BBVA Chairman’s $109 Million Pension Riles Investors (Update1)

March 12 (Bloomberg) -- Francisco Gonzalez, chairman of Banco Bilbao Vizcaya Argentaria SA, Spain’s second-biggest lender, has a pension worth 79.8 million euros ($109 million). That’s almost four times the pot accumulated by Stephen Green, his counterpart at HSBC Holdings Plc, Europe’s largest bank.

Alfredo Saenz, chief executive officer of Banco Santander SA, has 80 million euros of pension rights, 20 times more than Deutsche Bank AG CEO Josef Ackermann.

Pension awards at Spain’s biggest lenders mean top bankers receive total compensation that dwarfs the amount earned by executives at many of the companies they consider peers, an analysis of annual reports shows. Bilbao, Spain-based BBVA awarded Gonzalez 45.6 million euros over the past three years, including salary, bonus and the value of pension benefits. Green’s total was 14.8 million pounds ($22.4 million).

“Pensions are absolutely a part of overall pay, and it’s up to shareholders to intervene,” said Peter Braendle, who holds BBVA and Santander shares as part of the $54 billion he helps manage at Swisscanto Asset Management in Zurich. “If these companies were owned by your family, you would never allow something like this to happen.”

BBVA faced complaints from union representatives over the pension payments at the bank’s annual shareholders meeting today as a debate rages in Spain over the future of social security benefits sparked by the country’s soaring budget deficit.

‘Socially Controversial’

“It borders on the immoral,” said Sebastian Moreno, banking industry secretary in the services federation of the General Workers Union, adding that BBVA contributes 540 euros a year to the pension plans of ordinary staff. Unions delivered a statement to the bank saying its remuneration policies are “socially controversial,” because it sets an example to society during times of crisis, he said.

A vote on Gonzalez’s re-election to the board was supported by investors holding 93.5 percent of the shares represented at today’s annual shareholders meeting in Bilbao, compared with 99.0 percent in 2005, the last time he was re-elected. A motion to approve management accounts passed with 95.2 percent, and a new share-based incentive plan for managers won 94.5 percent approval.

Gonzalez’s pension vested in October, when he turned 65.

BBVA Pension Policy

BBVA makes pension awards as part of a long-term remuneration policy that’s in line with the industry’s best practice, and executives don’t receive the money unless they stay with BBVA until retirement, a bank spokesman, who asked not to be named in line with company policy, said in an e-mailed statement.

The bank has fulfilled its contractual obligations to Gonzalez and will make no further contributions to his pension, the spokesman said.

“It’s compensation after 14 years of work in a bank that has always posted profits and that has not received any type of public aid,” according to the statement.

Looking to the future, BBVA has reduced its pension commitments, while freezing salaries and reducing bonuses, the spokesman said.

Santander’s remuneration policy is in line with the best banking industry practices, said a Santander spokesman who also asked not to be identified, citing company policy.

Both banks determine payments to executive pension plans based on a percentage of salary and bonuses. Linking pensions to bonuses may encourage risk-taking, said Cliff Weight, director of MM&K Ltd., a London-based remuneration consultant.

“You shouldn’t make the bonus pensionable,” Weight said. “It’s a very bad form of arrangement because it creates an incentive to award a large bonus in the last years of employment.”

Gonzalez’s Package

From 2007 to 2009, Gonzalez received 5.7 million euros in salary, 10.5 million euros in variable pay, and 454,400 shares valued at 2.84 million euros, according to company documents. The cost of covering his accrued pension rights rose by 26.6 million euros to 79.8 million euros.

HSBC’s Green, 61, was paid 5.5 million pounds in the period, and the value of his pension pot increased by 8 million pounds. Michael Geoghegan, the bank’s CEO, earned 10.9 million pounds, including contributions to a personal pension. The bank said in its 2009 annual report that increases in the value of pensions shouldn’t be treated as remuneration.

Ackermann, 62, has 4.1 million euros in his pension account and is entitled to a monthly pension of 29,400 euros under a prior entitlement, Christoph Blumenthal, a Deutsche Bank spokesman, said in an e-mail. He earned 15.4 million euros in salary and bonuses in 2007 and 2008, and the amount of his pension increased by 316,250 euros in that period.

Rivaling U.S. Compensation

In the U.S., Wells Fargo & Co. CEO John Stumpf received total compensation of $47.7 million from 2007 through 2009, and his pension pot is worth $12.6 million, according to the San Francisco-based bank’s annual reports. The $21.3 million Stumpf, 56, received for 2009 is the biggest reported so far among U.S. banking chiefs.

Brian Moynihan, CEO of Bank of America Corp., earned $20.1 million during the period, according to the Charlotte, North Carolina-based bank. JPMorgan Chase & Co. CEO Jamie Dimon received a $17 million bonus in 2009, as well as combined remuneration of $54 million in 2007 and 2008.

‘Out of Favor’

BBVA, which relies on retail banking businesses from Spain to the Americas for more than four-fifths of operating income, included the five banks among 18 lenders it considers peers when it reviews long-term compensation.

Santander has more than 241 million euros in pension obligations to six executives, according to the bank’s 2008 remuneration committee report. Chairman Emilio Botin, 75, had a 25.6 million-euro pension. His daughter, Ana Patricia Botin, 49, a board member since the age of 28 and chairman of Banco Espanol de Credito SA, a retail bank owned by Santander, had 22 million euros in accrued benefits.

“Pensions and perquisites are kind of out of favor,” said Alan Johnson, founder of New York-based Johnson Associates Inc., a compensation consultant. Bankers “get base pay and bonus and when the stock does well, they should make a lot of money,” Johnson said. Pension awards like those at Spanish banks are “just too big,” he said.

‘Impossible Sums’

BBVA fell 34 percent, including reinvested dividends, over the three-year period, ranking it sixth in its peer group.

Santander dropped 2.8 percent in the period, sixth-best among its peer group. The 16 banks against which Santander compares its performance for a stock awards plan include Brazil’s Itau Unibanco Holding SA, Mitsubishi UFJ Financial Group and Nordea Bank AB, as well as JPMorgan and Credit Suisse.

Santander pays its top managers a pension equal to 100 percent of final salary, plus 30 percent of the mean of the last three variable pay amounts. On that basis, CEO Saenz, 67, who earned a 3.7 million-euro salary in 2009 and 15 million euros in bonus in the preceding three years, would be entitled to a 5.2 million-euro annual pension if he retired now.

“They take the money out of the bank and away from shareholders, but you can’t say they earned it,” said Hans- Martin Buhlmann, president of Vereinigung Institutionelle Privatanleger, a Cologne, Germany-based shareholder proxy group that has represented the interests of investors at Santander board meetings. “It’s impossible for any human being to earn these sums from pensions from their work.”

To contact the reporter for this story: Charles Penty in Madrid at cpenty@bloomberg.net