ORDINARY GENERAL SHAREHOLDERS MEETING OF BANCO SANTANDER, S.A. MARCH 2016

Transcription

1 ORDINARY GENERAL SHAREHOLDERS MEETING OF BANCO SANTANDER, S.A. MARCH 2016 Item One One A. One B. Annual accounts and corporate management. Examination and, if appropriate, approval of the annual accounts (balance sheet, profit and loss statement, statement of recognised income and expense, statement of changes in total equity, cash flow statement, and notes) of Banco Santander, S.A. and its consolidated Group, all with respect to the Financial Year ended 31 December Examination and, if appropriate, approval of the corporate management for Financial Year Proposals: 1 One A.- To approve the annual financial statements (balance sheet, income statement, statement of recognised income and expense, statement of changes in total equity, statement of cash flows, and notes) of Banco Santander, S.A. and of its consolidated Group, all with respect to the Financial Year ended 31 December One B.- To approve the corporate management for Financial Year Each of the proposals made under items One A and One B will be subject to a separate vote. (en) propuestas de acuerdos jgo 2016 (2) 1/123

2 Item Two Application of results obtained during Financial Year Proposal: To approve the application of results in the amount of 2,276,645, euros obtained by the Bank in Financial Year 2015, to be distributed as follows: Euros 2,268,134, for the payment of dividends already paid out prior to the date of the Ordinary General Shareholders Meeting (1,437,556, euros), for the acquisition of bonus share rights (derechos de asignación gratuita), with a waiver of the exercise thereof, from those shareholders who opted to receive in cash the remuneration equal to the second interim dividend (108,853, euros) under the Santander Dividendo Elección scrip dividend scheme and for the payment of the final cash dividend in a total amount of 721,724, million euros which will take place after next 1 May. Euros 8,510, to increase the Voluntary Reserve. Euros 2,276,645, in total. (en) propuestas de acuerdos jgo 2016 (2) 2/123

3 Item Three Three A. Three B. Three C. Three D. Three E. Three F. Three G. Board of directors: appointment, re-election or ratification of directors. Ratification of appointment of Ms Belén Romana García. Ratification of appointment of Mr Ignacio Benjumea Cabeza de Vaca. Re-election of Ms Sol Daurella Comadrán. Re-election of Mr Ángel Jado Becerro de Bengoa. Re-election of Mr Javier Botín-Sanz de Sautuola y O Shea. Re-election of Ms Isabel Tocino Biscarolasaga. Re-election of Mr Bruce Carnegie-Brown. REPORT SUBMITTED BY THE BOARD OF DIRECTORS OF BANCO SANTANDER, S.A. REGARDING THE PROPOSALS REFERRED TO IN ITEM THREE OF THE AGENDA FOR THE ORDINARY GENERAL SHAREHOLDERS MEETING CALLED FOR 17 MARCH 2016, ON FIRST CALL, AND FOR 18 MARCH 2016, ON SECOND CALL This report is made in compliance with the provisions of section 529 decies of the Spanish Capital Corporations Law (Ley de Sociedades de Capital) and is intended to provide a rationale for the proposals for ratification and re-election of directors of Banco Santander, S.A. (the Bank or the Company ) that are submitted for the approval of the shareholders acting at the ordinary general shareholders meeting under item Three of its agenda, evaluating for such purposes the expertise, experience and merits of the persons whose ratification or re-election is proposed at the general shareholders meeting. In light of the foregoing, the board s evaluations of the expertise, experience and merits of Ms Belén Romana García, Mr Ignacio Benjumea Cabeza de Vaca, Ms Sol Daurella Comadrán, Mr Ángel Jado Becerro de Bengoa, Mr Javier Botín-Sanz de Sautuola y O Shea, Ms Isabel Tocino Biscarolasaga and Mr Bruce Carnegie-Brown are included below, separately, in view of the reasoned proposal made by the appointments committee at its meeting of 11 February 2016, in accordance with the aforementioned section 529 decies of the Spanish Capital Corporations Law and articles 17.4 and 21 of the rules and regulations of the board, and with which the board concurs in all respects. The aforementioned proposal of the appointments committee is attached as an Exhibit to this management report. Similarly, for the purposes of section 518.e) of the Spanish Capital Corporations Law, this report contains full information on the identity, curriculum vitae and category of each one of the directors. (i) Ms Belén Romana García (item Three A) (a) Description of her profile: Born in 1965 in Madrid. Graduate in Business and Economics from Universidad Autónoma, Madrid, and a Government Economist (Economista del Estado). She was appointed a director of the Company on an interim basis at the board meeting of 22 December She is a non-executive director of Aviva plc, London. (en) propuestas de acuerdos jgo 2016 (2) 3/123

4 Other significant positions: she has served as director general for Economic Policy and head of the Spanish Treasury of the Ministry for Economy of the Spanish government, as well as director of the Bank of Spain (Banco de España) and of the Spanish National Securities Market Commission (Comisión Nacional del Mercado de Valores). She has also held the position of director of the Instituto de Crédito Oficial and of other entities on behalf of the Spanish Ministry for Economy. She has been executive chair of the asset management company Sociedad de Gestión de Activos Procedentes de la Reestructuración Bancaria, S.A. (SAREB). (b) Evaluation: The board concurs with the evaluation of the appointments committee and considers that the curriculum vitae and business career of Ms Belén Romana García, who has successfully held various management positions, demonstrate that she has the expertise, experience and merits necessary to hold the position of director. (c) Category of director: The board concurs with the considerations of the appointments committee and considers Ms Belén Romana García to be an independent director, as she fulfils the requirements established in sub-section 4 of section 529 duodecies of the Spanish Capital Corporations Law and in article 6.2(c) of the rules and regulations of the board. (ii) Mr Ignacio Benjumea Cabeza de Vaca (item Three B) (a) Description of his profile: Born in 1952 in Madrid. Graduate in Law from Universidad de Deusto, ICADE-E3 and State Attorney (Abogado del Estado). He was appointed a director of the Company on an interim basis at the board meeting of 30 June 2015, his appointment becoming effective on 21 September He is vice-chairman of the Foundation for Financial Studies (Fundación de Estudios Financieros) and a member of the Board of Trustees and of the Executive Committee of the Banco Santander Foundation. Other significant positions: he has been senior executive vice president, general secretary and secretary of the board of Banco Santander, S.A., Banco Santander de Negocios and of Santander Investment, as well as a director of the latter two entities. Furthermore, he has been technical secretary general of the Ministry for Employment and Social Security, general secretary of Banco de Crédito Industrial and a director of Dragados y Construcciones, S.A., Bolsas y Mercados Españoles (BME) and of the Governing Body of the Madrid Stock Exchange. (b) Evaluation: The board concurs with the evaluation of the appointments committee and considers that the curriculum vitae and business career of Mr Ignacio Benjumea (en) propuestas de acuerdos jgo 2016 (2) 4/123

5 Cabeza de Vaca, who has successfully held various management positions in both and public and private sectors, and in particular within the Santander Group, demonstrate that he has the expertise, experience and merits necessary to hold the position of director. (c) Category of director: The board, which concurs with the evaluation of the appointments committee, considers Mr Ignacio Benjumea Cabeza de Vaca to be an external (neither proprietary nor independent) director, pursuant to the provisions of sub-sections 2 to 4 of section 529 duodecies of the Spanish Capital Corporations Law and of article 6.2 of the rules and regulations of the board. (iii) Ms Sol Daurella Comadrán (item Three C) (a) Description of her profile: Born in 1966 in Barcelona. Graduate in Business and Master in Business Administration. She was appointed a director of the Company on an interim basis at the board meeting of 25 November 2014, her appointment becoming effective on 18 February She is executive chair of Olive Partners, S.A. and holds various positions in companies within Grupo Cobega. Other significant positions: she has been a member of the Governing Board of the Círculo de Economía and an independent external director of Banco Sabadell, S.A, Ebro Foods, S.A. and Acciona, S.A. She is also honorary consul-general for Iceland in Catalonia. (b) Evaluation: The board concurs with the evaluation of the appointments committee and considers that the curriculum vitae and business career of Ms Sol Daurella Comadrán, both in management positions and as an independent director of other large Spanish groups, demonstrate that she has the expertise, experience and merits necessary to hold the position of director. (c) Category of director: The board, which concurs with the evaluation of the appointments committee, considers Ms Sol Daurella Comadrán to be an independent director, as she fulfils the requirements established in sub-section 4 of section 529 duodecies of the Spanish Capital Corporations Law and in article 6.2(c) of the rules and regulations of the board. (iv) Mr Ángel Jado Becerro de Bengoa (item Three D) (a) Description of his profile: Born in 1945 in Santander. Graduate in Law and Diploma in Business Administration and Management. He was appointed a director of the Company by the shareholders acting at the Ordinary General Shareholders Meeting on 11 June (en) propuestas de acuerdos jgo 2016 (2) 5/123

6 Other significant positions: he was a director of Banco Santander between 1972 and 1999, and a director of Banco Banif, S.A. between 2001 and He also currently holds various positions in investment trusts. (b) Evaluation: The board concurs with the evaluation of the appointments committee and considers that the curriculum vitae and business career of Mr Ángel Jado Becerro de Bengoa within the Santander Group demonstrate that he has the expertise, experience and merits necessary to hold the position of director. (c) Category of director: The board, which concurs with the considerations of the appointments committee, considers Mr Ángel Jado Becerro de Bengoa to be an independent director, as he fulfils the requirements established in sub-section 4 of section 529 duodecies of the Spanish Capital Corporations Law and in article 6.2(c) of the rules and regulations of the board. (v) Mr Javier Botín-Sanz de Sautuola y O Shea (item Three E) (a) Description of his profile: Born in 1973 in Santander. Graduate in Law. He was appointed a director of the Company by the board of directors at its meeting of 25 July He is chairman and chief executive officer of JB Capital Markets, Sociedad de Valores, S.A.U. Other significant positions: in addition to his professional activity in the financial sector, he works with several non-profit organisations. He has been chairman of the Botín Foundation since 2014 and is also a trustee of Princesa de Girona Foundation and of the Prehistoric Research Institute of Cantabria. (b) Evaluation: The board concurs with the evaluation of the appointments committee and considers that the curriculum vitae and business career of Mr Javier Botín-Sanz de Sautuola y O Shea within the Santander Group, as well as in management positions outside the Group, demonstrate that he has the expertise, experience and merits necessary to hold the position of director. (c) Category of director: D. Javier Botín-Sanz de Sautuola y O Shea is an external proprietary director, in accordance with sub-section 3 of section 529 duodecies of the Spanish Capital Corporations Law and article 6.2(b) of the rules and regulations of the board. (vi) Ms Isabel Tocino Biscarolasaga (item Three F) (a) Description of her profile: Born in 1949 in Santander. Doctor in Law. She has undertaken graduate studies in business administration at IESE and the Harvard Business School. She joined the board of directors of the Bank in (en) propuestas de acuerdos jgo 2016 (2) 6/123

