EXHIBIT 99.1 – Banco Santander S.A. Deferred and Conditional Variable Remuneration Plan (Cycle XII)
The twelfth cycle of the Deferred and Conditional Variable Remuneration Plan is a remuneration system that includes the delivery of shares and share options of Banco Santander, S.A. (the “Bank” or “Banco Santander”) or of rights thereon, and has been approved by the board of directors on the terms and conditions described below:
| I. | Introduction |
Following a proposal by the remuneration committee, certain regulations (the "Regulations") were approved by the board of Banco Santander, S.A. at its meeting held on 27 July 2022 in execution of the agreement of the board dated 24 February 2022, which approved the Twelfth Cycle of the Deferred and Conditional Variable Remuneration Plan (hereinafter, the "Deferred and Conditional Variable Remuneration Plan", the “Plan” or the “Twelfth Cycle of the Deferred and Conditional Variable Remuneration Plan”) as part of the 2022.1 In cases where, due to the application of local ruling, the contents of the Regulations need to be modified or supplemented, the respective bodies of the institutions have adopted or shall adopt the necessary resolutions. Parties affected by the regulations resulting from such resolutions (in each case, the "Supplementary Regulations") shall be notified as appropriate.
Consequently, the Deferred and Conditional Variable Remuneration Plan is governed by the Regulations, and by the Supplementary Regulations where appropriate.
For the purposes of the Regulations, the Santander Group is understood as the group composed at any time of Banco Santander and any of its fully consolidated entities.
| II. | Subjective Scope |
The Twelfth Cycle of the Deferred and Conditional Variable Remuneration Plan shall be applied in connection with the variable remuneration (hereinafter, the “Award”)2 with respect to 2022 for categories of staff whose professional activities have a significant impact on the risk profile of the institution, all of them together, the "Identified Staff" or “Material Risk Takers” (identified under section 32.1 of Law 10/2014 of 26 June on the organisation, supervision and solvency of financial institutions and its supplementary regulations3 or by virtue of the Group’s identification policy or of regulatory or corporate criteria in a certain country), excluding those who are beneficiaries of the Seventh Cycle of the Deferred Multiyear Objectives Variable Remuneration Plan. Identification of employees forming part of the "Identified Staff" and of the beneficiaries of this Plan is the task of the Human Resources' corporate division, pursuant to the policy approved by Banco Santander’s board to this end.
The purpose of this twelfth cycle is to implement the Award to the beneficiaries, which entails deferring a portion of it over a period of four years (or five years in the case of beneficiaries with incentive levels comparable to those of certain categories of the Seventh Cycle of the Deferred Multiyear Objectives Variable Remuneration Plan),4 subject to the non-occurrence of certain circumstances, for its payment, if applicable, in cash, in Santander shares and in options on Santander shares, and with
1 Terms in upper case that are not defined in the Regulations shall have the meaning ascribed to them in the terms of the resolution of the board of directors.
2 For the purposes of the Regulations, the term "Award" refers to the variable remuneration conferred to an individual during financial year 2022 for the corresponding period he/she has been considered Identified Staff. It also includes any extraordinary variable remuneration that may, where applicable, be granted to certain beneficiaries in respect of such period and be subject to the terms of the Regulations, as adapted in each case.
3 Commission Delegated Regulation (EU) 2021/923 of 25 March 2021 supplementing Directive 2013/36/EU of the European Parliament and of the Council with regard to regulatory technical standards setting out the criteria to define managerial responsibility, control functions, material business units and a significant impact on a material business unit’s risk profile, and setting out criteria for identifying staff members or categories of staff whose professional activities have an impact on the institution’s risk profile that is comparably as material as that of staff members or categories of staff referred to in Article 92(3) of that Directive (Text with EEA relevance). Likewise, the determination of the Identified Staff takes into account the Group’s Identified Staff identification policy and procedure, as well as any other regulatory or corporate criteria applicable in a given country.
