Annual Corporate Governance Report 2017

59 61. A major part of executive directors’ variable remuneration should be linked to the award of shares or financial instruments whose value is linked to the share price. Complies. 62. Following the award of shares, share options or other rights on shares derived from the remuneration system, directors should not be allowed to transfer a number of shares equivalent to twice their annual fixed remuneration, or to exercise the share options or other rights on shares for at least three years after their award. The above condition will not apply to any shares that the director must dispose of to defray costs related to their acquisition. Complies in part. This Recommendation is partially applicable to the Company since the Share-based Remuneration Plan in force, which includes the Chairman of the Board of Directors and the CEO, does not include the allocation of options or rights over shares, rather only the delivery of a maximum and previously limited number of shares. Accordingly, the explanation only refers to the limitation to transfer, in the period of the three years following their allocation, Company shares equivalent to two times the remuneration of the beneficiary directors, such restriction not being included in the Plan in force approved at the 2016 General Meeting. As envisaged in the resolution adopted at the General Meeting, the own shares linked to the Plan had to be acquired, and this was hence achieved on the stock market, respecting a maximum acquisition cost, equivalent to double the amount of the fixed remuneration in 2015 of all beneficiaries. The Variable Remuneration Plan also indicates that fifty per cent of the shares acquired for its execution will be distributed among the two beneficiary directors, based on the distribution criteria agreed for this purpose by the Board of Directors. In the Company’s opinion, the method to determine the maximum cost of the Plan, together with the level of compliance with the requirements included in it - both in terms of economic targets and metrics of attainment and of the minimum time of compulsory inclusion on the part of the beneficiary, significantly limit the actual expectations regarding its full achievement and the concomitant award of the maximum number of shares possible, thereby reducing the expectation that the director will ultimately receive all shares corresponding to him/her, in the event of full compliance with the targets set. Accordingly, it is deemed unlikely that share-based remuneration will reach the threshold of double the fixed annual remuneration of the director. However, even in that case, it is considered that the Plan’s design includes requirements for compliance with targets, the execution period and recovery arrangements in favour of the Company that ensure their transparency, objectivity, limitation of costs, absence of risks for the Company and ease of supervision and control by shareholders. Moreover, the Plan’s targets are focused on the medium term, maintaining a reasonable correlation between the variable remuneration possible and the results effectively obtained by the Company and its shareholders, which are the base and reference for their quantification. As a result of the foregoing, the Company considers that the Share-based Variable Remuneration Plan fulfils the purpose envisaged by the Recommendation, at least in the most part, although it does not include it in its strictest terms. 63. Contractual arrangements should include provisions that permit the company to reclaim variable components of remuneration when payment was out of step with the director’s actual performance or based on data subsequently found to be misstated. Complies. 64. Termination payments should not exceed a fixed amount equivalent to two years of the director’s total annual remuneration and should not be paid until the company confirms that he or she has met the predetermined performance criteria. Complies.