7 She is a full professor at Universidad Complutense de Madrid. Other significant positions: she has been Spanish Minister for the Environment, chairwoman of the European Affairs Committee and of the Foreign Affairs Committee of the Spanish Congress and chairwoman for Spain and Portugal and vice-chairwoman for Europe of Siebel Systems. She is currently an elected member of the Spanish State Council, a member of the Royal Academy of Doctors and a non-executive director of ENCE Energía y Celulosa, S.A., Naturhouse Health, S.A. and Enagás, S.A. (b) Evaluation: The board concurs with the evaluation of the appointments committee and considers that the curriculum vitae and business career of Ms Isabel Tocino Biscarolasaga, in both the public and private sectors as well as within the Santander Group, demonstrate that she has the expertise, experience and merits necessary to hold the position of director. (c) Category of director: The board, which concurs with the evaluation of the appointments committee, considers Ms Isabel Tocino Biscarolasaga to be an independent director, as she fulfils the requirements established in sub-section 4 of section 529 duodecies of the Spanish Capital Corporations Law and in article 6.2(c) of the rules and regulations of the board. (vii) Mr Bruce Carnegie-Brown (item Three G) (a) Description of his profile: Born in 1959 in Freetown (Sierra Leone). Master of Arts degree in English Language and Literature from the University of Oxford. He was appointed a director of the Company on an interim basis at the board meeting of 25 November 2014, his appointment becoming effective on 12 February He is the first vice-chairman and lead director (consejero coordinador) of the Company. Other significant positions: he was previously non-executive chairman of Aon UK Ltd, founder and managing partner of the quoted private equity division of the private equity fund 3i Group Plc., chairman and chief executive officer of Marsh Europe, and has held various positions at JP Morgan Chase and Bank of America. He was also independent lead director of Close Brothers Group plc ( ) and Catlin Group Ltd ( ). Currently, he is non-executive chairman of Moneysupermarket.com Group Plc and a non-executive director of Santander UK Plc. (b) Evaluation: The board concurs with the evaluation of the appointments committee and considers that the curriculum vitae and business career of Mr Bruce Carnegie- Brown and, in particular, his good work at Santander UK plc in recent years (en) propuestas de acuerdos jgo 2016 (2) 7/123

8 demonstrate that he has the expertise, experience and merits necessary to hold the position of director, vice-chairman and lead director. (c) Category of director: The board, which concurs with the considerations of the appointments committee, considers Mr Bruce Carnegie-Brown to be an independent director, as he fulfils the requirements established in sub-section 4 of section 529 duodecies of the Spanish Capital Corporations Law and in article 6.2(c) of the rules and regulations of the board. (en) propuestas de acuerdos jgo 2016 (2) 8/123

9 EXHIBIT REASONED PROPOSAL OF THE APPOINTMENTS COMMITTEE (MEETING OF 11 FEBRUARY 2016) REASONED PROPOSAL OF THE APPOINTMENTS COMMITTEE OF BANCO SANTANDER, S.A. REGARDING THE RATIFICATIONS AND RE-ELECTIONS OF DIRECTORS OF BANCO SANTANDER, S.A. WHICH ARE SUBMITTED FOR THE APPROVAL OF THE SHAREHOLDERS ACTING AT THE NEXT ORDINARY GENERAL SHAREHOLDERS MEETING This reasoned proposal is made in accordance with the provisions of section 529 decies of the Spanish Capital Corporations Law and of articles 17.4 and 21 of the rules and regulations of the board, and is intended to propose to the board of directors of Banco Santander, S.A. (the Bank or the Company ) the ratifications and re-elections of directors to be submitted to the shareholders acting at the next ordinary general shareholders meeting. Pursuant to the aforementioned article 21 of the rules and regulations of the board of the Company, the appointments committee shall prepare a reasoned report on and proposal for appointments, re-elections and ratifications of directors, regardless of the category to which they are assigned. Similarly, in the event of re-election or ratification of a director, the proposal shall contain an evaluation of work performed and effective dedication to the position during the last period of time during which the proposed director held office. The analysis of the board s competencies matrix performed in 2015, with the support of independent advisors, found that the skills to be emphasized in order to engage the profiles best aligned with the strategic objectives of the Group were the following: business expertise beyond banking, new technologies, strategy, international experience, financial and regulatory expertise, and diversity (particularly in number of women). Such analysis led to the appointment on an interim basis of the directors whose ratification is proposed at the general shareholders meeting. Similarly, taking into account the board s current competencies matrix, it is considered appropriate to re-elect the persons referred to in section II of this report, also taking into account the analysis that is included herein regarding the evaluation of their work and effective dedication. The report on the activities of this committee in financial year 2015, which will be published upon the call of the next ordinary general shareholders meeting, includes the board s competencies matrix and describes the process of analysing the needs of the board in greater detail. Pursuant to all of the foregoing, the committee s proposal is the following: I. Ratifications At the proposal of this committee, the Company s board of directors appointed Mr Ignacio Benjumea Cabeza de Vaca as director of the Company on 30 June 2015, and Ms Belén Romana García as director of the Company on 22 December 2015, under the powers of interim appointment legally delegated thereto. It is therefore necessary to submit their ratification, to the shareholders acting at the next ordinary general shareholders meeting, as detailed below. (en) propuestas de acuerdos jgo 2016 (2) 9/123

10 For purposes of the evaluation of the work and effective dedication of these directors, it must be taken into account that the aforementioned appointments became effective on 21 September 2015, in the case of Mr Ignacio Benjumea Cabeza de Vaca, once obtained the relevant authorisation from the Central European Bank (confirming his suitability for the position), and on the same 22 December 2015, in the case of Ms Belén Romana García, due to having obtained the corresponding authorisation prior to her appointment by the board. The relevant considerations for the proposed ratification of each one of these directors are set forth below: (a) Ms Belén Romana García It is proposed to ratify her appointment as an independent director. From the information available to the Bank, Ms Belén Romana García has the necessary knowledge and experience to perform the duties of her position. She is a graduate in Business and Economics from Universidad Autónoma de Madrid and has undertaken postgraduate studies at Tufts University, United States, as well as an International Economics programme at the University of Harvard. She is also a Government Economist (Economista del Estado). Ms Belén Romana García has significant experience as a business manager and has held executive positions at the highest levels in institutions from various sectors and countries. She is currently part of the board of directors of the British insurer Aviva Plc., a FTSE100 company serving 34 million clients in 16 countries, being a member of said company s risk, nomination, and governance committees. She has previously held various executive positions, in both the public and the private sector. Specifically: (i) she worked at Fraser Consulting A.G., Essen, Germany; (ii) she was a fixed-income, options and futures trader at Bestinver; (iii) she practised as a Government Economist in the General Directorate of Economic Policy; (iv) she was director general for Economic Policy; (v) she was head of the Spanish Treasury and Financial Policy; (vi) she was general secretary of Círculo de Empresarios; (vii) she was head of strategy and corporate development at ONO; and (viii) she was executive chair of the asset management company SAREB. Apart from the aforementioned executive positions, Ms Romana has also held non-executive positions, including the following, among others: (i) member of the boards of directors of various companies and public agencies in different sectors and activities as a representative of the Ministry for Economy of the Kingdom of Spain; (ii) director of tha Bank of Spain and of the Spanish National Securities Market Commission (CNMV), (iii) head of the Spanish delegation of the European Union s Financial Services, Banking Supervision and Securities Committees, representing the Directorate General of the Treasury and Finance Policy; (iv) independent director and member of the nominating and compensation committee at Fortis Holding SA/NV; (v) independent director, chair (en) propuestas de acuerdos jgo 2016 (2) 10/123

11 of the remuneration committee and member of the audit committee at Banesto; (vi) independent director and chair of the audit committee at Acerinox; and (vii) member of the European Commission s Expert Group on a Debt Redemption Fund and Eurobills. Consequently, it is considered that Ms Belén Romana García has the expertise, experience and merits necessary to hold the position of director. Additionally, for the purposes established in Law 10/2014, of 26 June, on the organisation, supervision and solvency of credit institutions, in Royal Decree 84/2015, of 13 February, implementing Law 10/2014, of 26 June, on the organisation, supervision and solvency of credit institutions, and in the internal procedure for the selection and on-going evaluation of key personnel for the performance of banking activities within the Santander Group, this committee reaffirms that, at this date, Ms Belén Romana García possesses the necessary knowledge and experience to hold the position of director of the Company and that she is able to carry out good governance thereof, having assessed the content and currency of the reputation and good corporate governance questionnaire completed by the subject, her professional background, and the suitability report issued by the Company s Legal Affairs and Compliance divisions. Additionally, according to the information provided, Ms Belén Romana García is within the maximum number of positions established in section 26 of Law 10/2014, of 26 June, and she is considered able to devote sufficient time to performing the duties of her position. With reference to the evaluation of the work and effective dedication of the director from her appointment to the present date, this committee notes the performance of the duties of her position and her attendance at and informed participation in the meetings of the board and of the audit committee since her appointment on 22 December Furthermore, Ms Belén Romana García has participated in the information programme made available to new directors by the Bank, which has provided her with quick and sufficient knowledge of the Company and of its Group, including its governance rules. Finally, with respect to the category of director, this committee considers that Ms Belén Romana García fulfils the requirements established in sub-section 4 of section 529 duodecies of the Spanish Capital Corporations Law and in article 6.2(c) of the rules and regulations of the board to be considered an independent director. (b) Mr Ignacio Benjumea Cabeza de Vaca It is proposed to ratify his appointment as an external (neither proprietary nor independent) director. From the information available to the Bank, Mr Ignacio Benjumea Cabeza de Vaca has the necessary knowledge and experience to perform the duties of his position. (en) propuestas de acuerdos jgo 2016 (2) 11/123