4 In certain countries, the deferral period may be different to comply with applicable local regulations or with the requirements of the competent authority in each case.
the other portion of such variable remuneration being initially paid also in cash, in Santander shares and in options on Santander shares, in accordance with the rules set forth below.
To the extent possible, when (i) the gross sum of total annual variable remuneration is lower than 50,000 euros and (ii) does not represent more than one third of the beneficiary's total annual remuneration, payment of such remuneration will occur immediately and fully in cash.
| III. | Setting the Award |
The amount of the 2022 Award for each beneficiary will be set based on their reference or objective award and taking into account the additional quantitative metrics and qualitative factors stipulated. The status of beneficiary and the maximum number of Banco Santander shares that the beneficiary is eligible to receive, in accordance with the Regulations and their Supplementary Regulations, shall be individually notified.
In any case, the variable components of the total remuneration that may be awarded to each beneficiary in respect of the financial year 2022 may not exceed 100% of the fixed portion of their remuneration, or 200% for those beneficiaries stated in the resolution approved by the general meeting on 1 April 2022 under item Eight C of the agenda.
Banco Santander’s board of directors and, by delegation of authority, the executive committee and any director with delegated powers, may
(i) interpret the resolutions of the board of directors and may adapt them, without affecting their basic content, to the new circumstances that may arise, including in particular adapting the delivery mechanisms, without altering the maximum number of shares linked to the Plan or the basic conditions upon which the delivery thereof is made contingent, which may include the substitution of the delivery of shares with the delivery of options or shares, respectively, or equivalent amounts in cash, or the alteration of the mechanisms for net delivery of shares under the procedures that are established for the payment of taxes, or when so required for regulatory, tax, operational or contractual reasons5. In addition, they may adapt the aforementioned plan (including the introduction of new conditions for the delivery of any deferred amount of the Award or the amendment of existing conditions and, if applicable, the increase of the deferred percentages or the deferral period) to any mandatory regulations or administrative interpretation that may prevent the implementation thereof on the approved terms;
(ii) extend the deferral period in the jurisdiction or jurisdictions where so required and in respect of all or part of the beneficiaries of the Award in order to adapt to the applicable regulations in force at any given time or to the requirements of the competent authority, making such adjustments as may be necessary to adapt Award to the new deferral period;
(iii) set which executives or employees are beneficiaries of the Award, apply the measures and mechanisms that may be appropriate to compensate for the dilution effect, if any, that may occur as a result of corporate transactions and shareholder distributions for so long as the shares are not delivered to the beneficiaries and, in the event that the maximum amount distributable in shares and options to be delivered to the beneficiaries is exceeded, authorise their deferral and payment in options or shares, respectively, of the excess or, if both limits are exceeded, authorise the deferral and payment of the excess in cash;
(iv) determine, develop and specify the conditions upon which the receipt by the beneficiaries of the corresponding shares, share options or deferred amounts is contingent, as well as to determine whether, according to the Plan, the conditions upon which the receipt by the beneficiaries of the respective shares, share options or cash amounts is made contingent have been fulfilled, with the power to modulate the cash amounts, the number of shares and share options to be delivered depending on the existing circumstances, all following a proposal of the remuneration committee; and
(v) define whether when the option is exercised settlement is to be made in kind by delivering shares or by settling differences and regulating any mechanisms necessary or appropriate to implement such exercise, including the procedure for determination of the applicable market price.
Furthermore and as regards matters that are part of its area of authority, they shall have the power to develop, amend, alter or adapt the terms and conditions of the Twelfth Cycle of the Deferred and Conditional Variable Remuneration Plan, as well as to substitute the above powers in favour of the person responsible for Human Resources of the Group, the general secretary or the global director of compensation of the Group.
