Trends in Medium- and Long-Term Incentive Plans for Senior Executives in Spain 

February, 2020 - Salvador Espinosa de los Monteros Garde

There is a growing concern among the general public about issues surrounding companies’ boards of directors and executives. Any aspect relating to board members and executives, particularly their compensation, can therefore come under public scrutiny. Companies must therefore be very diligent in addressing these matters, paying close attention to: (i) regulatory developments on compensation issues; (ii) recommendations from supervisory bodies; (iii) recommendations from institutional investors and proxy advisors; and (iv) the effects of disclosure obligations. They must also rigorously comply with board-approved policies of the companies where board members and executives provide their services.

In accordance with the provisions of the Code of Good Governance for Listed Companies of the Spanish National Securities Market Commission (“CNMV”), a portion of the executive directors’ variable remuneration must be paid in shares, subject to the achievement of objectives linked to the company's long-term sustainability and profitability, and the plan must include deferral and clawback clauses.

It is habitual practice among Spanish listed companies to have a share-based component of medium- and long-term remuneration as part of the remuneration policy for their executive directors and senior management personnel. According to the information contained in the CNMV’s report on remuneration of directors of listed companies for 2018, around 73 percent of Spanish listed companies (88 percent if we consider only IBEX 35 companies) have long-term incentive plans aimed at their executive directors and senior management personnel, such plans being settled in shares, in cash, or in a combination of the two.

On the other hand, proxy advisors and institutional investors, in their latest recommendations, consider it advisable for a portion of the variable remuneration of executive directors and senior management personnel to include a multi-year component. In addition, according to these recommendations, (i) long-term incentive plans should be linked to two or more metrics; (ii) these metrics should be associated with medium- and long-term objectives of the strategic plan and with value creation for the shareholder; (iii) there should be at least one relative performance metric; and (v) although metrics can be financial or non-financial, special emphasis should be placed on overall financial performance.


Three trends among IBEX 35 companies in relation to the design of long-term incentive plans aimed at their executive directors and senior management personnel.

1. Performance measurement metrics

The metrics most commonly used by companies in their long-term variable remuneration plans are based on (i) share return indicators of a quantitative nature and financial indicators linked to the company's profit, and (ii) qualitative indicators related to sustainability and corporate social responsibility metrics and indices (1):

  • Quantitative share return indicators: “Total Shareholder Return” (“TSR”). This metric measures the generation of added value for shareholders. Among the companies making up the IBEX 35, (i) the result obtained for this metric is usually measured in relative terms, i.e. in comparison with the results obtained by comparable companies, and (ii), in most cases, the TSR weighting is not more than 40 percent of the total incentive.
  • Financial indicators linked to the company’s profit: Earnings per share (“EPS”), Profit Before Tax (“PBT”), EBITDA, etc.
  • Qualitative indicators: Sustainability and Corporate Social Responsibility (CSR)


2. Over-achievement scenarios in incentive’s objectives achievement scales

Most IBEX 35 companies envisage, for cases in which the level of achievement of the objectives proposed exceeds 100 percent, the payment to the beneficiaries of an incentive which is higher than the target incentive.


3. Settlement of the incentive:

In relation to settlement, there are three main methods used in the payment of incentives to beneficiaries:

  • Plans under which the incentive is settled in shares.
  • Plans under which the incentive is settled in cash.
  • Plans in which a combined settlement method is used: in cash and in shares.

In 50 percent of the IBEX 35 companies, incentives are settled in shares, whereas in approximately 31 percent they are settled through a combination of cash and shares, and in the remaining 19 percent, they are settled in cash.



has a Master’s Degree in Corporate Tax Advice from the Escuela de Economía. Official Auditor, registered on the ROAC. He has a Degree in Economics and Business Studies and Degree in Law.

Salvador is a partner at Garrigues. Since its creation in 1998, he has been in charge of Garrigues’ Human Capital Services professional services line.

He is an expert in tax law, insurance law, corporate governance and in the design and implementation of compensation systems for directors, executives and employees.

He has been included each year since 2009 in the ranking of the prestigious Best Lawyers directory as the best lawyer in his practice area. In 2016, he was also recognized as lawyer of the year in the “Employee Benefits Law” practice area.




[1] Information obtained from (i) IBEX 35 companies’ Annual Report on Directors’ Remuneration for 2018, (ii) resolutions approved by general shareholders’ meetings and (iii) relevant facts released on the CNMV’s website.




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