12 He is graduate in Law and Business Administration from Universidad de Deusto, (ICADE E-3, and a State Attorney (Abogado del Estado). He is vice-chairman of the Foundation for Financial Studies (Fundación de Estudios Financieros) and a member of the board of trustees and of the executive committee of Fundación Banco Santander. He has performed various duties within the Bank s Group at the highest level of demands and responsibility, having performed the role of senior executive vice president, general secretary and secretary of the board of Banco Santander, S.A. and, previously, director and executive vice president of Banco Santander de Negocios and Santander Investment. Additionally, during his professional career he has held positions involving high responsibility, complexity and expertise in the management of companies in various sectors, including institutions within or related to the financial sector. Specifically, before joining the board of directors of the Bank as a director, Mr Benjumea Cabeza de Vaca performed the duties of (i) director of Dragados y Construcciones, S.A., (ii) director of the Governing Body of Bolsa de Valores de Madrid, S.A., (iii) director of Bolsas y Mercados Españoles, holding company of Mercados y Sistemas Financieros, S.A., (iv) general secretary and secretary of the board of Banco de Crédito Industrial, (v) technical secretary general of the Ministry for Employment and Social Security, and (vi) assistant director-general of the Ministry for Territorial Administration. Consequently, it is considered that Mr Ignacio Benjumea Cabeza de Vaca has the expertise, experience and merits necessary to hold the position of director. Additionally, for the purposes established in Law 10/2014, of 26 June, on the organisation, supervision and solvency of credit institutions, in Royal Decree 84/2015, of 13 February, implementing Law 10/2014, of 26 June, on the organisation, supervision and solvency of credit institutions, and in the internal procedure for the selection and on-going evaluation of key personnel for the performance of banking activities within the Santander Group, this committee reaffirms that, at this date, Mr Ignacio Benjumea Cabeza de Vaca possesses the necessary knowledge and experience to hold the position of director of the Company and that he is able to carry out good governance thereof, having assessed the content and currency of the reputation and good corporate governance questionnaire completed by the subject, his professional background, and the suitability report issued by the Company s Legal Affairs and Compliance divisions. Additionally, according to the information provided, Mr Benjumea Cabeza de Vaca is within the maximum number of positions established in section 26 of Law 10/2014, of 26 June, and he is considered able to devote sufficient time to performing the duties of his position. With reference to the need to evaluate the work and effective dedication of the director from the effective date of his appointment to the present date, this committee notes that his appointment became effective on 21 September From then to the present date, this committee notes the performance of the duties (en) propuestas de acuerdos jgo 2016 (2) 12/123

13 II. of his position and his attendance at and informed participation in the meetings of the board, the executive committee, the appointments committee, the remuneration committee and the risk supervision, regulation and compliance committee,. Furthermore, it is noted that, given the extensive experience of Mr Ignacio Benjumea Cabeza de Vaca as general secretary and secretary of the Board of the Bank until the past year, he has detailed knowledge of the Company and of its Group, including its governance rules, without prejudice to which he has participated in the information programme made available to new directors by the Bank. Finally, with respect to the category of director, this committee considers that Mr Ignacio Benjumea Cabeza de Vaca should be considered an external (neither proprietary nor independent) director pursuant to sub-sections 2 to 4 of section 529 duodecies of the Spanish Capital Corporations Law and to the provisions of article 6.2 of the rules and regulations of the board, particularly taking into account that until his appointment as a director he had been part of the senior management of the Company. Re-elections Pursuant to article 55.1 of the Bylaws, the term of office of directors shall be three years, though it is established that one-third of the board shall be renewed every year, following the order established by the length of service of each director on the board, according to the date and order of the respective appointment. Consequently, it is proposed to re-elect Ms Sol Daurella Comadrán, Mr Ángel Jado Becerro de Bengoa, Mr Javier Botín-Sanz de Sautuola y O Shea, Ms Isabel Tocino Biscarolasaga and Mr Bruce Carnegie-Brown. The detailed report for each one of these directors is set forth below: (a) Ms Sol Daurella Comadrán It is proposed to re-elect her as an independent director for the Bylaw-mandated period of three years. From the information available to the Bank, Ms Sol Daurella Comadrán has the necessary knowledge and experience to perform the duties of her position. She is a graduate in Business and has an Master in Business Administration from ESADE Business School. She has significant experience as a business manager and has held executive positions at the highest level in institutions from various sectors and countries. Ms Daurella is executive chair of Olive Partners, S.A. and holds various positions in companies linked to Grupo Cobega. In particular, she is a director of: (i) The Equatorial Coca-Cola Bottling Company, holding company of the bottling companies of Coca-Cola in Cape Verde, Guinea-Conakry, Guinea-Bissau, Equatorial Guinea, Gambia, Sierra Leone, Ghana, Liberia and São Tomé, (ii) Nord Africa Bottling Company, holding company of the bottling companies of Coca-Cola in Fez, Marrakech, Casablanca, Rabat and Mauritania, and (en) propuestas de acuerdos jgo 2016 (2) 13/123

14 (iii) Vifilfell, franchise and bottling company of Coca-Cola in Iceland. She is also co-chairman of Cacaolat. She has previously held positions, among others, in the following institutions: (i) Sud-Boissons and Société de Boissons Gazeuses de la Côte d Azur, bottlers for Coca-Cola in Toulouse and the French Riviera, (ii) Copesco & Sefrisa, S.A., importer and distributor of cod, producer of smoked salmon and other high-end gastronomic products and distributor of French and Spanish wines, (iii) J. Walter Thompson, one of the main advertising agencies of the sector in Spain, (iv) Banesto Banca Privada, banking institution part of the former Grupo Banesto (previously Bandesco), (v) Electrolux, S.A., Spanish subsidiary of the Swedish multinational fundamentally dedicated to the manufacture and distribution of electro-domestic goods, (vi) Permutadora, S.A., packaging company and distributor of veterinary products in Portugal, (vii) Emisions Digitals de Catalunya, S.A., operating platform of Televisión Terrestre Digital in Spain, of Grupo Godó; (viii) Banco de Sabadell, S.A., Ebro Foods, S.A. and Acciona, S.A., as independent director; and (ix) Teatre Nacional de Catalunya. She is a member of the boards of trustees of various foundations and honorary consul-general for Iceland in Catalonia. Consequently, it is considered that Ms Sol Daurella Comadrán has the expertise, experience and merits necessary to hold the position of director. Additionally, for the purposes established in Law 10/2014, of 26 June, on the organisation, supervision and solvency of credit institutions, in Royal Decree 84/2015, of 13 February, implementing Law 10/2014, of 26 June, on the organisation, supervision and solvency of credit institutions, and in the internal procedure for the selection and on-going evaluation of key personnel for the performance of banking activities within the Santander Group, this committee reaffirms that, at this date, Ms Sol Daurella Comadrán possesses the necessary knowledge and experience to hold the position of director of the Company and that she is able to carry out good governance thereof, having assessed the content and currency of the reputation and good corporate governance questionnaire completed by the subject, her professional background, and the suitability report issued by the Company s Legal Affairs and Compliance divisions. Additionally, according to the information provided, Ms Sol Daurella Comadrán is within the maximum number of positions established in section 26 of Law 10/2014, of 26 June, and she is considered able to devote sufficient time to performing the duties of her position. With reference to the evaluation of the work and effective dedication of the director from the ratification of her appointment at the ordinary general shareholders meeting in financial year 2015 to the present date, this committee notes the performance of the duties of her position and her attendance at and informed participation in the meetings of the board and of the appointments and remuneration committees. Finally, with respect to the category of director, this committee considers that Ms Sol Daurella Comadrán fulfils the requirements established in sub-section 4 of (en) propuestas de acuerdos jgo 2016 (2) 14/123

15 section 529 duodecies of the Spanish Capital Corporations Law and in article 6.2(c) of the rules and regulations of the board to be considered an independent director. (b) Mr Ángel Jado Becerro de Bengoa It is proposed to re-elect him as an independent director for the Bylaw-mandated period of three years. From the information available to the Bank regarding Mr Ángel Jado Becerro de Bengoa and from his career within the Santander Group, he has the necessary knowledge and the detailed experience of the Company and its Group to perform the duties of his position. He is a graduate in Law and holds a diploma in Business Administration and Management, for which reason he has appropriate academic training to perform the duties of his position. He was a director of Banco Santander between 1972 and Between 2001 and 2013, he was a director of Banco Banif, S.A. In 2010, he was again appointed as a director of Banco Santander, for which position he was re-elected in He also currently holds various positions in investment truts. Consequently, it is considered that Mr Ángel Jado Becerro de Bengoa has the expertise, experience and merits necessary to hold the position of director. Additionally, for the purposes established in Law 10/2014, of 26 June, on the organisation, supervision and solvency of credit institutions, in Royal Decree 84/2015, of 13 February, implementing Law 10/2014, of 26 June, on the organisation, supervision and solvency of credit institutions, and in the internal procedure for the selection and on-going evaluation of key personnel for the performance of banking activities within the Santander Group, this committee reaffirms that, at this date, Mr Ángel Jado Becerro de Bengoa possesses the necessary knowledge and experience to hold the position of director of the Company and that he is able to carry out good governance thereof, having assessed the content and currency of the reputation and good corporate governance questionnaire completed by the subject, his professional background, and the suitability report issued by the Company s Legal Affairs and Compliance divisions. Additionally, according to the information provided, Mr Ángel Jado Becerro de Bengoa is within the maximum number of positions established in section 26 of Law 10/2014, of 26 June, and he is considered able to devote sufficient time to performing the duties of his position. With reference to the evaluation of the work and effective dedication of the director from his re-election at the ordinary general shareholders meeting in financial year 2013 to the present date, this committee notes the performance of the duties of his position and his attendance at and informed participation in the meetings of the board, the audit committee, the appointments committee, the remuneration committee, and the risk supervision, regulation and compliance committee. (en) propuestas de acuerdos jgo 2016 (2) 15/123