5 In addition, shares of listed subsidiaries of the Santander Group may also be delivered instead of shares of Banco Santander.
| IV. | Functioning of the Plan |
The Award of the beneficiaries for financial year 2022 will be paid according to the following percentages, depending on the time of payment and on the level of the beneficiary’s remuneration (the “Immediate Payment Percentage”, to identify the portion for which payment is not deferred, and the “Deferred Percentage”, to identify the portion for which payment is deferred):
| Immediate Payment Percentage | Deferred Percentage (*) | Deferral Period (*) | |
| Beneficiaries of Award B whose total target variable remuneration(**) is ≥ €2.7 mill. (***) | 40% | 60% | 5 years |
| Beneficiaries of Award B whose total target variable remuneration(**) is ≥ €1.7 mill. (< €2.7 mill.). (***) | 50% | 50% | 5 years |
| Other beneficiaries of Award B. (***) | 60% | 40% | 3 years |
| (*) | In certain countries, the deferred percentage or the deferral period may be different to comply with applicable local regulations or with the requirements of the competent authority in each case. |
| (**) | Reference variable remuneration for standard compliance (100% of objectives). |
| (***) | For the purposes of the assignation of a beneficiary of the twelfth cycle to the corresponding category, for those variable remunerations not denominated in euros, it will be taken into account the exchange rate average at closing corresponding to the last fifteen trading sessions prior to the Friday (exclusive) of the previous week to the date on which the board of directors agreed the variable remuneration of the Bank’s executive directors for 2021 (1 February 2022). |
Taking into account the foregoing, the Award for financial year 2022 of the beneficiaries of this twelfth cycle will be paid as follows:
(i) Each beneficiary will receive in 2023, depending on the group to which he or she belongs, the Immediate Payment Percentage of Award that corresponds to their group (the “Initial Date” understood as the specific date at which that percentage of the Award is paid).
(ii) Payment of the Deferred Percentage corresponding to each group shall be deferred for a period of 4 or 5 years (the “Deferral Period”), and shall be made in fourths or fifths within thirty days of the anniversary of the Initial Date in the years 2024, 2025, 2026, 2027 and, if applicable, 2028 (the “Anniversaries”), provided all the requisites and conditions established in the Regulations and, if applicable, in the Supplementary Regulations, are fulfilled.
(iii) The amount of the deferred portion shall be divided in fourths or in fifths (each of them, one “Annual Payment”) which will determine the maximum amount to be paid, where applicable, in each one of the Anniversaries.
(iv) Each of the payments to be made (either on the Initial Date and on the Anniversaries) will be made 50% in cash, 25% in Santander shares and 25% in options on Santander shares, after applying any withholdings or payments on account applicable at any given time.
Notwithstanding the foregoing, Beneficiaries may choose to receive in share options the amount to be paid in shares. Such choice shall be conveyed to the Bank within the time limit set by Global Compensation function,and always before the beginning of the period for calculating the share price for 2022 Variable Remuneration ..
(v) The beneficiaries receiving Santander shares and options on Santander shares pursuant to the preceding paragraphs may not directly or indirectly hedge them before delivery thereof. They may likewise not transfer them or directly or indirectly hedge the shares or share options for one year as from the delivery thereof. In addition, share options may not be exercised until one year after their delivery.
(vi) On the occasion of each payment of the deferred amount in cash, and subject to the same requirements, it will be possible to pay to the beneficiary in cash the amount corresponding to the adjustment of the deferred amount to the inflation calculated from the Initial Date and until the date on which each corresponding cash amount is paid, applying for these purposes the variation rate of the Consumer Price Index (Índice de Precios de Consumo) published by the National Institute of Statistics of Spain (Instituto Nacional de Estadística) between the date of accrual of the deferred cash amount and its payment date or the latest figure available on this last date. In countries different to Spain, the rate used will be the variation rate of the equivalent index published by the competent authority in each case or other mechanisms that reflect the same effect.
| V. | Delivery of Shares and Share Options |
The total aggregate amount of the Award that the beneficiaries can receive is limited to the maximum amount approved by the board of directors (hereinafter, “Maximum Amount of the Award”). The Award will be 50% in cash, 25% in shares of Banco Santander and 25% in share options on Banco Santander shares, based on the fair value of the share options when they are granted, although Beneficiaries may elect to receive the amount payable in shares in the form of options.
