European proxy advisors flag concerns over BBVA’s remuneration and spying probe

ECGS opposes remuneration and PIRC calls for abstention over spying investigation

Europe-based proxy advisory firms have recommended investors to vote against or abstain at the AGM of Spanish global bank BBVA, scheduled for 13 March, over governance issues regarding remuneration and the impact of the ongoing corporate spying judicial investigation.

Expert Corporate Governance Service (ECGS), the European group of proxy and governance advisors, is recommending to vote against four items of the ballot related to executive remuneration and independence of the board.

ECGS has taken issue with the remuneration policy, subject to an advisory shareholder vote, as well as the approval of the maximum variable remuneration. In addition, it recommends voting against two directors. In its report, it states: “We have serious concerns over the very high fixed remuneration of the CEO (€ 2,179,000) and the executive Chairman (€ 2,453,000), which is used as a basis for the calculation of the variable components, as there are significantly above the median of € 1.3 million at European banks and € 1.2 million at large Spanish companies.”

"The excessive remuneration of independent directors compromises their independence," Juan Prieto, CEO Corporance, said.

In total, according to ECGS analysts, Executive Chairman Carlos Torres Vila takes home €7.7m, while CEO Onur Genç earns €5.9m.

In addition, ECGS recommends voting against the re-election and appointment of two external non-independent directors: Susana Rodríguez Vidarte and Carlos Vicente Salazar, respectively.

ECGS argues that BBVA’s independent representation of the board is not 67%, as the company purports to be, but 47%.   

ECGS stated: “We have serious concerns over the excessive remuneration (above € 500,000 including shares granted) of three Directors who are considered as independent by BBVA. Therefore, our estimated number of independent Directors is 47%.”

The three independent directors earning over half a million euros each, according to ECGS’s analysis, are: José Miguel Andrés Torrecillas, former EY Chairman in Spain (€587,194), Jaime Caruana, former General Manager of the Bank for International Settlements (€574,439) and Juan Pi Llorens, who is also the lead independent director (€597,551).

“More independent directors should be appointed to the board, that’s why ECGS recommends to vote against these two directors,” Juan Prieto, CEO of Corporance, the Iberian partner of ECGS, told RI.

Prieto said there are two separate issues. On the one hand, there is the remuneration of the CEO and Executive Chairman and on the other hand the remuneration of independent directors.

“The excessive remuneration of independent directors compromises their independence,” Prieto said.

Regarding the ongoing spying probe, UK-based proxy advisor PIRC recommended abstaining on the item “approve discharge of board” which subjects the board’s action to a shareholder vote.

The so-called 'Cenyt' or 'Villarejo' court case is investigating allegations around hiring the services of former police chief Jose Manuel Villarejo’s firm (Cenyt) to spy on government officials and other firms over a takeover transaction involving construction company Sacyr in 2004.

PIRC stated: “From that period two directors remain in the Board. Ms Susana Rodriguez Vidarte from 2002 and Mr José Maldonado Ramos. At this time, it is impossible to make an informed assessment of the impact of the investigation on either the company’s reputation or financial position. Abstention is recommended on the discharge.”

The court case made the longstanding Executive Chairman Francisco González resign ahead of the AGM last year, and shareholder approval of the board dropped to 93%, a small but telling investor signal.

Likewise, the stewardship services of Spanish trade union Comisiones Obreras (CCOO) took issue with the Cenyt case and recommended their own pension fund and affiliated trustees in third-party occupational pension funds to vote against.

CCOO also opposed the remuneration policy. The union said the compensation of the CEO equals 53 times the highest median salary of a BBVA manager (€94,319) and 590 times the lowest median salary for less qualified roles (€8,494).

CCOO and PIRC also shared a dissenting recommendation over the shareholder vote on BBVA’s non-financial information statement, a unique feature of Spanish AGMs introduced by the transposition of the EU Non-Financial Reporting Directive in the country.

CCOO recommended voting against due to a reported gender pay gap whereby women earn less in management and middle management roles.

CCOO also flagged collective bargaining and other labour relations issues, particularly in markets such as the US.

PIRC recommended abstention: “Given that the Company’s sustainability policies and practice are not considered to be adequate in order to minimise material risks linked to Sustainability.”

The North American proxy firms ISS and Glass Lewis also issued concerns about the impact of the spying allegations, but recommended to vote 'for' on all items on the ballot.

“Beyond governance, the case raises concerns about how this reputational risk may affect shareholder value. Looking at BBVA's financials, the bank's reputation does not appear significantly affected so far,” ISS stated in its report.

Similarly, Glass Lewis stated that the case increases the company’s exposure to legal, regulatory and reputational risk.

“While we remain concerned about the allegations and potential negative financial impact on the Company, absent any indication that the members of the board have substantially failed to fulfil their duty to shareholders in the past fiscal year, we find no cause to recommend that shareholders withhold support from this proposal,” Glass Lewis stated.

The implications of the Villarejo court case have also influenced the ongoing review of the Spanish corporate governance code consultation run by the securities supervisor, National Securities Market Commission, the Comisión Nacional del Mercado de Valores.

Among the top five shareholders of BBVA are: BlackRock (5.4%), Vanguard (2.8%), Norges Bank Investment Management (2.6%), Baillie Gifford (1.65%) and Lyxor International Asset Management (1.3%).