16 Finally, with respect to the category of director, this committee considers that Mr Ángel Jado Becerro de Bengoa fulfils the requirements established in sub-section 4 of section 529 duodecies of the Spanish Capital Corporations Law and in article 6.2(c) of the rules and regulations of the board to be considered an independent director. (c) Mr Javier Botín-Sanz de Sautuola y O Shea It is proposed to re-elect him as a proprietary director for the Bylaw-mandated period of three years. From the information available to the Bank regarding Mr Javier Botín-Sanz de Sautuola y O Shea and from his career within the Group, he has the necessary knowledge and experience to perform the duties of his position. He is a graduate in Law, for which reason he has appropriate academic training to perform the duties of his position. He has also held positions of high responsibility, complexity and expertise as part of the management of various institutions for more than ten years. He joined the Group in 2004 as a director of Banco Santander. He currently holds the position of chairman and chief executive officer of JB Capital Markets, Sociedad de Valores, S.A. In addition to his professional activity in the financial sector, he cooperates with several non-profit making organisations. He has been chairman of Fundación Botín since 2014 and is a trustee of Fundación Princesa de Girona and of the Prehistoric Research Institute of Cantabria. Consequently, it is considered that Mr Javier Botín-Sanz de Sautuola y O Shea has the expertise, experience and merits necessary to hold the position of director. Additionally, for the purposes established in Law 10/2014, of 26 June, on the organisation, supervision and solvency of credit institutions, in Royal Decree 84/2015, of 13 February, implementing Law 10/2014, of 26 June, on the organisation, supervision and solvency of credit institutions, and in the internal procedure for the selection and on-going evaluation of key personnel for the performance of banking activities within the Santander Group, this committee reaffirms that, at this date, Mr Javier Botín-Sanz de Sautuola y O Shea possesses the necessary knowledge and experience to hold the position of director of the Company and that he is able to carry out good governance thereof, having assessed the content and currency of the reputation and good corporate governance questionnaire completed by the subject, his professional background, and the suitability report issued by the Company s Legal Affairs and Compliance divisions. Additionally, according to the information provided, Mr Javier Botín- Sanz de Sautuola y O Shea is within the maximum number of positions established in section 26 of Law 10/2014, of 26 June, and he is considered able to devote sufficient time to performing the duties of his position. With reference to the evaluation of the work and effective dedication of the director from his re-election at the ordinary general shareholders meeting in (en) propuestas de acuerdos jgo 2016 (2) 16/123

17 financial year 2013 to the present date, this committee notes the performance of the duties of his position and his attendance at and informed participation in the board meetings that have been held. Finally, with respect to the category of director, this committee considers that Mr Javier Botín-Sanz de Sautuola y O Shea fulfils the requirements established in sub-section 3 of section 529 duodecies of the Spanish Capital Corporations Law and in article 6.2(b) of the rules and regulations of the board to be considered a proprietary director. (d) Ms Isabel Tocino Biscarolasaga It is proposed to re-elect her as an independent director for the Bylaw-mandated period of three years. From the information available, Ms Isabel Tocino Biscarolasaga has the necessary knowledge and experience to perform the duties of her position. She is a doctor in Law, a full professor at Universidad Complutense de Madrid, and has undertaken senior management programmes at both IESE and the Harvard Business School, for which reason she has sufficient academic training to perform the duties of her position. During an extensive professional career, she has held positions of high responsibility, complexity and expertise in the public and private sectors. She has been Minister for the Environment, a member of the Spanish Congress, chairwoman of the European Affairs Committee and of the Foreign Affairs Committee of the Spanish Congress and chairwoman for Spain and Portugal and vice-chairwoman for Europe of Siebel Systems. She is currently an elected member of the Spanish State Council, a member of the Royal Academy of Doctors and a non-executive director of ENCE Energía y Celulosa, S.A., Naturhouse Health, S.A. and Enagás, S.A. She is also a member of the Advisory Board of Accenture. Consequently, it is considered that Ms Isabel Tocino Biscarolasaga has the expertise, experience and merits necessary to hold the position of director. Additionally, for the purposes established in Law 10/2014, of 26 June, on the organisation, supervision and solvency of credit institutions, in Royal Decree 84/2015, of 13 February, implementing Law 10/2014, of 26 June, on the organisation, supervision and solvency of credit institutions, and in the internal procedure for the selection and on-going evaluation of key personnel for the performance of banking activities within the Santander Group, this committee reaffirms that, at this date, Ms Isabel Tocino Biscarolasaga possesses the necessary knowledge and experience to hold the position of director of the Company and that she is able to carry out good governance thereof, having assessed the content and currency of the reputation and good corporate governance questionnaire completed by the subject, her professional background, and the suitability report issued by the Company s Legal Affairs and Compliance divisions. Additionally, according to the information provided, Ms Isabel Tocino (en) propuestas de acuerdos jgo 2016 (2) 17/123

18 Biscarolasaga is within the maximum number of positions established in section 26 of Law 10/2014, of 26 June, and she is considered able to devote sufficient time to performing the duties of her position. With reference to the evaluation of the work and effective dedication of the director from her re-election at the ordinary general shareholders meeting in financial year 2013 to the present date, this committee notes the performance of the duties of her position and her attendance at and informed participation in the meetings of the board, the executive committee, the delegated risk committee (until its abolition), the audit committee, the remuneration committee and the risk supervision, regulation and compliance committee. Finally, with respect to the category of director, this committee considers that pursuant to sub-section 4 of section 529 duodecies of the Spanish Capital Corporations Law and to article 6.2(c) of the rules and regulations of the board, she must be considered an independent director. (e) Mr Bruce Carnegie-Brown It is proposed to re-elect him as an independent director for the Bylaw-mandated period of three years. From the information available to the Bank, Mr Bruce Carnegie-Brown has the necessary knowledge and experience to perform the duties of his position. He is a university graduate (Master of Arts in English Language and Literature) from the University of Oxford and has held positions of high responsibility, complexity and expertise in entities from different sectors, including the financial sector, for more than thirty years. He was founder and managing partner of 3i Quoted Private Equity plc (quoted private equity division of 3i Group plc). Among others, he has also held the positions of chief executive officer in various entities of the Marsh & McLennan group between 2003 and 2006, Head of Debt Markets in Europe and Asia at JP Morgan (January 2001 to January 2003), independent lead director of Catlin Group Limited (August 2010 to May 2014) and Close Brothers Group plc (June 2008 to November 2014), and of non-excutive chairman of Aon UK Ltd (October 2012 to November 2015). He is currently a non-executive director of Santander UK plc and non-executive chairman of Moneysupermarket.com Group plc. Additionally, for the purposes established in Law 10/2014, of 26 June, on the organisation, supervision and solvency of credit institutions, in Royal Decree 84/2015, of 13 February, implementing Law 10/2014, of 26 June, on the organisation, supervision and solvency of credit institutions, and in the internal procedure for the selection and on-going evaluation of key personnel for the performance of banking activities within the Santander Group, this committee reaffirms that, at this date, Mr Bruce Carnegie-Brown possesses the necessary knowledge and experience to hold the position of director of the Company and that he is able to carry out good governance thereof, having assessed the content and currency of the reputation and good corporate governance questionnaire (en) propuestas de acuerdos jgo 2016 (2) 18/123

19 Proposals: 1 Three A.- Three B.- completed by the subject, his professional background, and the suitability report issued by the Company s Legal Affairs and Compliance divisions. Additionally, according to the information provided, Mr Bruce Carnegie-Brown is within the maximum number of positions established in section 26 of Law 10/2014, of 26 June, and he is considered able to devote sufficient time to performing the duties of his position. With reference to the need to evaluate the work and effective dedication of the director from the ratification of his appointment at the ordinary general shareholders meeting in financial year 2015 to the present date, this committee notes the performance of the duties of his position and his attendance at and informed participation in the meetings of the board, the executive committee, the appointments committee, the remuneration committee and the risk supervision, regulation and compliance committee. Finally, with respect to the category of director, this committee considers that Mr Bruce Carnegie-Brown fulfils the requirements established in sub-section 4 of section 529 duodecies of the Spanish Capital Corporations Law and in article 6.2(c) of the rules and regulations of the board to be considered an independent director. To ratify the appointment of Ms Belén Romana García as a director, which appointment was approved by the board at its meeting of 22 December Ms Belén Romana García will be classified as an independent director. To ratify the appointment of Mr Ignacio Benjumea Cabeza de Vaca as a director, which appointment was approved by the board at its meeting of 30 June 2015, effective from 21 September Mr Ignacio Benjumea Cabeza de Vaca will be classified as an external (neither proprietary nor independent) director. With reference to the annual renewal of one-third of the board positions as provided by article 55 of the Bylaws, to re-elect the following persons for a new three-year period: Three C.- Three D.- Three E.- Three F.- To re-elect Ms Sol Daurella Comadrán as a director, with the classification of independent director. To re-elect Mr Ángel Jado Becerro de Bengoa as a director, with the classification of independent director. To re-elect Mr Javier Botín-Sanz de Sautuola y O Shea as a director, with the classification of external proprietary director. To re-elect Ms Isabel Tocino Biscarolasaga as a director, with the classification of independent director. 1 Each one of the ratification and re-election proposals made under items Three A to Three G shall be submitted to a separate vote. (en) propuestas de acuerdos jgo 2016 (2) 19/123

20 Three G.- To re-elect Mr Bruce Carnegie-Brown as a director, with the classification of independent director. (en) propuestas de acuerdos jgo 2016 (2) 20/123

21 Item Four Appointment of the external auditor for Financial Years 2016, 2017 and As was reported as a significant event (hecho relevante) on 6 July 2015, the board of directors of Banco Santander, S.A. has selected PricewaterhouseCoopers Auditores, S.L. to perform the external audit of Banco Santander and of its consolidated Group. This decision was adopted in line with corporate governance recommendations regarding the rotation of the external auditor, at the proposal of the audit committee and as the result of a fully transparent selection process. Proposal: For the verification of the annual accounts and of the management report of the Bank and of the consolidated Group corresponding to Financial Years 2016, 2017 and 2018, to elect PricewaterhouseCoopers Auditores, S.L., with registered office in Madrid, Paseo de la Castellana, nº 259 B, with Tax ID Code B and registered in the Official Registry of Auditors of Accounts (Registro Oficial de Auditores de Cuentas) of the Accounting and Audit Institute (Instituto de Contabilidad y Auditoría de Cuentas) of the Ministry for Economy and Competition with number S0242, as external auditor. (en) propuestas de acuerdos jgo 2016 (2) 21/123

