th. The shares delivered will be subject to a one-year lock-up period Variable Remuneration, which will also be applicable for the duration of this policy, not including payment in stock options, may be illustrated as follows: Variable Remuneration communication 12% 12% Cash Shares 60% 40% 12% 12% 12% Holding period / malus / clawback Holding period / malus / clawback Holding period / malus / clawback Holding period / malus / clawback Holding period / malus / clawback Holding period / malus / clawback Measurement period of multi-annual objectives Payment conditional upon achievement of multiannual objectives

15 6.2.3 Reduction of Variable Remuneration Pursuant to the provisions of Circular 2/2016, once levels of compliance with targets on which Variable Remuneration depends have been determined, the Board of Directors, following a report from the Remuneration Committee, may reduce the total amount of Variable Remuneration in the following circumstances: a) The Bank posts negative results, whether relative to previous years or relative to credit institutions included in the Banco Popular peer group. b) A negative performance from capital ratios, whether relative to previous years or to credit institutions included in the Banco Popular peer group. c) In the event of a requirement or formal recommendation from the competent supervising authority to the Bank to restrict its dividend payment policy. The Board of Directors, once a report is submitted by the Remuneration Committee, will determine whether the described circumstances are in place and whether Variable Remuneration should be reduced Reduction of Deferred Variable Remuneration: Malus clause Deferred Variable Remuneration that is pending payment may be reduced 100 percent if, during the Consolidation Period, any of the following circumstances should occur: a) Pursuant to the provisions of article 34.1.n) of the LOSS and Regulation 39.5 of Circular 2/2016, total variable remuneration will be reduced considerably when the Bank reports poor or negative financial results, bearing in mind when applying this clause both variable remuneration in the year and the previously accrued payment amounts. b) Breach by an Executive Director of internal codes and regulations to which they are subject. This shall be understood to include breach of applicable regulations concerning risks during any of the years of Variable Remuneration pending payment. c) Any significant material restatement of the Bank's financial statements, except when appropriate pursuant to changes to applicable accounting standards. 15

16 d) Significant changes to economic capital and the qualitative assessment of risks. e) Should Banco Popular fail to pass the bank stress tests required by the European Banking Authority, in each of the Variable Remuneration settlement and payment years. f) Should an Executive Director fail to comply with suitability requirements established in evaluation standards for directors, general managers or similar key personnel, no amount pending payment as Variable Remuneration will be paid. Additionally, pursuant to the provisions of Circular 2/2016, the "malus" clause will apply in the following circumstances: g) Significant shortcomings in risk management at the Bank, or by a business unit or risk control. h) An increase in capital requirements suffered by the Bank or a business unit that was not envisaged when exposures where generated. i) Regulatory sanctions or court sentences for events attributable to the unit or the individual responsible for the same. Likewise, breach of the Bank's internal codes of conduct. j) Irregular conduct, whether individual or collective. Negative effects derived from the marketing of inadequate products, and the responsibilities of individuals or bodies making said decisions, will particularly be taken into account. In all cases, Variable Remuneration will only be paid if the situation of Banco Popular as a whole so permits and the same is justified by the Bank s results. The Board of Directors, at the proposal of the Remuneration Committee, will determine whether circumstances are in place that should trigger the clause detailed in this section, and whether Variable Remuneration should be reduced. 16

17 6.2.5 Recovery or "clawback" clause In the event that any of the following circumstances arise during the three years following settlement and delivery of any Variable Remuneration amount, Banco Popular may demand the return of the aforementioned Variable Remuneration or may offset this against other remuneration of any kind to which the Beneficiary is entitled. As well as the circumstances envisaged in Regulation 39.5 of Circular 2/2016, said circumstances will be as follows: a) If the Executive Director has been reprimanded for serious breach of the code of conduct and other applicable internal rules and regulations, particularly with regard to risks. b) When payment of the Variable Remuneration was based, in full or in part, on data that is subsequently proved to be manifestly misstated or inaccurate, or when risks assumed during the period have an impact, or other circumstance that were not foreseen or admitted by the Bank, and that have a material negative impact on the income statements during any of the years covered by the clawback period. c) When significant failures occur in the Bank's risk management, and said failures have been subsequently demonstrated during the "clawback" period. d) Should there be a significant increase in the Bank's capital requirements during the "clawback" period, which were not anticipated when exposure was generated. e) Should any negative effect be felt by the Bank during the "clawback" period derived from the marketing of inadequate products, and when the Executive Director was responsible for taking said decisions. The Remuneration Committee reports to the Board of Directors, which will determine whether circumstances that could trigger application of this clause have occurred and any Variable Remuneration that should be returned to the Bank. 17