The board of directors, the executive committee and any director with delegated powers, as appropriate, will determine the amount of variable remuneration to be received by each beneficiary of the Award. Concerning the delivery of shares and options on shares, such decision shall take into account that in aggregate the beneficiaries shall respect both the maximum amount of the Award to be delivered in shares (as approved by the board of directors) to the Beneficiaries of this Award (the “Maximum Amount of the Award Distributable in Shares” or “MAADS”; and, within this maximum, the specific amount to be awarded to each of the beneficiaries, the “Individual Amount of the Award Distributable in Shares” or “IAADS”) and the maximum amount of the Award to be delivered in share options (as approved by the board of directors) to the beneficiaries (the “Maximum Amount of the Award Distributable in Share Options” or “MAADSO”; and, within this maximum, the specific amount to be awarded to each of the beneficiaries, the “Individual Amount of the Award Distributable in Share Options” or “IAADSO”).
The final number of shares directly delivered to each beneficiary, for both immediate and deferred payments, shall be calculated taking into account: (i) the amount resulting from applying applicable taxes (including withholdings and payments on account) to the variable remuneration determined by the board of directors, the executive committee and any director with delegated powers for each beneficiary, and (ii) the average weighted daily volume of the average weighted listing prices of the shares of Santander for the fifteen trading sessions prior to the Friday (exclusive) of the previous week to the date on which the board of directors agrees on the Award for the Bank’s executive directors for the financial year 2022 (the “2023 Listing Price”). Information from the stock exchange with the largest trading volume will be used to determine the listing price of the share.
The number of shares of Santander that may be delivered to each beneficiary under this Award (the “Individual Award in Shares” or “IAS”), will be determined, after deducting any applicable taxes (including withholdings and payments on account), by applying the following formula:
| IAADS | ||
| IAS | = | 2023 Listing Price |
Regarding share options, each option will have one share as the underlying asset and the exercise price of each option will be equal to the 2023 Listing Price.
The number of share options to be delivered to each beneficiary, for both immediate and deferred payments, shall be calculated taking into account: (i) the amount resulting from applying applicable taxes (including withholdings and payments on account); and (ii) the fair value (“FV”) calculated according to general applicable accounting rules (IFRS - International Financial Reporting Standards) for share-based payments as of the options grant date, this is the Initial Date, which will be a fraction of the 2023 Listing Price. In particular, the number of options on shares that may be delivered to each beneficiary under this Award (the “Individual Award in Share Options” or “IASO”) will be determined by applying the following formula:
| IAADSO | ||
| IASO | = | 2023 Listing Price x FV |
The share options may be exercised one year after the time each share option is delivered and until their expiry, which shall take place 10 years after the Initial Date, subject in any event to any restrictions the applicable regulations may provide from time to time.
Any variable components of total remuneration that will be paid to each member of the Identified Staff in connection with the financial year 2022 shall be subject to the limits generally applicable for the variable remunerations of the Identified Staff.
When the Award has been set in a currency other than the euro, the applicable immediate and deferred amounts shall be converted into euro at the average closing exchange rate relating to the last fifteen trading sessions prior to the Friday (exclusive) for the week prior to 31 January 2023, the date on which the board of directors of Banco Santander plans to agree
on the 2022 Incentive for executive directors. Subsequently, the number of shares and share options to be delivered will be calculated on the terms indicated above.
Shares and share options delivery mechanism
As indicated above, the Award will be paid partly in cash, partly in shares and partly in share options, the payment of which (or, in the case of share options, the exercise period) will be partly deferred in accordance with the provisions of the Regulations.