22 Item Five Five A. Amendment of the following articles of the Bylaws: Amendment of article 23 (power and duty to call a meeting), related to the general shareholders meeting. Five B. Amendment of articles regarding the board of directors: article 40 (creation of shareholder value) and article 45 (secretary of the board). Five C. Amendment of articles regarding the committees of the board: article 50 (committees of the board of directors), article 53 (audit committee), article 54 (appointments committee), article 54 bis (remuneration committee) and article 54 ter (risk supervision, regulation and compliance committee). REPORT SUBMITTED BY THE BOARD OF DIRECTORS OF BANCO SANTANDER, S.A. REGARDING THE PROPOSAL INCLUDED IN ITEM FIVE OF THE AGENDA FOR THE ORDINARY GENERAL SHAREHOLDERS MEETING CALLED FOR 17 MARCH 2016, ON FIRST CALL, AND FOR 18 MARCH 2016, ON SECOND CALL. I. Introduction and purpose of the report This report is prepared in compliance with the provisions of section 286 of the Spanish Capital Corporations Law (Ley de Sociedades de Capital) in order to provide a rationale for the proposed amendments of the Bylaws of Banco Santander, S.A. (the Bank or the Company ), which are submitted for approval of the shareholders at the general shareholders meeting under item Five of the agenda thereof. The Bylaws contain the rules for the organisation of the Company and, at the same time, establish and define or specify the rights and obligations of the shareholders to the extent allowed by the mandatory rules of law. This scope of the Bylaws, which explains the natural tendency towards a certain stability of their regulatory content, is not in any way incompatible with the possibility of an amendment thereof. On the contrary, companies should revise, update and technically improve their organisational structure and operating rules in order to have at all times the appropriate instruments to respond rapidly and efficiently to changing needs due to amendments in legislation or other reasons that might arise. A modification of the Bylaws normally provides the appropriate framework to carry out these updates. For this purpose, it is deemed beneficial to the corporate interest to propose to the shareholders acting at the Bank s general shareholders meeting the amendment of certain bylaw provisions, including some new provisions and modifying others which have been in effect until now. Specifically, the proposed amendments involve articles 23 (sub-section 3), 40 (sub-section 1), 45 (sub-section 2), 50 (sub-section 2), 53 (sub-sections 1, 2, 4 and 5), 54 (sub-section 2), 54 bis (sub-section 2) and 54 ter (sub-section 2). II. Rationale for and organisation of the proposal The amendment of the Bylaws submitted to the shareholders at the general shareholders meeting principally seeks to conform the Bylaws to: (i) certain amendments of the Spanish Capital Corporations Law, introduced by Law 15/2015 of 2 July on Voluntary Jurisdiction (the Voluntary Jurisdiction Law ) and Law 22/2015 of 20 July on the Audit of Financial Statements (the Audit Law ); and (ii) the recommendations of the new good governance (en) propuestas de acuerdos jgo 2016 (2) 22/123

23 code of listed companies, approved by resolution of the Board of the National Securities Market Commission (Comisión Nacional del Mercado de Valores) on 18 February 2015 (the New Code ), which replaces the unified good governance code of listed companies of 2006 (in its restated version published in June 2013, the Unified Code ). Additionally, certain amendments seek to introduce greater flexibility in the Bylaws regarding the composition of the committees of the board. III. Detailed rationale for the proposal The proposed amendments are justified and explained in greater detail below: 1. Proposed amendment of sub-section 3 of article 23 It is proposed to amend sub-section 3 of article 23 of the Bylaws to conform it to section 169 of the Spanish Capital Corporations Law, as amended by the Voluntary Jurisdiction Law. As such, the reference to the power of the judge of the place where the registered office is located to call the ordinary general shareholders meeting in the circumstance described in sub-section 3 is replaced by a reference to the court clerk or company registrar of the place where the registered office is located, as established in the aforementioned rule of the Spanish Capital Corporations Law. 2. Proposed amendment of sub-section 1 of article 40 It is proposed to amend sub-section 1 of article 40 of the Bylaws to conform the text thereof to recommendation 12 of the New Code, which replaces recommendation 7 of the Unified Code, stating that the board of directors will be guided by the corporate interest, understood as the achievement of a business that is profitable and sustainable over the long term and that promotes the continuity thereof and the maximisation of the value of the company, in line with the provisions of article 5 of the Rules and Regulations of the Board. 3. Proposed amendment of sub-section 2 of article 45 The reform of sub-section 2 of article 45 of the Bylaws has the purpose of conforming the text of letter d) of such sub-section to recommendation 35 of the New Code, which replaces recommendation 17 of the Unified Code, stating that the secretary of the board shall ensure that the board of directors carries out its activities and adopts its decisions being mindful of the good governance recommendations applicable to the Company, in line with what is already provided in article 11 of the Rules and Regulations of the Board. 4. Proposed amendment of sub-section 2 of article 50 and of sub-sections 1, 2, 4 and 5 of article 53 The reform of article 53 of the Bylaws has a triple purpose. First, the proposed amendment of sub-section 1 of article 53 of the Bylaws consists of increasing the maximum number of members of the audit committee, currently set at seven directors, to a maximum of nine directors, which seeks to grant the Company s board of directors greater flexibility to establish the composition that is appropriate for the audit committee at any time, and the proposed amendment of sub-section 5 seeks to (en) propuestas de acuerdos jgo 2016 (2) 23/123

24 introduce a technical improvement, clarifying the scope of the meeting of the audit committee referred to in that sub-section. Second, the proposed amendments of sub-sections 2 and 4 of article 53 of the Bylaws seek to conform its text to the amendments introduced to section 529 quaterdecies of the Spanish Capital Corporations Law by the fourth final provision of the Audit Law, which will enter into force on 17 June First, it is proposed to amend sub-section 2 of article 53 of the Bylaws to include the requirement that the members of the audit committee, as a group, have the appropriate technical knowledge in the Company s sector of activity, as will be required under sub-section 1 of the aforementioned section 529 quaterdecies of the Spanish Capital Corporations Law. Second, it is proposed to amend sub-section 4 of article 53 of the Bylaws to conform the text outlining the duties of the audit committee to the changes introduced in subsection 4 of section 529 quaterdecies of the Spanish Capital Corporations Law, though they do not imply a substantial amendment of the current functioning of the Bank s audit committee. Finally, and with relation to the amendment of sub-section 4 of article 53 of the Bylaws, it is proposed to amend sub-section 2 of article 50 to clarify that, pursuant to the provisions of the Spanish Capital Corporations Law, the audit committee does have decision-making powers for the purposes of authorising the provision by the external auditor of non-audit services. 5. Proposed amendment of sub-section 2 of articles 54, 54 bis and 54 ter The proposed amendment of sub-section 2 of articles 54, 54 bis and 54 ter of the Bylaws consists of increasing the maximum number of members of the appointments, remuneration, and risk supervision, regulation and compliance committees, currently set at seven directors, to a maximum of nine directors, for the purpose of granting the Company s board of directors greater flexibility to establish the composition that is appropriate for these committees at any time. The content of the proposed amendments of the bylaws has been split into three items on the agenda (Five A, Five B and Five C) for purposes of the vote thereon. Each one of them corresponds to a block of articles, separated by subject matter: (i) (ii) The first block (corresponding to item Five A of the agenda) is made up of the sole proposal that affects the bylaw rules dedicated to the shareholders at the general shareholders meeting. It contains the proposed amendment of article 23 (power and duty to call a meeting). The second block (corresponding to item Five B of the agenda) encompasses those proposed amendments that affect the regulation in the bylaws dedicated to the board of directors. Within this block are the proposed amendments of articles 40 (creation of shareholder value) and 45 (secretary of the board). (iii)the third and final block (corresponding to item Five C of the agenda) groups together the proposed amendments regarding the committees of the board. This block includes the proposed amendments of articles 50 (committees of the board of directors), 53 (en) propuestas de acuerdos jgo 2016 (2) 24/123

25 (audit committee), 54 (appointments committee), 54 bis (remuneration committee) and 54 ter (risk supervision, regulation and compliance committee). It is stated for the record that, pursuant to the provisions of section 4.2.c) of Law 10/2014 of 26 June on the organisation, supervision and solvency of credit institutions, and of section 10 of Royal Decree 84/2015 of 13 February implementing Law 10/2014 of 26 June on the organisation, supervision and solvency of credit institutions, the proposed amendments of bylaw provisions covered by this report are subject to receipt of the applicable government approval. For easier identification and understanding of the proposed amendments, attached to this report as an Exhibit, for merely informational purposes, is a table providing a comparative view of the bylaw provisions proposed to be amended: the column on the left contains a transcription of the text currently in force, and the column on the right, the text of the proposed amendment. (en) propuestas de acuerdos jgo 2016 (2) 25/123

26 EXHIBIT COMPARATIVE INFORMATION REGARDING THE PROVISIONS OF THE BYLAWS PROPOSED TO BE AMENDED CURRENT TEXT PROPOSED AMENDMENT Bylaw amendments proposed under item Five A of the Agenda Article 23. Power and duty to call a meeting 1. The board of directors must call a general shareholders meeting: (a) When required pursuant to the provisions applicable to the ordinary general shareholders meeting as set forth in the preceding article. (b) When so requested by shareholders holding at least three percent of share capital, and such request sets forth the matters to be addressed at the meeting; in such case, the general shareholders meeting must be called by the board of directors to be held within two months of the date on which a notarial request for such (c) purpose is submitted to the board. When it deems it appropriate in the interest of the Company. 2. The board of directors shall prepare the agenda, which shall necessarily include the matters requested to be addressed. 3. If the ordinary general shareholders meeting is not called within the statutory time period, it may be called, at the request of the shareholders and upon notice thereof being given to the directors, by a judge of the place where the registered office is located, who shall also designate the person who is to preside over such Meeting. Article 23. Power and duty to call a meeting 1. The board of directors must call a general shareholders meeting: (a) When required pursuant to the provisions applicable to the ordinary general shareholders meeting as set forth in the preceding article. (b) When so requested by shareholders holding at least three percent of share capital, and such request sets forth the matters to be addressed at the meeting; in such case, the general shareholders meeting must be called by the board of directors to be held within two months of the date on which a notarial request for such (c) purpose is submitted to the board. When it deems it appropriate in the interest of the Company. 2. The board of directors shall prepare the agenda, which shall necessarily include the matters requested to be addressed. 3. If the ordinary general shareholders meeting is not called within the statutory time period, it may be called, at the request of the shareholders and upon notice thereof being given to the directors, by the court clerk or by the company registrar of the place where the registered office is located. (en) propuestas de acuerdos jgo 2016 (2) 26/123

