REMUNERATION POLICY FOR THE DIRECTORS OF REPSOL, S.A.

Transcription

1 REMUNERATION POLICY FOR THE DIRECTORS OF REPSOL, S.A. March

2 CONTENTS 1. INTRODUCTION REMUNERATION POLICY FOR THE DIRECTORS Philosophy of the Remuneration Policy: principles and criteria Concerning the Executive Directors Regarding Directors in their capacity as such Review of the Remuneration policy REMUNERATION SYSTEM APPLICABLE TO THE EXECUTIVE DIRECTORS Overall compensation Fixed Remuneration Variable Remuneration Annual Variable Remuneration Multiannual Variable Remuneration Long- Term Saving Systems Other benefits Loyalty Plan Main conditions of the contracts of the Executive Directors Remuneration policy for new appointments REMUNERATION SYSTEM APPLICABLE TO THE CHAIRMAN... 13_Toc REMUNERATION SYSTEM APPLICABLE TO THE DIRECTORS IN THEIR CAPACITY AS SUCH VALIDITY PERIOD OF THE POLICY * * * 2

3 1. INTRODUCTION In accordance with the provisions of article 529 novodecies of the Spanish Corporate Enterprises Act (Ley de Sociedades de Capital LSC), amended by law 31/2014, of December 3, amending the Spanish Corporate Enterprises Act to improve corporate governance, it is the responsibility of the General Shareholders' Meeting to approve the remuneration policy for directors, at least every three years, as a separate item on the agenda. The Board of Directors of Repsol, S.A. ("Repsol" or the "Company"), in response to a proposal from the Nomination and Compensation Committee, has agreed in its meeting of March 25, 2015, to propose the Remuneration Policy for the Directors of Repsol (hereafter, the "Remuneration Policy") to the General Shareholders' Meeting with the content established in the Spanish Corporate Enterprises Act. In accordance with Article 529 novodecies of the LSC, this proposed remuneration policy for the Board of Directors is accompanied by a reasoned legal report from the Nomination and Compensation Committee. This report will be available to the shareholders on the company's website from the announcement of the General Meeting. 2. REMUNERATION POLICY FOR THE DIRECTORS 2.1. Philosophy of the Remuneration Policy: principles and criteria The principle defining Repsol's remuneration policy is the search for the mutual generation of value for the Group and for the employees and the alignment of its interests with those of the shareholders, ensuring transparency in its remuneration policy Concerning the Executive Directors The remuneration for the Executive Directors for the performance of their executive duties follows the principles outlined below: - To ensure that the remuneration, in terms of its structure and overall amount, complies with best practice and is competitive with that paid by other comparable organizations in order to attract, retain and motivate the best professionals. - To establish remuneration based on objective criteria related to the individual performance of the executive directors and the achievement of the business objectives of the Company and the Group. - To maintain an annual variable component linked to the achievement of specific and measurable targets aligned with the company's interests, with control and measurement systems which determine the payment of the variable remuneration based on assessments 3

4 which measure the individual performance and the personal contribution to the achievement of the objectives set. - To incorporate medium/long term multiannual variable remuneration systems that promotes the sustained achievement of targets over time and the retention of key people. - To maintain an appropriate balance, in line with best practice in the market, between the different elements in the compensation package. - To ensure the alignment with the shareholders, encouraging the demand for shares. - To ensure that there is ongoing alignment between the remuneration policy for the Executive Directors and that for the Senior Management Regarding Directors in their capacity as such The remuneration for the Directors in their capacity as such is based on the following principles: - The remuneration should be sufficient and appropriate given the dedication, qualifications and responsibilities of the Directors, but without said remuneration resulting in their independent judgment being compromised. - The remuneration should be commensurate with that paid in the market. To ensure this, the company takes into account the remuneration of directors in other listed business groups, both Spanish and European, of a similar size, complexity of business and operations and geographic distribution of assets as Repsol Review of the Remuneration policy The principles and criteria for the remuneration policy for the Directors are reviewed periodically by the Nomination and Compensation Committee and by the Board of Directors, to maintain the remuneration policy of the Company aligned with best practice and market trends. Similarly, the Nomination and Compensation Committee has review regularly the remuneration packages for the Executive Directors, with advice from leading independent consultants specialized in the field, in order to determine their suitability and alignment with the market situation for comparable companies and with the progress of the Company. So, for example, to define the remuneration package of the CEO in 2014, the Nomination and Compensation Committee established a comparison group based on some comparability principles listed below: 4

