Telefónica will propose to the next General Shareholders’ Meeting the approval of a five-year incentive plan (2021-2025) for 809 executives for a maximum of 200 million euros, consisting of the delivery of company shares subject to the achievement of a series of objectives, ranging from the appreciation of the share price to the elimination of polluting emissions.
The president of the company, José María Álvarez-Pallete, in the event of 100% fulfillment of the objectives of the plan, will receive 1,367,081 shares that, with the price at the close of the session on Thursday (4.12 euros per share) , would be valued at 5.6 million euros. The CEO, Ángel Vilá, is the beneficiary of 1,137,398 shares, with a potential value of 4.68 million euros. In any case, the number of shares to be delivered will depend on the allocation approved by the board of directors and the degree of fulfillment of the plan’s objectives, as detailed by the company in the call for the meeting.
The plan will have a total duration of five years and will be divided into three cycles of three years each, that is, with delivery of the corresponding shares in each cycle after three years have elapsed from the beginning of each cycle, independent of each other. The first cycle begins on January 1, 2021 (with delivery of the corresponding shares in 2024); the second cycle will start on January 1, 2022 (with delivery of the titles in 2025), and the third on January 1, 2023 (with delivery in 2026). The amounts committed but ultimately not used effectively in each cycle (due to non-fulfillment of objectives, withdrawals, etc.) will be available for subsequent cycles.
The delivery of shares to the participants at the end of each cycle will be determined according to the fulfillment of economic and financial objectives, the creation of value for the shareholder, as well as objectives related to sustainability, the environment or good governance, as stated in the convocation of the meeting.
Specifically, the number of shares to be delivered will depend on three criteria: 50% of the fulfillment of the return objective for the shareholder (total shareholder return or TSR) of the Telefónica share; 40% of the group’s free cash flow generation, and 10% of the neutralization of CO2 emissions, in line with the goal set by the company to reach zero net emissions by 2025.
The TSR is considered as the profitability of the share, taking into account the accumulated variation in the listed value of Telefónica’s share, and the dividends and other similar items received by the shareholder during the first cycle of the plan. To determine compliance with the TSR and calculate the number of shares to be delivered for this concept, the evolution of the TSR of the Telefónica share will be measured, during the duration of the first cycle of the plan, in relation to the TSRs reached by the most relevant companies belonging to the telecommunications sector: Vodafone, América Movil, Deutsche Telekom, BT, Orange, Telecom Italia, Telenor, TeliaSonera, Swisscom, KPN TIM Brasil, Proximus, Millicom, Liberty and Altice.
To determine compliance with the cash flow, the level generated by Telefónica during each year will be measured, comparing it with the value set in the budgets approved by the board of directors for each year, with certain scales. And, finally, to determine compliance with CO2 emissions and calculate the number of actions to be delivered for this concept, the level of emission reduction will be measured in line with the 1.5 degree Celsius scenario of the Paris Agreement and with the goal set by the company of net zero emissions for the year 2025 in its four main markets.
The incentive plan for executives contrasts with the proposal that must also be approved by the Shareholders’ Meeting to be held on April 23, of a reduction by 25% of the dividend to be received by shareholders in 2021, from 0.40 to 0, 30 euros through the voluntary flexible dividend modality (scrip). A new setback for the operator’s shareholder who saw the price plummet by 42.7% in 2020, although so far this year it has recovered by 25%.
Telefónica recorded a net profit of 1,582 million euros in 2020, which is 38.5% more than in the previous year, due to the extraordinary elements that weighed down the results of 2019, but revenues fell by 11% to 43,076 millions.
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