27 Bylaw amendments proposed under item Five B of the Agenda Article 40. Creation of shareholder value 1. The board of directors and its representative decision-making bodies shall exercise their powers and, in general, perform their duties with a view to maximizing the value of the company in the interest of the shareholders. 2. Additionally, the board shall ensure that the Company faithfully complies with applicable law, respects the uses and good practices of the industries or countries where it carries out its activities and observes the additional principles of social responsibility that it has voluntarily accepted. Article 45. Secretary of the board 1. The board of directors, upon a prior report of the appointments committee, shall appoint a secretary. The secretary of the board of directors shall always be the general secretary of the company. 2. The secretary, in addition to the duties assigned thereto by law, the bylaws or the rules and regulations of the board, must perform the following: a) Keep the documentation of the board of directors, record the events of the meetings in the minute books and attest to the content thereof and of the resolutions adopted. b) Ensure the actions of the board of directors observe applicable law and are in accordance with the bylaws and other internal rules and regulations of the Company. c) Assist the chairman to ensure that the directors receive the Article 40. Creation of shareholder value 1. The board of directors and its representative decision-making bodies shall exercise their powers and, in general, perform their duties guided by the corporate interest, understood as the achievement of a business that is profitable and sustainable over the long term and that promotes the continuity thereof and the maximisation of the value of the company. 2. Additionally, the board shall ensure that the Company faithfully complies with applicable law, respects the uses and good practices of the industries or countries where it carries out its activities and observes the additional principles of social responsibility that it has voluntarily accepted. Article 45. Secretary of the board 1. The board of directors, upon a prior report of the appointments committee, shall appoint a secretary. The secretary of the board of directors shall always be the general secretary of the company. 2. The secretary, in addition to the duties assigned thereto by law, the bylaws or the rules and regulations of the board, must perform the following: a) Keep the documentation of the board of directors, record the events of the meetings in the minute books and attest to the content thereof and of the resolutions adopted. b) Ensure the actions of the board of directors observe applicable law and are in accordance with the bylaws and other internal rules and regulations of the Company. c) Assist the chairman to ensure that the directors receive the (en) propuestas de acuerdos jgo 2016 (2) 27/123

28 information relevant to the performance of their duties sufficiently in advance and in the proper form. d) Ensure the observance of the good governance recommendations assumed by the Company. e) Guarantee that the governance procedures and rules are respected and regularly reviewed. 3. The board of directors, upon a prior report of the appointments committee, may appoint a vice secretary in order that he shall assist the secretary of the board of directors or replace him in the event of absence, impossibility to act or illness. 4. In the event of absence or impossibility to act, the secretary and the vice secretary of the board may be replaced by the director appointed by the board itself from among the directors present at the meeting in question. The board may also resolve that any employee of the company act as such interim replacement. 5. The general secretary shall also be the secretary of all the committees of the board. information relevant to the performance of their duties sufficiently in advance and in the proper form. d) Ensure that the board of directors carries out its activities and adopts its decisions being mindful of the good governance recommendations applicable to the Company. e) Guarantee that the governance procedures and rules are respected and regularly reviewed. 3. The board of directors, upon a prior report of the appointments committee, may appoint a vice secretary in order that he shall assist the secretary of the board of directors or replace him in the event of absence, impossibility to act or illness. 4. In the event of absence or impossibility to act, the secretary and the vice secretary of the board may be replaced by the director appointed by the board itself from among the directors present at the meeting in question. The board may also resolve that any employee of the company act as such interim replacement. 5. The general secretary shall also be the secretary of all the committees of the board. Bylaw amendments proposed under item Five C of the Agenda Article 50. Committees of the board of directors 1. Without prejudice to such powers as may be delegated individually to the chairman, the chief executive officer or any other director and to the power of the board of directors to establish committees for each specific area of business, the board of directors may establish an executive committee, to which general decision-making powers Article 50. Committees of the board of directors 1. Without prejudice to such powers as may be delegated individually to the chairman, the chief executive officer or any other director and to the power of the board of directors to establish committees for each specific area of business, the board of directors may establish an executive committee, to which general decision-making powers (en) propuestas de acuerdos jgo 2016 (2) 28/123

29 shall be delegated, and an executive risk committee, to which powers shall be delegated in connection with risks. If such committees are established, their operation shall be governed by the provisions of articles 51 and 52 below. 2. The board may also establish committees with supervisory, reporting, advisory and proposal-making powers in connection with the matters within their scope of authority, and must in any event create the committees required by applicable law, including an audit committee, an appointments committee, a remuneration committee and a risk supervision, regulation and compliance committee. 3. To the extent not provided for in these bylaws, the operation of the committees of the board shall be governed by the provisions of the rules and regulations of the board. Article 53. Audit committee 1. The audit committee shall consist of a minimum of three directors and a maximum of seven, all of whom shall be external or non-executive, with independent directors having majority representation. 2. The members of the audit committee shall be appointed by the board of directors, taking into account their knowledge, skills and experience in the areas of accounting, auditing or risk management. 3. The audit committee must in all events be presided over by an independent director, who shall also be knowledgeable about and experienced shall be delegated, and an executive risk committee, to which powers shall be delegated in connection with risks. If such committees are established, their operation shall be governed by the provisions of articles 51 and 52 below. 2. The board may also establish committees with supervisory, reporting, advisory and proposal-making powers in connection with the matters within their scope of authority, and must in any event create the committees required by applicable law, including an appointments committee, a remuneration committee, a risk supervision, regulation and compliance committee and an audit committee, which for the purposes of sub-section 4(v) of article 53 will also have decision-making powers. 3. To the extent not provided for in these bylaws, the operation of the committees of the board shall be governed by the provisions of the rules and regulations of the board. Article 53. Audit committee 1. The audit committee shall consist of a minimum of three directors and a maximum of nine, all of whom shall be external or non-executive, with independent directors having majority representation. 2. The board of directors shall appoint the members of the audit committee taking into account their knowledge, skills and experience in the areas of accounting, auditing or risk management, such that, as a whole, the audit committee has the appropriate technical knowledge regarding the Company s sector of activity. 3. The audit committee must in all events be presided over by an independent director, who shall also be knowledgeable about and experienced (en) propuestas de acuerdos jgo 2016 (2) 29/123

30 in matters of accounting, auditing or risk management. The chairman of the audit committee shall be replaced every four years, and may be re-elected once after the passage of one year from the date on which his term of office expired. 4. The audit committee shall have at least the following powers and duties: (i) Have its chairman and/or secretary report to the general shareholders meeting with respect to matters raised therein by shareholders regarding its powers. (ii) Supervise the effectiveness of the Bank s internal control and internal audit, and discuss with the external auditor any significant weaknesses detected in the internal control system during the conduct of the audit. (iii) Supervise the process of preparation and submission of regulated financial information. (iv) Propose to the board of directors the selection, appointment, reelection and replacement of the external auditor, as well as the terms of its engagement, and in matters of accounting, auditing or risk management. The chairman of the audit committee shall be replaced every four years, and may be re-elected once after the passage of one year from the date on which his term of office expired. 4. The audit committee shall have at least the following powers and duties: (i) Have its chairman and/or secretary report to the general shareholders meeting with respect to matters raised therein by shareholders regarding its powers and, in particular, regarding the result of the audit, explaining how such audit has contributed to the integrity of the financial information and the role that the committee has performed in (ii) the process. Supervise the effectiveness of the Bank s internal control and internal audit, and discuss with the external auditor any significant weaknesses detected in the internal control system during the conduct of the audit, all without violating its independence. For such purposes, if applicable, the audit committee may submit recommendations or proposals to the board of directors and set the corresponding period for compliance therewith. (iii) Supervise the process of preparation and submission of regulated financial information and submit recommendations or proposals intended to safeguard its integrity to the board of directors. (iv) Propose to the board of directors the selection, appointment, reelection and replacement of the external auditor, taking responsibility for the selection (en) propuestas de acuerdos jgo 2016 (2) 30/123

31 regularly gather information therefrom regarding the audit plan and the implementation thereof, in addition to preserving its independence in the performance of its duties. (v) Establish appropriate relations with the external auditor to receive information on those issues that might jeopardize its independence, for examination by the audit committee, and on any other issues relating to the financial statements audit process, as well as maintain such other communication as is provided for in legislation regarding the auditing of financial statements and in technical auditing regulations. In any event, the audit committee shall receive annually from the external auditor written confirmation of its independence in relation to the Company or to entities directly or indirectly related thereto, as well as information regarding additional services of any kind provided by the aforementioned auditor, or by persons or entities related thereto, and the fees received by such entities pursuant to the provisions in the law on auditing of accounts. (vi) Issue, on an annual basis and prior to the issuance of the auditor s report, a report stating an opinion process in accordance with applicable law, as well as the terms of its engagement, and regularly gather information therefrom regarding the audit plan and the implementation thereof, in addition to preserving its independence in the performance of its duties. (v) Establish appropriate relations with the external auditor to receive information on those issues that might entail a threat to its independence, for examination by the audit committee, and on any other issues relating to the financial statements audit process, and, when applicable, the authorisation of services other than those which are prohibited, under the terms established in the law applicable to the activity of audit of accounts, as well as maintain such other communication as is provided for therein. In any event, the audit committee shall receive annually from the external auditor written confirmation of its independence in relation to the Company or to entities directly or indirectly related thereto, as well as detailed and individualized information regarding additional services of any kind provided by the aforementioned auditor, or by persons or entities related thereto, and the fees received by such entities pursuant to the provisions in the law on the activity of audit of accounts. (vi) Issue, on an annual basis and prior to the issuance of the auditor s report, a report stating an opinion (en) propuestas de acuerdos jgo 2016 (2) 31/123