5 - Objectivity: two pre- established stock market indices were selected (Ibex35 and EuroTop100), which constitute a remuneration benchmark for Repsol (Spain and Europe). - A sufficient number of companies so that the resulting statistics are solid and representative: The IBEX35 features the 35 companies with the highest liquidity listed on the Sistema de Interconexión Bursátil Electrónico (SIBE) Automated Stock Market Trading System for the four Spanish stock exchanges (Madrid, Barcelona, Bilbao and Valencia). Repsol is excluded from this group since it forms the subject of comparison, as is Arcelor Mittal, whose Board of Directors is based outside Spain. EuroTop100 is made up of the 100 blue chip companies with the largest market capitalization in Europe. Repsol is excluded from this index, since this is the data we want to compare, and H&M, as the CEO receives almost his entire remuneration through dividends or capital gains. The results of the analyses carried out are set out in the corresponding annual report on remuneration for the directors. 3. REMUNERATION SYSTEM APPLICABLE TO THE EXECUTIVE DIRECTORS The Nomination and Compensation Committee follows the principles outlined above when determining the remuneration package of the Executive Directors for the performance of executive duties, whose elements are listed below Overall compensation The remuneration package for Executive Directors consists of the following elements: Element Relevant Issues Quantification Fixed Remuneration Determined on the basis of the responsibility, workload and experience of the Executive Directors, ensuring that it is competitive with other organizations comparable to Repsol. CEO: 1,200 thousand euros. General Counsel: 983 thousand euros. Short Term Variable Remuneration (annual) Aims to encourage compliance with predetermined, specific and measurable targets related to their management. CEO: 100% of the Fixed Remuneration. (*) General Counsel: 90% of the Fixed Remuneration. (*) Long Term Variable Remuneration Aims to strengthen the commitment of the Executive Directors to the company. It has a four- year measurement period linked to targets for the sustained maximization of Repsol's value related to the strategic plan. CEO: 120% of the Fixed Remuneration. (*) General Counsel: 100% of the Fixed Remuneration. (*) 5

6 Element Relevant Issues Quantification Social Benefits Systems Payments in Kind The CEO is a participant in the Executive Pension Plan (EPP) of the group, under the conditions set out in its regulations. The General Counsel participates in a deferred compensation item, Golden Handcuff", which will be made effective at the time of his retirement and in other comparable circumstances. Payments in kind includes, among other items, health insurance, life insurance, disability and liability insurance, the amount of the gross shares delivered under the Loyalty Plan and payments on account linked to these. CEO: 20.5% of the Fixed Remuneration. General Counsel: 20% of the Fixed Remuneration for the golden handcuff and 7 thousand euros per year for the contribution to the general pension plan. In line with the general policy for the Senior Management (*) Limit of the variable remuneration. In the case of the CEO, as explained below, the Directors may modulate up to a maximum of 20% upwards or downwards, the final quantitative results of their variable remuneration, in consideration of quality of the results, individual performance or other matters that require qualitative measurement 3.2. Fixed Remuneration The fixed remuneration of the Executive Directors for the performance of their leadership positions and roles mainly reflects their level of responsibility in the organization, the positions they hold and their professional expertise, ensuring that it is competitive with the remuneration offered by companies comparable to Repsol, in order to attract and retain the best professionals. When determining this and carrying out any possible updates, the Nomination and Compensation Committee takes into account, in addition to the principles discussed previously, the specific characteristics of each position and the dedication demanded, as well as the market analyses prepared by independent consultants specialized in the field. All of this with the aim of establishing compensation that is appropriate given the role and that is competitive in the market. On this basis, the Nomination and Compensation Committee, composed exclusively of non- executive directors, most of whom are independent directors, proposes each year the amount of the fixed remuneration for the Executive Directors for the performance of their executive duties, which is approved by the Board of Directors. In accordance with all the above, and in view of other factors to consider, the Board of Directors agreed at its meeting of February 25, 2015, in response to a proposal from the Nomination and Compensation Committee, to maintain the fixed remuneration of the CEO and the General Counsel for 2015 at the same amounts as were set on December 31, This is 1,200 thousand euros for the CEO and 983 thousand euros for the General Counsel. These amounts will remain fixed while the Board of Directors does not agree to update them in accordance with the criteria described (level of responsibility assumed in the organization, workload and professional experience, as well as the market analysis prepared by third parties and average increases in remuneration for the Senior Management of the Company). In certain situations the Nomination and Compensation Committee may recognize, for example, a shift of responsibility, development in the post and/or a special necessity for retention and motivation. In 6