The shares shall be delivered through technical mechanisms (securities account, deposit, etc.) as appropriate in each case, and in all cases any applicable taxes and expenses shall be borne by the beneficiary. The withholding or payment on account on the remuneration in kind entailed by the delivery of shares or any other tax relating thereto shall be calculated by applying the legislation prevailing at the time of effective delivery. The beneficiary authorises the employing entity to sell, prior to delivery, the shares necessary to proceed with the corresponding withholding or payment on account, as well as for the payment of any other applicable taxes, subsequently receiving the amount of shares net of such amounts.
As appropriate, shares may be delivered by the employing entity, or failing this, when justified by circumstances, by Banco Santander or by another company in its Group, using old or new shares, already available or obtained from third parties. Likewise, if it is required or advisable for any statutory or regulatory reasons or any other reasons of a similar nature, it will be possible to substitute the delivery of shares with cash payments of equivalent value (on the end date of the retention period applicable to each delivery of shares under the twelfth cycle) or change the mechanisms of net delivery of shares in light of the procedures to be implemented for the payment of taxes.
The substitution of the delivery of shares of Banco Santander with the delivery of shares of local listed subsidiaries of the Santander Group may also be agreed, all in the terms and circumstances set out in the Regulations and, where applicable, in the corresponding Supplementary Regulations.
Regarding share options, exercising options may be allowed at any time after one year from the delivery thereof has elapsed, and until maturity, with all options lapsing after 10 years from the Initial Date.
Upon the beneficiaries’ exercise, the share options are to be settled by differences between the strike price and the market price at the moment of exercise. Said differences may be paid in cash or through the delivery of shares. The Group’s Human Resources Committee may regulate any mechanisms necessary or convenient to implement such exercise, including the procedure for determination of the applicable share market price, or empower the corresponding local bodies or individuals to arrange for said decisions.
Adjustments
In the event of a change in the number of shares due to a decrease or increase in the par value of the shares or a transaction with an equivalent effect, the number of shares and the conditions of the exercise of the share options to be delivered will be modified so as to maintain the percentage of the total share capital represented by those shares..
| VI. | Permanence and Other Conditions |
In addition to continuity of the beneficiary within the Santander Group or the beneficiary being in other situations where, pursuant to the agreement of the board of directors, the Award is maintained, the accrual of the all Annual Payments is subject to none of the circumstances which may give rise to the application of malus pursuant to the malus and clawback chapter of the Group remuneration policy arising during the period before each one of the deliveries. Furthermore, any Award amounts which have already been paid will be subject to their potential recovery (clawback) by the Bank in the events and during the time periods set forth in the aforementioned policy, and subject to the terms and conditions provided therein.
Malus and clawback provisions are triggered in the event of poor financial performance of the institution as a whole or of a specific division or area thereof or of the exposures generated by the staff, giving at least consideration to the following criteria:
a) Significant failures in risk management committed by the entity or by a business or risk control unit.
b) Increases in the institution’s or business unit’s capital requirements, which were not foreseen at the time the relevant exposures were generated.
c) Any regulatory sanctions or court resolutions related to facts which may be charged to the unit or the staff responsible for those facts. In addition, breaches of internal codes of conduct shall be taken into account.
d) Any irregular or improper conducts, either individual or collective. Any negative effects arising from the sale of inadequate products and the responsibility of the persons or bodies in charge or taken those decisions shall be particularly looked at.
In addition, individual policies for each country may include any other criteria required by applicable legal provisions or local regulators.
The Group’s Human Resources Committee or the corresponding local body will have the power to decide on the application of malus or clawback to the remuneration of the beneficiaries of this plan. Nevertheless, with respect to the beneficiaries that are members of the Promontorio segment, the Human Resources Committee shall submit its proposal to the remuneration committee for its consideration and subsequent submission to the board for its approval. In light of the above, the Human Resources Committee or the relevant local body, as applicable, and depending on the extent to which these conditions have been met, shall in each case determine the specific amount to satisfy the deferred remuneration. In any event, the application of malus or clawback will be assessed by Banco Santander’s remuneration committee pursuant to the provisions of paragraph 4.(e) of section 19 of the rules and regulations of the board and of the aforementioned chapter of the Group remuneration policy. In each case, the related tax treatment according to the prevailing legislation will be applied.