32 on the independence of the external auditor. Such report shall, in all cases, contain the evaluation regarding the provision of the additional services mentioned in subsection (v) above, considered individually and as a whole, other than of legal audit and with relation to the rules on independence or to the law on auditing of accounts. (vii) Previously report to the board of directors regarding all the matters established by law, the bylaws and in the rules and regulations of the board, and in particular regarding: a) the financial information that the company must publish from time to time; b) the creation or acquisition of interests in special-purpose entities or with registered office in countries or territories that are considered tax havens; and c) related-party transactions. The provisions in paragraphs (iv), (v) and (vi) are without prejudice to the law on auditing of accounts. 5. The audit committee shall meet as many times as it is called to meeting upon resolution made by the committee itself or by the chairman thereof, and at least four times per year. Any member of the management team or of the Company s personnel shall, when so required, attend the meetings of the audit committee, provide it with his cooperation and make available to it such information as he may have in his possession. The audit committee may also require that the external auditor attend such meetings. One of its meetings shall be devoted to preparing on whether the independence of the external auditor is compromised. Such report shall, in all cases, contain a reasoned evaluation regarding the provision of each and every one of the additional services mentioned in subsection (v) above, considered individually and as a whole, other than of legal audit and with relation to the rules on independence or to the law on the activity of audit of accounts. (vii) Previously report to the board of directors regarding all the matters established by law, the bylaws and in the rules and regulations of the board, and in particular regarding: a) the financial information that the company must publish from time to time; b) the creation or acquisition of interests in special-purpose entities or with registered office in countries or territories that are considered tax havens; and c) related-party transactions. The provisions in paragraphs (iv), (v) and (vi) are without prejudice to the law on auditing of accounts. 5. The audit committee shall meet as many times as it is called to meeting upon resolution made by the committee itself or by the chairman thereof, and at least four times per year. Any member of the management team or of the Company s personnel shall, when so required, attend the meetings of the audit committee, provide it with his cooperation and make available to it such information as he may have in his possession. The audit committee may also require that the external auditor attend such meetings. One of its meetings shall be devoted to preparing (en) propuestas de acuerdos jgo 2016 (2) 32/123

33 the information that the board is to approve and include in the annual public documents. 6. Meetings of the audit committee shall be validly held when at least one half of its members are present in person or by proxy. The committee shall adopt its resolutions upon a majority vote of those present in person or by proxy. In the event of a tie, the chairman of the committee shall have a tie-breaking vote. The committee members may grant a proxy to another member. The resolutions of the audit committee shall be recorded in a minute book, and every one of such minutes shall be signed by the chairman and the secretary. 7. The rules and regulations of the board shall further develop the rules applicable to the audit committee established in this article. Article 54. Appointments committee 1. An appointments committee shall be established and entrusted with general proposal-making and reporting powers on matters relating to appointment and withdrawal of directors on the terms established by law. 2. The appointments committee shall be composed of a minimum of three directors and a maximum of seven, all of whom shall be external or nonexecutive directors, with independent directors having majority representation. 3. The members of the appointments committee shall be appointed by the board of directors taking into account the directors knowledge, skills and experience and the responsibilities of the committee. 4. The appointments committee must in all events be presided over by an independent director. the information within the committee s scope of authority that the board is to approve and include in the annual public documents. 6. Meetings of the audit committee shall be validly held when at least one half of its members are present in person or by proxy. The committee shall adopt its resolutions upon a majority vote of those present in person or by proxy. In the event of a tie, the chairman of the committee shall have a tie-breaking vote. The committee members may grant a proxy to another member. The resolutions of the audit committee shall be recorded in a minute book, and every one of such minutes shall be signed by the chairman and the secretary. 7. The rules and regulations of the board shall further develop the rules applicable to the audit committee established in this article. Article 54. Appointments committee 1. An appointments committee shall be established and entrusted with general proposal-making and reporting powers on matters relating to appointment and withdrawal of directors on the terms established by law. 2. The appointments committee shall be composed of a minimum of three directors and a maximum of nine, all of whom shall be external or non-executive directors, with independent directors having majority representation. 3. The members of the appointments committee shall be appointed by the board of directors taking into account the directors knowledge, skills and experience and the responsibilities of the committee. 4. The appointments committee must in all events be presided over by an independent director. (en) propuestas de acuerdos jgo 2016 (2) 33/123

34 5. The rules and regulations of the board of directors shall govern the composition, operation and powers and duties of the appointments committee. Article 54 bis. Remuneration committee 1. A remuneration committee shall be established and entrusted with general proposal-making and reporting powers on matters relating to remuneration on the terms established by law. 2. The remuneration committee shall be composed of a minimum of three directors and a maximum of seven, all of whom shall be external or nonexecutive directors, with independent directors having majority representation. 3. The board of directors shall appoint the members of the remuneration committee taking into account the directors knowledge, skills and experience and the responsibilities of the committee. 4. The remuneration committee must in all events be presided over by an independent director. 5. The rules and regulations of the board of directors shall govern the composition, operation and powers and duties of the remuneration committee. Article 54 ter. Risk supervision, regulation and compliance committee 1. A risk supervision, regulation and compliance committee shall be established and entrusted with general powers to support and advise the board of directors in its risk control and oversight duties, in the definition of the risk policies of the Group, in relations with supervisory authorities and in compliance matters. 2. The risk supervision, regulation, and compliance committee shall consist of a minimum of three and a maximum of seven directors, all of whom shall be 5. The rules and regulations of the board of directors shall govern the composition, operation and powers and duties of the appointments committee. Article 54 bis. Remuneration committee 1. A remuneration committee shall be established and entrusted with general proposal-making and reporting powers on matters relating to remuneration on the terms established by law. 2. The remuneration committee shall be composed of a minimum of three directors and a maximum of nine, all of whom shall be external or non-executive directors, with independent directors having majority representation. 3. The board of directors shall appoint the members of the remuneration committee taking into account the directors knowledge, skills and experience and the responsibilities of the committee. 4. The remuneration committee must in all events be presided over by an independent director. 5. The rules and regulations of the board of directors shall govern the composition, operation and powers and duties of the remuneration committee. Article 54 ter. Risk supervision, regulation and compliance committee 1. A risk supervision, regulation and compliance committee shall be established and entrusted with general powers to support and advise the board of directors in its risk control and oversight duties, in the definition of the risk policies of the Group, in relations with supervisory authorities and in compliance matters. 2. The risk supervision, regulation, and compliance committee shall consist of a minimum of three and a maximum of nine directors, all of whom shall be (en) propuestas de acuerdos jgo 2016 (2) 34/123

35 external or non-executive, with independent directors having majority representation. 3. The members of the risk supervision, regulation and compliance committee shall be appointed by the board of directors, taking into account the directors' knowledge, skills and experience and the tasks of the committee. 4. The risk supervision, regulation and compliance committee must in all events be presided over by an independent director. 5. The rules and regulations of the board shall govern the composition, operation and powers of the risk supervision, regulation and compliance committee. external or non-executive, with independent directors having majority representation. 3. The members of the risk supervision, regulation and compliance committee shall be appointed by the board of directors, taking into account the directors' knowledge, skills and experience and the tasks of the committee. 4. The risk supervision, regulation and compliance committee must in all events be presided over by an independent director. 5. The rules and regulations of the board shall govern the composition, operation and powers of the risk supervision, regulation and compliance committee. (en) propuestas de acuerdos jgo 2016 (2) 35/123

36 Proposals 1 : Item Five A It is proposed to amend sub-section 3 of article 23 of the Bylaws, without changing the other sub-sections of such rule, such that the aforementioned sub-section 3 of article 23 will read as follows: 3. If the ordinary general shareholders meeting is not called within the statutory time period, it may be called, at the request of the shareholders and upon notice thereof being given to the directors, by the court clerk or by the company registrar of the place where the registered office is located. Item Five B In relation to the bylaw provisions regarding the board of directors, it is proposed to amend the following rules: (i) (ii) To amend sub-section 1 of article 40 of the Bylaws, without changing the other subsections of such rule, such that the aforementioned sub-section 1 of article 40 will read as follows: 1. The board of directors and its representative decision-making bodies shall exercise their powers and, in general, perform their duties guided by the corporate interest, understood as the achievement of a business that is profitable and sustainable over the long term and that promotes the continuity thereof and the maximisation of the value of the company. To amend sub-section 2 of article 45 of the Bylaws, without changing the other subsections of such rule, such that the aforementioned sub-section 2 of article 45 will read as follows: 2. The secretary, in addition to the duties assigned thereto by law, the bylaws or the rules and regulations of the board, must perform the following: a) Keep the documentation of the board of directors, record the events of the meetings in the minute books and attest to the content thereof and of the resolutions adopted. b) Ensure the actions of the board of directors observe applicable law and are in accordance with the bylaws and other internal rules and regulations of the Company. c) Assist the chairman to ensure that the directors receive the information relevant to the performance of their duties sufficiently in advance and in the proper form. 1 Each one of the proposals made under items Five A, Five B and Five C shall be submitted to a separate vote. (en) propuestas de acuerdos jgo 2016 (2) 36/123

37 Item Five C d) Ensure that the board of directors carries out its activities and adopts its decisions being mindful of the good governance recommendations applicable to the Company. e) Guarantee that the governance procedures and rules are respected and regularly reviewed. In relation to the bylaw provisions regarding the committees of the board of directors, it is proposed to amend the following rules: (i) (ii) To amend sub-section 2 of article 50 of the Bylaws, without changing the other subsections of such rule, such that the aforementioned sub-section 2 reads as follows: 2. The board may also establish committees with supervisory, reporting, advisory and proposal-making powers in connection with the matters within their scope of authority, and must in any event create the committees required by applicable law, including an appointments committee, a remuneration committee, a risk supervision, regulation and compliance committee and an audit committee, which for the purposes of sub-section 4(v) of article 53 will also have decision-making powers. To amend sub-sections 1, 2, 4 and 5 of article 53 of the Bylaws, without changing the other sub-sections of such rule, such that the aforementioned sub-sections 1, 2, 4 and 5 of article 53 will read as follows: 1. The audit committee shall consist of a minimum of three directors and a maximum of nine, all of whom shall be external or non-executive, with independent directors having majority representation. 2. The board of directors shall appoint the members of the audit committee taking into account their knowledge, skills and experience in the areas of accounting, auditing or risk management, such that, as a whole, the audit committee has the appropriate technical knowledge regarding the Company s sector of activity. 4. The audit committee shall have at least the following powers and duties: (i) (ii) Have its chairman and/or secretary report to the general shareholders meeting with respect to matters raised therein by shareholders regarding its powers and, in particular, regarding the result of the audit, explaining how such audit has contributed to the integrity of the financial information and the role that the committee has performed in the process. Supervise the effectiveness of the Bank s internal control and internal audit, and discuss with the external auditor any significant weaknesses detected in the internal control system during the conduct of the audit, all without violating its independence. For such purposes, if applicable, the audit committee may submit recommendations or proposals to the (en) propuestas de acuerdos jgo 2016 (2) 37/123