7 these circumstances, the Committee may propose higher increases for certain Executive Directors. The reasons would be explained in the corresponding annual report on remuneration for the directors Variable Remuneration Annual Variable Remuneration The conditions of the annual variable remuneration system that apply to the Executive Directors, including its structure, maximum pay levels, targets and metrics set and the individual weight, are reviewed annually by the Nomination and Compensation Committee to ensure that they are sufficiently demanding given the strategic priorities of Repsol, both long and short term, its needs and the position of the business. The annual variable remuneration seeks to encourage the achievement of predetermined, specific and quantifiable strategic objectives related to the management of the Executive Directors, assessing their individual contribution to the achievement of these. Specifically, in terms of the CEO, the annual variable remuneration corresponding to year 2015 is linked to the achievement of quantitative business targets including operational and financial targets for the company, value creation objectives and sustainability goals. Together these have a maximum weight of approximately 80%. The rest of the variable remuneration is linked to qualitative strategic objectives. In order to establish the appropriate metrics weighting and to determinate the levels of achievement of each objective, the Nomination and Compensation Committee takes into account historical performance, projections and forecasts for the results of the company. Each metric has an associated scale of achievement defined in terms of its variability and the level of demand of the budgets. These scales have a minimal compliance threshold, below which they do not generate a right to an incentive, and a maximum, fixed at 120%, although the overall degree of achievement of the targets will not be above 100%. The Board of Directors, with the proposal of the Nomination and Compensation Committee is responsible for determining the targets at the start of each financial year and for assessing compliance with these once it has ended. In this role it has support from the internal areas of the company, which provide it with information on the various categories of targets and the results obtained. The Nomination and Compensation Committee, on the basis of the level of compliance with each target and its weighting, determines a weighted average level of compliance, which allows it to compensate excellent compliance (above 100% or above the expected standard) in one metric with a lower level of compliance in others. Additionally, it applies its discretionary judgment when conducting the evaluation. So, for the CEO the amount of the annual variable remuneration, defined as a target percentage of the fixed remuneration, may vary between 0%, if overall compliance above a minimum threshold is not reached and 100% of the fixed remuneration (maximum limit for payment of variable 7

8 remuneration) in the event that the overall level of compliance with the targets is 100% or higher. Notwithstanding that, the Board of Directors may use its discretion to adjust, to a maximum of 20% upwards or downwards, the final quantitative results for the annual variable remuneration, depending on the quality of results, individual performance and other issues that require qualitative measurement. Similarly, the General Counsel's annual variable remuneration may vary between 0% and 90% of the fixed remuneration. In order to ensure that the annual variable remuneration retains an effective relationship with the professional performance of the Executive Directors, when determining the level of compliance with the quantitative objectives, positive or negative economic effects which arise from extraordinary events and which could distort the assessment results are eliminated. These adjustments will be set out in the annual report on remuneration for the directors. The annual variable remuneration is paid entirely in cash. The Nomination and Compensation Committee may propose to the Board of Directors that there be a claim for the reimbursement of the variable components of the remuneration when the payment has not been adjusted to the performance conditions or when it has been awarded on the basis of data which is subsequently shown to be inaccurate. With regard to the annual variable remuneration of the CEO corresponding to the year 2015, the Board of Directors has approved a proposal from the Nomination and Compensation Committee to set the targets, metrics and weightings as listed below: a) Targets related to the integration with Talisman, with an overall weight of 30% and metrics related to the integration process and the new Strategic Plan; b) Operational targets, with an overall weight of 50% and metrics related to the adjusted net earnings, financial rating, production, utilization of the conversion capacity, efficiency in Capex E&P and the Repsol GO Program; c) Targets related to sustainability, with an overall weight of 10% and metrics related to the accident frequency rate and the sustainability plan; and d) Value creation targets, with an overall weight of 10% and the metric of the evolution of the net profit of Repsol compared to that of comparable companies. For the General Counsel, the annual variable remuneration considers basically management targets related to the areas for which they are responsible. 8