18 7. Variable Remuneration in shares or options on shares during the term of this Policy Pursuant to the remuneration system applicable during the term of this Policy, and in the event that the given conditions are in place and the established objectives are met, 50 percent of the Variable Remuneration for Executive Directors corresponding to each year will be paid in shares of Banco Popular or, when so resolved at the Banks General Shareholders' Meeting, and provided that this is allowed by regulations governing remuneration applicable at any given moment to credit institutions, in options on shares that may be exercised in the medium and long term. As a result of the above, pursuant to the provisions of article of the Corporate Enterprises Act, express authorisation shall be sought at the General Shareholders' Meeting, together with this Policy, to deliver to Executive Directors of the Bank, during the term of the same, up to the combined maximum totals for shares in Banco Popular, representing 0.24 percent of the Bank's current capital, as indicated below: 2017, 2,920,000 shares, representing 0.06 percent of share capital. 2018, 3,730,000 shares, representing 0.08 percent of share capital. 2019, 4,250,000 shares, representing 0.10 percent of share capital. In accordance with the terms of this Policy, to determine the number of shares in the Bank deliverable each year, under the Variable Remuneration System, the weighted average closing price of Banco Popular shares in trading sessions between 15 December of the year to which the variable remuneration relates and 15 January of the following year (both inclusive) will be used. 18

19 8. Main contractual terms for Executive Directors The Directors performing executive functions on the date on which this Policy was approved are Emilio Saracho Rodríguez de Torres (Chairman), Pedro Larena Landeta (CEO) and Francisco Aparicio Valls (Secretary of the Board). The main terms and, in particular, the remuneration, economic rights and compensation for each Executive Director, are set out in their respective contracts, being consistent with the remuneration concepts set out in article 26 of the Bank's Bylaws and this Remuneration Policy: a) Duration Contracts for Executive Directors may be permanent, with the same not envisaging any notice periods or seniority/loyalty requirements, or they may be of a fixed duration, extendible by agreement between the parties, establishing to this end a notice period in the event of contract termination. b) Exclusivity and incompatibility criteria Whilst their contracts remain in effect, Executive Directors may not enter into employment or professional service contracts with other companies or institutions, whatever their nature or type. There is furthermore a non-competition obligation in relation to companies and activities of a similar nature to that of the Bank, whether on an employed or self-employed basis during the validity period during which this contract is in effect. The performance of other representative, administrative, management or other professional positions will be subject to the incompatibility stipulations and limitations set out in the LOSS and implementing regulations, or any regulations that replace the same, and the provisions of Banco Popular's Board of Directors Regulations. The Regulations of the Board of Directors establish that while in their posts, no Director may accept an appointment as director or executive with another bank, investment services firm, insurance company or any other financial institution without the prior express consent of the full Board of Directors, provided said entity operates, in full or in part, within the same area in which Banco Popular or its subsidiaries operate. c) Pension plans The contracts of Executive Directors recognise the Transitory Provision of the Bank's Bylaws (a new provision of Bylaws submitted for approval at the General Shareholders' 19

20 Meeting), which stipulates that the Bank's General Management and Board of Directors who hold said position on the date of the Bank's 2016 General Shareholders' Meeting, and who for a period of twenty years have performed their functions at the Bank, whether continuous or not, are entitled to a pension for retirement, disability or death: Retirement: A pension entitlement is recognised for Executive Directors in addition to their Social Security pensions, which is equal to the gross Fixed Monetary Remuneration, excluding individual performance-based bonuses, that they would receive from the Bank in a year, when, whether voluntarily or not, and irrespective of their age, they are not reappointed to their post and functions, or when it is found that they are not capable of performing said post due to illness or disability, or they have reached the age of 65 whilst performing their functions and do not wish to remain in their post. These pensions will be up-rated by the same percentage as the retirement pensions for employees. The provisions of the previous paragraph shall also apply when the functions of the Director or Senior Management member are exercised for less than twenty years but more than five. In this event, the value of the pension will be calculated as the twentieth part of the Fixed Monetary Remuneration received multiplied by the number of years of service. Disability: Executive Directors are entitled to an annual disability pension which, in addition to their Social Security pensions, is equal to the gross Fixed Monetary Remuneration they earned from the Bank in the year up to the date when they became disabled. 20