Likewise, following each delivery of shares, the beneficiary’s rights are also contingent upon compliance with the other rules governing the Plan as set out in the Regulations and, where applicable, in the Supplementary Regulations, specifically, with regard to any shares and share options delivered to the beneficiary, the aforementioned obligations to refrain from (a) directly or indirectly hedging them before delivery, and (b) from directly or indirectly transferring or hedging them for one year as from each delivery of shares and share options.
Conditions relating to permanence in the Group:
When termination of the relationship with Banco Santander or another entity of the Santander Group is due to retirement, early retirement or pre-retirement of the beneficiary, for a termination judicially declared to be improper, unilateral separation for good cause by an employee (which includes, in any case, the situations set forth in section 10.3 of Royal Decree 1382/1985 of 1 August governing the special relationship of senior management, for the persons subject to these rules), permanent disability or death, or as a result of an employer other than Banco Santander ceasing to belong to the Santander Group, as well as in those cases of mandatory redundancy, the right to delivery of the shares, share options and the cash amounts that have been deferred, as well as, where appropriate, the amounts derived from the inflationary adjustment of the deferred amounts in cash, shall remain under the same conditions in force as if none of such circumstances had occurred.
In the event of death, the right shall pass to the successors of the beneficiary.
In cases of justified temporary leave due to temporary disability, suspension of the contract of employment due to maternity or paternity, or leave to care for children or a relative, there shall be no change in the rights of the beneficiary.
If the beneficiary goes to another company of the Santander Group (including through international assignment and/or expatriation), there shall be no change in the rights thereof.
If the relationship terminates by mutual agreement or because the beneficiary obtains a leave not referred to in any of the preceding paragraphs, the terms of the termination or temporary leave agreement shall apply.
None of the above circumstances shall give the right to receive the deferred amount in advance except where necessary to comply with mandatory regulations or, where appropriate, to avoid a conflict of interest. If the beneficiary or the successors thereof maintain the right to receive deferred remuneration in shares, in share options and in cash as well as, where appropriate, the amounts derived from the inflationary adjustment of the deferred amounts in cash, such remuneration shall be delivered within the periods and upon the terms set forth in the Regulations.
Conditions relating to the Bank’s capital and liquidity position and the macroeconomic situation
Each of the payments under the Regulations is also conditional upon the corresponding body at the Bank verifying in advance that (i) such payments do not put the Bank’s capital or liquidity position at risk in accordance with the capital or liquidity targets set at any given time; and (ii) it is not advisable to make such payments or, where appropriate, they should be reduced owing to adverse macroeconomic or risk-generating circumstances.
| VII. | Administration of the Plan |
Banco Santander’s board and, by delegation, the executive committee and any director with delegated powers, has the necessary powers to administer the Plan, notwithstanding the possibility of authorising the appropriate bodies or departments to carry out specific tasks related thereto, and any materialisation of decisions requiring the participation of bodies or
departments of the various institutions whose employees include beneficiaries. All without prejudice to the powers of attorney or other entitlements that may exist in relation thereto.
Specifically, the board and, by delegation, the executive committee and any director with delegated powers, may interpret the provisions of the Regulations and the Supplementary Regulations and adapt them to any new circumstances that may arise, without altering the basic content of the agreements of the board of directors, the maximum aggregate number of shares and share options associated to the Plan, or the essential conditions on which their delivery depends, all in the terms set out in the Regulations and in the corporate resolutions adopted in relation to this Plan. The Group’s Human Resources Committee, as part of its task to supervise and implement the Regulations and the Supplementary Regulations, may interpret the contents thereof when any such interpretation is required so as to allow an appropriate administration of the Plan.
| VIII. | General Provisions |
This Plan and, consequently, the status of beneficiary to whom it applies, solely and exclusively gives rise to the expectations and rights stipulated in the Regulations and, where applicable, in the Supplementary Regulations, in the terms established therein.