9 Multiannual Variable Remuneration As discussed in section 2.1, an essential principle in determining the remuneration policy of Repsol is to seek mutual value creation for the group, its shareholders and its employees. To this end, and to strengthen the commitment of the Executive Directors and reward the creation of sustainable value for the shareholders in the long run, it has traditionally used long- term variable remuneration plans. Currently the company has implemented several long- term incentive plans for all directors, including the Executive Directors, and, selectively, other highly qualified and potential professionals. These programs are independent of each other, but their main characteristics are the same. They are all structured as overlapping plans that last at least four years. Each plan is linked to the continuance in post of the Executive Directors until the end of the measurement period and to compliance with a series of objectives and commitments formulated in the group's strategic plan in force at any time and directly aligned with the sustained maximization of the value of the company. Among the targets are metrics for exploration and production (Upstream), downstream, value creation, financial discipline and sustainability. Each year the Nomination and Compensation Committee determines the weighting of these objectives and the associated target levels in response to Repsol's strategy, needs and business situation. In 2015, the MTI was launched, whose objectives, weightings and metrics of which will be defined before year ends, once the new Strategic Plan has been approved, including Talisman Energy, Inc. Each metric has an associated scale of achievement defined in terms of the variability of the metric and the level of demand of the budgets. These scales have a minimal compliance threshold, below which they do not generate a right to an incentive, and a maximum, set at 120%, although the degree of achievement overall the objectives to be determined by the Nomination and Compensation Committee shall not exceed 100% At the end of the measurement period, the Nomination and Compensation Committee assesses the degree of achievement based on the overall level of achievement of the objectives in the incentive program and the personal performance of each director, paying the incentive payment in cash. So, for the CEO the amount of the multiannual variable remuneration, defined as a target percentage of the fixed remuneration, may vary between 0%, if an overall compliance above a minimum threshold is not reached and 120% of the fixed remuneration, which is the maximum limit for their multiannual variable remuneration, in the event that both the overall level of compliance with the targets and the assessment of individual performance are 100% or higher. Notwithstanding that, the Board of Directors may use its discretion to adjust, to a maximum of 20% upwards or downwards, the final quantitative results for the multiannual variable 9