21 Death: In case of death, the pension for widowhood and/or orphanhood is payable under the same circumstances, scope and limitations as that applicable to the rest of the Bank's employees, taking as a benchmark the gross Fixed Monetary Remuneration that was paid annually up to the time of death. As for the Chairman and Chief Executive Officer, who joined the Bank after the Bank's 2016 General Shareholders' Meeting was held, they are not subject to the stipulations of said Transitory Provision. For the Chairman and the Chief Executive Officer, their respective contracts include a pension plan with a set contribution, based on which the Bank will annually make contributions to an insurance policy, internal fund or alternative financial instrument, in order to supplement their retirement, and will include insurance covering death or disability. Said contributions shall in all cases be subject to the Chairman and Chief Executive Officer not committing any actions that might lead to bankruptcy of the Bank, or that might lead the Bank to launch corporate liability proceedings against them. Pursuant to the provisions set out by the Bank of Spain, under Circular 2/2016, the contracts will establish that a proportion of contributions, which will under no circumstances be less than 15 percent, shall be considered discretionary pensions benefits. Said contributions shall be considered Variable Remuneration, and: (i) shall be paid in shares of the Bank, (ii) shall be withheld by the Bank for a period of five (5) years starting from the date on which the Chief Executive Officer's relationship with the Bank is terminated, (iii) shall be subject to the same reduction clause ( malus ) and recovery clause ( clawback ) established for Variable Remuneration, and (iv) shall be subject to the maximum limits for Variable Remuneration as a proportion of Fixed Remuneration. The contributions allocated will be included in the Annual Remunerations Report that shall be submitted to an advisory vote at the Bank's General Shareholders' Meeting. d) Guaranteed Variable Remuneration and hiring bonuses Contracts may exceptionally include, as a bonus, guaranteed Variable Remuneration, or a hiring bonus in specific cases of Bank recruitment, provided that the Bank has a healthy and solid capital base, and that these are limited to the first year of the contract in question, pursuant to the provisions of the EBA Guide. e) Post-contractual non-competition agreement 21

22 Any Executive Director who is removed from their post may not accept an appointment as director of another bank with the same, analogous or similar corporate purpose as that of Banco Popular for a period of two (2) years from their removal unless expressly authorised by the Board of Directors. Likewise, and bearing in mind the express provision of paragraph four of article 26 of the Bank's Bylaws, the contracts of Executive Directors may include an additional postcontractual non-competition clause for Directors in their capacity as such, under which, once their contract has expired, the Executive Director is committed not to provide services, directly or indirectly, on their own behalf or that of a third party, to credit institutions. f) Compensation for early termination The contracts of Executive Directors may envisage the right to compensation in the event of termination of their positions for causes distinct from departure at their own free will, death, retirement, disability or serious failure of duties, equivalent to one time their annual Fixed Monetary Remuneration. The above is without prejudice to the compulsory legal compensation that Executive Directors may have a right to receive based on their labour relationship with the Bank being formally suspended. In any case, any compensation shall be subject to the following regulatory restrictions applicable to credit institutions, and shall be paid pursuant to the provisions established at any time in the LOSS or prevailing regulation at any time. 22

23 9. Incorporation of new Executive Directors The remuneration system and basic contractual conditions described above will apply to any Director joining the Board of Directors whilst this Policy remains in effect, and who performs executive functions under the corresponding resolution of the Board of Directors. In this regard, by agreement of the Board of Directors, and bearing in mind the provisions of this Policy, the remuneration system for new Executive Directors will be constituted by a Fixed Remuneration amount and a Variable Remuneration amount Variable Remuneration for Executive Directors The Variable Remuneration due to Executive Directors in 2017, in accordance with this Remuneration Policy, will be based on the benchmarks and metrics described below: The 2017 Variable Remuneration for Executive Directors will be determined based on Annual Indicators, as determined by the Board of Directors at the proposal of the Remuneration Committee. As part of 2017 Variable Remuneration, a number of financial indicators will be established linked to the Bank's results and business performance, together with various non-financial indicators relating to promoting policies (reputational, good governance, corporate and environmental responsibility). The Annual Indicators for calculating 2017 Variable Remuneration for Executive Directors, and their weightings, are: Net Operating Income exc. trading income before provisions (25 percent). Gross Real Estate Sales (20 percent). Net Attributable Profit (25 percent). Reduction of Gross NPAs (20 percent). Promoting the Bank's Policies: reputational, good governance, corporate and environmental responsibility (10 percent). 23

24 The value of 2017 annual Variable Remuneration for Executive Directors is determined by the degree to which these indicators are achieved, based on specific scales approved by the Board of Directors at the proposal of the Remuneration Committee. Multi-year indicators to which payment of a proportion of the 2017 Variable Remuneration for Executive Directors will depend, are linked to ROE, ROTE, TSR, RORWA and Cost of Risk metrics, with the weightings, scales and modifications established for each case by the Board of Directors. Variable Remuneration of Executive Directors will be paid, in all cases, pursuant to the criteria, requisites and terms established under the present Remunerations Policy and shall be subject to the "malus" and "clawback" clauses stated herein. 24