10 remuneration, depending on the quality of results, individual performance and other issues that require qualitative measurement. For the General Counsel, the multiannual variable remuneration may vary between 0% and 100% of their fixed remuneration. At the end of the 2014 financial year, the medium- term Compensation Programs , and were in force. In coming years, the Board of Directors may approve new programs for long- term variable remuneration in response to a proposal from the Nomination and Compensation Committee. These programs will be based on plans in cash and/or the provision of shares and are conditional on the person remaining in the company for a specified period (except for certain cases of termination of the relationship), as well as the achievement of certain objectives linked to internal or external metrics that reflect economic and financial targets and/or the creation of value for the Company. Each metric will have an associated scale on which a threshold will be set, below which no incentive is paid, and a maximum. If using comparison groups, the Board of Directors, following a report from the Nomination and Compensation Committee, can update the list of companies included in the current Comparison Group and/or their weighting in order to maintain the economic fundamentals of the Plan. The Nomination and Compensation Committee may propose to the Board of Directors that there be a claim for the reimbursement of variable components of the remuneration when the payment has not been adjusted to the performance conditions or when it has been awarded on the basis of data which is subsequently shown to be inaccurate Long- Term Saving Systems The Company has implemented the Group s Directors Pension Scheme, whose conditions are set out in its Regulations. The CEO participates in that Directors Pension Scheme by the reason of his previous employment relationship, and according to the formula outlined in its Regulations, the annual contributions for retirement are roughly equivalent to 20.5% of their fixed remuneration, subject to its continuity in the Group. In turn, the General Counsel participates in a deferred remuneration scheme called the Length of Service Reward, which was approved by the Board of Directors prior to the current policy and which is intended to encourage his continuity in the Repsol Group. It is implemented through the investment fund called the Fondo de Permanencia, FI Length of Service Reward Fund, FI. Repsol makes annual contributions to the fund, for an amount equivalent to 20% of the General Counsel s annual fixed remuneration, and in exchange receives shares in the Fund. These shares are owned by Repsol until the General Counsel retires, at which point the right will vest and be 10

11 transferred to him, together with the ownership. He will also be entitled to the cumulative amount of the Length of Service Reward upon the termination of his contract, in which case he will be entitled to compensation. The General Counsel also participates in the Repsol pension scheme, the maximum contribution to which is set at 7 thousand euros per year Other benefits The Executive Directors are beneficiaries of certain benefits in kind, including, among others, life and disability insurance and medical insurance and the gross share amount delivered by virtue of the Loyalty Plan. These payments also include the payments on account/withholding tax due on payments in kind. Repsol s policy does not provide for the Company granting any advances, loans or guarantees to the Executive Directors. Furthermore, the Executive Directors may receive, where appropriate, an additional fixed remuneration for sitting on the boards of directors of other Group, multi- group or associated companies Loyalty Plan The Company implements a Loyalty Plan for certain groups of employees, and for the Executive Directors, and its aim is to help to ensure the alignment of the long- term interests of the shareholders and the Company. This Loyalty Plan is implemented through a stock purchase plan with several cycles approved at the General Shareholders Meeting held on April 15, This allows it beneficiaries to invest a maximum amount in Repsol shares, so that if they hold the shares for a period of three years and the entire Scheme s other conditions are met, the Company will give them one additional share for every share initially bought by them at the end of the specified period. To simplify the implementation of the Loyalty Plan, solely for the purpose of determining its beneficiaries and the maximum amount that they may invest in it, the multiannual variable remuneration MTI programs have been taken as a reference. Consequently, only the beneficiaries of the multiannual remuneration programs may be beneficiaries of the Loyalty Plan and the maximum amount that may be invested in it is the equivalent of 50% of the gross amount of the multiannual incentive received by each beneficiary. A clawback clause has also been established for the Loyalty Plan, whose Terms and Conditions establish that, in addition to the beneficiary remaining in the Repsol Group, the accrual of additional shares is conditional upon none of the following circumstances having occurred in the period prior to each allocation of shares, in the opinion of the Board of Director, based on a report by the Nomination and Compensation Committee: (i) infringement by the beneficiary of the Group s internal regulations; (ii) material restatement of the Company s financial statements if 11

12 this affects the degree of fulfilment of the objectives set for the relevant multiannual remuneration scheme, except when this is due to a change to the accounting principles. The Board of Directors may request authorization from the General Shareholders Meeting to implement similar loyalty plans Main conditions of the contracts of the Executive Directors The remunerations, rights and financial rewards of the Executive Directors are determined in their respective contracts, always respecting the provisions of the Company s Bylaws. The contracts signed with the Executive Directors are indefinite, do not provide a notice period for Repsol or any length of service or loyalty clauses but do establish a non- compete obligation with companies and businesses of a similar nature, both for the term of the contract and for a year following its termination. With regards to severance pay, pursuant to the commitment assumed by the Board of Directors at its meeting of February 25, 2014, at the proposal of the Nomination and Compensation Committee, the Company s policy is to limit severance pay for new executive directors to a maximum of the equivalent of two years pay, including the remuneration from the post- contractual non- compete clause. In line with the above, the contractual conditions agreed with Mr. Imaz after he was appointed as the new CEO on April 30, 2014 already contain this limit. In turn, the contract of the General Counsel was signed in 2005 and, as such, was appropriate for the personal, professional and market circumstances prevailing when it was singed. It was approved at the time by the Board of Directors following a favorable report by the Nomination and Compensation Committee, following an analysis of the market practices prevailing at that time and advice from independent experts. In the event of the contract being terminated on grounds attributable to Repsol, by mutual agreement or in the best interests of the Company, or upon the occurrence of objective circumstances, such as a significant change in the ownership of the Company s capital stock, there is a provision for a differed severance for the equivalent of three full years of annual cash remuneration plus one additional year in consideration of the post- contractual non- compete commitment Remuneration policy for new appointments When determining the pay package for a new Executive Director, the Nomination and Compensation Committee will consider the candidate s experience and expertise, where he came from (from inside or outside the company) and his level of pay at the time of being appointed. The remuneration components and the corresponding ceilings as well as the basic contractual terms described in this remuneration policy will apply to any new executive director with executive functions. 12

13 Exceptionally, to facilitate the recruitment of an external candidate, the Committee may establish a special incentive to offset the loss of incentives not accrued in the previous company due to the resignation. 4. REMUNERATION SYSTEM APPLICABLE TO THE CHAIRMAN With regards to the Chairman of the Board of Directors, it should be noted that in April of 2014, after considering different forms and aspects of corporate governance structures and the best practices in our field, at the proposal of the CEO and the Nomination and Compensation Committee, the Company s Board of Directors implemented a program for the orderly transfer of executive functions, which included the separation of the functions of the Chairman of the Board of Directors and the CEO. During the initial stage of the process, in order to ensure an orderly transfer of functions, thus favoring the stability of the company and the success of the ongoing consolidation of the new model for the division of function and a transition phase was established during which the CEO would undertake the daily management of the Company s business and the Chairman of the Board of Directors would maintain certain additional executive functions, in addition to performing the functions inherent to this role. During the 2015 financial year, the Company has continued to implement this program, and it is anticipated that at its meeting on April 30, 2015, the Board of Directors will approve the proposal by the Chairman and the Nomination and Compensation Committee, thus assigning all of the executive functions to the CEO. Additionally, in light of his proven experience as a Director and Chairman of Repsol and Gas Natural, his expert knowledge of the sector as a whole and of the Company in particular, and the essential value that he represents for the Company, the Board of Directors has also agreed to propose to the General Shareholders Meeting that Mr. Brufau be reelected as a Director and appointed as the non- executive Chairman of the Company, as well as assigning him as Chairman of the Board, an important role in the fixation and supervision of the strategy in the medium and long term, institutional relations with management, shareholders and other interest groups (stakeholders) and the supervision of management duties. When determining the remuneration for Mr. Brufau in this new role as the non- executive Chairman, the Board of Directors has taken into consideration: (1) that the cessation of the executive functions that he had been performing is one of the events that entitles him to receive the financial compensation provided for in his Contact for the Provision of the Services of an Executive Chairman which, together with the compensation from the post- contractual non- compete clause, totals 14,253,691 euros, and; (2) it is considered essential that Mr. Brufau remains as Chairman and continues linked with a high level of activity, involvement and commitment both in supporting the management and, as is incumbent upon the Board of Directors, overseeing the management tasks, in the functions indicated in the previous paragraph.. In contemplation to it, Mr. Brufau has decided to waive payment of the financial compensation that he would accrue at the end of his contract as CEO and, in return, given that he is remaining as Chairman with an active presence and high level of activity and involvement, the Board of 13

14 Directors has agreed, subject to the approval of the General Shareholders Meeting, that the remuneration to be paid to Mr. Brufau in the event of his reelection will total 2,500 thousand euros per year, gross. This amount, which includes the amounts that Mr. Brufau is entitled to receive for sitting on the Board of Directors and Committees of Repsol s Group, multi- group and associated companies, will remain fixed until the ordinary General Meeting is held in 2019, when his new contract will expire. He may also continue as beneficiary of the payments in kind referred to in section 3.1. In the event of the early termination of this new contract, prior to the ordinary General Meeting in 2019, and as one of the conditions of that agreement, Mr. Brufau will be entitled to receive the remaining amount of each annual payment until that Meeting is held, unless this occurs, among other circumstances, by waiver on his part. 5. REMUNERATION SYSTEM APPLICABLE TO THE DIRECTORS IN THEIR CAPACITY AS SUCH With regards to the Directors, in their capacity as such, the remuneration policy set by the Nomination and Compensation Committee seeks to adequately and sufficiently compensate the dedication, qualification and responsibilities of the Directors, without going so far as to jeopardize its independence of judgment. The Nomination and Compensation Committee is responsible for proposing to the Board of Directors the criteria that it deems appropriate for determining the remuneration of the Directors, for performing its role as a supervisory and decision- making body. The Board of Directors is responsible for determining the exact amount to be paid and how it will be distributed between the different Directors, taking into account the positions held by each of them within the Board and on its Committees. The Directors receive a fixed remuneration for performing their supervisory and decision- making functions, with said remuneration being calculated, except the Chairman s remuneration, by allocating points for sitting on the Board of Directors and the different Committees. Each point is equivalent to a pay amount, thus resulting in different sums for the Directors, based on each of their responsibilities. For these purposes, at the proposal of the Board of Directors, in 2013 the General Shareholders Meeting agreed to set the overall annual allocation that Repsol can pay to all of the Directors, in their capacity as such, at six million euros. At its meeting of March 25, 2015, the Board of Directors agreed to submit the proposal to the General Shareholders Meeting to include the remuneration that Mr. Brufau had been receiving within the Board s remuneration for performing its supervisory and decision- making functions, as a result of a reclassification of his remuneration which does not, in any case, implies an increase in the amount that hitherto has been paid to Mr. Brufau. Therefore, subject to the approval of the General Shareholders Meeting, the overall amount allocated which Repsol may use to pay all of its Directors, for acting as such, would be set at 8.5 million euros. 14

15 The fixation of this maximum does not mean that the Board intends, or currently provides, an increase in their remuneration. In fact for the 2015 financial year, at its meeting of February 25, 2015, the Board of Directors agreed, at the proposal of the Nomination and Compensation Committee, to maintain the value of the point for the 2015 financial year, at the same amount set for 2014,with any increase Additionally, as proof of his prudence and moderation in this matter,since 2009 the remuneration for sitting on the Board of Directors has only increased by 2.5%.However, as this policy contain a forecast for the next three years is necessary to foresee a clearance to attend unforeseen events today, and that in any case would be given in the Annual Report on Remuneration of the Board. In view of the recommendations made by the supervisory bodies, and market practices and current remuneration trends, the Board of Directors, at the proposal of the Nomination and Compensation Committee, may replace the current system of allocating points for sitting on the Board of Directors and the various Committees with other, equivalent systems that are also based on fixed remuneration, in no way it is intended entailing an increase in the remuneration. Furthermore, it should be noted that External Directors are all excluded from the employee benefit systems that are funded by the Company in the event of dismissal, death or similar and from the company s short and long- term performance- linked incentive plans, such as the multiannual cash remuneration, shares or call options on shares. The members of the Board of Directors are covered by the same insurance liability policy which ensures all managers and executives of the Group. According with article 16, 5 of the Regulations of the Board of Directors, once leaving the Board, Directors may not join a rival Company for two years unless the Board releases him from this obligation or shortens the time of the constraint. 6. VALIDITY PERIOD OF THE POLICY Pursuant to the provisions of article 529 novodecies of the Spanish Corporate Enterprises Act, the Company will implement this remuneration policy during the years 2015, 2016 and In any event, this Policy will be without prejudice to any payments that may have to be made to the Executive Directors during this period pertaining to deferred amounts of variable remuneration from previous years, which will be subject to the conditions that were established for such remunerations. * * * 15