38 (iii) (iv) (v) (vi) (vii) board of directors and set the corresponding period for compliance therewith. Supervise the process of preparation and submission of regulated financial information and submit recommendations or proposals intended to safeguard its integrity to the board of directors. Propose to the board of directors the selection, appointment, reelection and replacement of the external auditor, taking responsibility for the selection process in accordance with applicable law, as well as the terms of its engagement, and regularly gather information therefrom regarding the audit plan and the implementation thereof, in addition to preserving its independence in the performance of its duties. Establish appropriate relations with the external auditor to receive information on those issues that might entail a threat to its independence, for examination by the audit committee, and on any other issues relating to the financial statements audit process, and, when applicable, the authorisation of services other than those which are prohibited, under the terms established in the law applicable to the activity of audit of accounts, as well as maintain such other communication as is provided for therein. In any event, the audit committee shall receive annually from the external auditor written confirmation of its independence in relation to the Company or to entities directly or indirectly related thereto, as well as detailed and individualized information regarding additional services of any kind provided by the aforementioned auditor, or by persons or entities related thereto, and the fees received by such entities pursuant to the provisions in the law on the activity of audit of accounts. Issue, on an annual basis and prior to the issuance of the auditor s report, a report stating an opinion on whether the independence of the external auditor is compromised. Such report shall, in all cases, contain a reasoned evaluation regarding the provision of each and every one of the additional services mentioned in subsection (v) above, considered individually and as a whole, other than of legal audit and with relation to the rules on independence or to the law on the activity of audit of accounts. Previously report to the board of directors regarding all the matters established by law, the bylaws and in the rules and regulations of the board, and in particular regarding: a) the financial information that the company must publish from time to time; (en) propuestas de acuerdos jgo 2016 (2) 38/123

39 (iii) (iv) (v) b) the creation or acquisition of interests in special-purpose entities or with registered office in countries or territories that are considered tax havens; and c) related-party transactions. The provisions in paragraphs (iv), (v) and (vi) are without prejudice to the law on auditing of accounts. 5. The audit committee shall meet as many times as it is called to meeting upon resolution made by the committee itself or by the chairman thereof, and at least four times per year. Any member of the management team or of the Company s personnel shall, when so required, attend the meetings of the audit committee, provide it with his cooperation and make available to it such information as he may have in his possession. The audit committee may also require that the external auditor attend such meetings. One of its meetings shall be devoted to preparing the information within the committee s scope of authority that the board is to approve and include in the annual public documents. To amend sub-section 2 of article 54 of the Bylaws, without changing the other subsections of such rule, such that the aforementioned sub-section 2 of article 54 will read as follows: 2. The appointments committee shall be composed of a minimum of three directors and a maximum of nine, all of whom shall be external or nonexecutive directors, with independent directors having majority representation. To amend sub-section 2 of article 54 bis of the Bylaws, without changing the other sub-sections of such rule, such that the aforementioned sub-section 2 of article 54 bis will read as follows: 2. The remuneration committee shall be composed of a minimum of three directors and a maximum of nine, all of whom shall be external or nonexecutive directors, with independent directors having majority representation. To amend sub-section 2 of article 54 ter of the Bylaws, without changing the other sub-sections of such rule, such that sub-section 2 of article 54 ter will read as follows: 2. The risk supervision, regulation, and compliance committee shall consist of a minimum of three and a maximum of nine directors, all of whom shall be external or non-executive, with independent directors having majority representation. Pursuant to the provisions of section 4.2.c) of Law 10/2014 of 26 June on the organisation, supervision and solvency of credit institutions, and section 10 of Royal Decree 84/2015 of 13 February implementing Law 10/2014 of 26 June on the organisation, supervision and solvency of credit institutions, the foregoing proposed bylaw amendments are subject to receipt of the applicable government approval. (en) propuestas de acuerdos jgo 2016 (2) 39/123

40 Item Six Six A. Six B. Amendment of the following articles of the Rules and Regulations for the General Shareholders Meeting: Amendment of article 6 (information available as of the date of the call to meeting), relating to the publication of information regarding the general shareholders meeting. Amendment of article 21 (voting on proposed resolutions), relating to the procedure at the general shareholders meeting. PROPOSAL SUBMITTED BY THE BOARD OF DIRECTORS OF BANCO SANTANDER, S.A. REGARDING ITEM SIX OF THE AGENDA FOR THE ORDINARY GENERAL SHAREHOLDERS MEETING CALLED FOR 17 MARCH 2016, ON FIRST CALL, AND FOR 18 MARCH 2016, ON SECOND CALL Submitted for the approval of the shareholders under item Six of the agenda for the general shareholders meeting of Banco Santander, S.A. (the Bank or the Company ) are: (i) the amendment of article 6 (sub-section 1) of the Rules and Regulations for the General Shareholders Meeting (item Six A); and (ii) the amendment of article 21 (sub-section 1) of such Rules and Regulations (item Six 6 B). The reason for the aforementioned proposed amendment is the appropriateness of conforming the organisational rules of the Company to the recommendations of the new good governance code of listed companies, approved by resolution of the Board of the National Securities Market Commission (Comisión Nacional del Mercado de Valores) on 18 February 2015 (the New Code ), a purpose which is also shared by part of the amendments of the Bylaws that are submitted to the shareholders at the general shareholders meeting under the foregoing item Five of the agenda, and which this proposal complements. It is also proposed to include certain technical improvements in the text of the regulations. First, under item Six A of the agenda it is proposed to amend article 6 (sub-section 1) to conform the Rules and Regulations for the General Shareholders Meeting to recommendation 10 of the New Code. Specifically, it is proposed to include within subsection 1 of article 6, regarding information available as of the date of the call to meeting, specific amendments to apply the provisions of letters a) and b) of recommendation 10 of the New Code. Thus, as regards the former, it is established in the last paragraph of this subsection that proposals that are the object of a request for a supplement to the call to meeting, as well as rationales therefor, shall be published as soon as possible via the Company s website, a circumstance that was already established for alternative proposals regarding items in the agenda in sub-paragraph (iv) of such sub-section. Also, as regards the latter, it is provided that the forms of the attendance, proxy-granting and distance-voting card will be updated when the inclusion of new items in the agenda has been requested or alternative proposed resolutions have been submitted in accordance with applicable law. Second, under item Six B of the agenda, it is proposed to amend sub-section 1 of article 21, regarding voting on proposed resolutions, to conform it to the recommendations of letter c) of recommendation 10 of the New Code. First, it is clarified that all validly submitted proposed resolutions shall be the object of a vote, the Chairman having the power to decide the order in (en) propuestas de acuerdos jgo 2016 (2) 40/123

41 which they shall be submitted to a vote when there are alternative proposals or proposals that do not appear in the agenda. Additionally, and supplementing the foregoing, it is established that, in such vote, a vote in favour of a proposed resolution by the shareholders at the general shareholders meeting implies a vote against incompatible alternative proposals. The amendment of sub-section 1 of article 21 is supplemented by a technical improvement, including within this rule a provision that was already contained in article 23.5 of the Rules and Regulations for the General Shareholders Meeting. For easier identification and understanding of the proposed amendments, attached to this report as an Exhibit, for merely informational purposes, is a table providing a comparative view of the provisions of the Rules and Regulations for the General Shareholders Meeting proposed to be amended: the column on the left contains a transcription of the text currently in force, and the column on the right, the text of the proposed amendment. (en) propuestas de acuerdos jgo 2016 (2) 41/123

42 EXHIBIT COMPARATIVE INFORMATION REGARDING THE PROVISIONS OF THE RULES AND REGULATIONS FOR THE GENERAL SHAREHOLDERS MEETING PROPOSED TO BE AMENDED CURRENT TEXT PROPOSED AMENDMENT Amendments proposed under item Six A of the Agenda Article 6. Information Available as of the Date of the Call to Meeting 1. In addition to what is required by provisions of Law or the Bylaws, beginning on the date of publication of the announcement of the call and until the General Shareholders Meeting is held, the Company shall maintain the following information continuously published on its website: (i) the announcement of the call to meeting; (ii) the total number of shares and voting rights on the date the meeting is called, with a breakdown by class of shares, if any such classes exist; (iii) the documents that must be submitted to the shareholders at the General Shareholders Meeting and, specifically, the reports prepared by directors, the external auditor and independent experts; (iv) the full text of the proposed resolutions submitted by the Board of Directors regarding each and every one of the items on the agenda or, with relation to merely informative items, a report prepared by the competent bodies, containing a discussion of such items. The proposed resolutions, if any, submitted by the shareholders as provided by Article 5.5 above Article 6. Information Available as of the Date of the Call to Meeting 1. In addition to what is required by provisions of Law or the Bylaws, beginning on the date of publication of the announcement of the call and until the General Shareholders Meeting is held, the Company shall maintain the following information continuously published on its website: (i) the announcement of the call to (ii) meeting; the total number of shares and voting rights on the date the meeting is called, with a breakdown by class of shares, if any such classes exist; (iii) the documents that must be submitted to the shareholders at the General Shareholders Meeting and, specifically, the reports prepared by directors, the external auditor and independent experts; (iv) the full text of the proposed resolutions submitted by the Board of Directors regarding each and every one of the items on the agenda or, with relation to merely informative items, a report prepared by the competent bodies, containing a discussion of such items. The proposed resolutions, if any, submitted by the shareholders as provided by Article 5.5 above (en) propuestas de acuerdos jgo 2016 (2) 42/123

43 shall also be included in the order that they are received; (v) in the event of appointment, ratification or re-election of members of the Board of Directors, the identity, curriculum vitae and category to which each one of them belongs, as well as the proposals and reports of the Board of Directors or of the Appointments Committee, as applicable in each case pursuant to the Law, the Bylaws or the Rules and Regulations of the Board. In the case of a legal person, the information must include that corresponding to the physical person to be appointed to perform the duties of the position on a permanent basis; and (vi) the forms of the attendance, proxy-granting and distance voting card, unless they are sent directly by the Company to each shareholder. If they cannot be published on the website for technical reasons, the Company shall specify how to obtain the forms in paper format, which it shall send to all shareholders that request them. Furthermore, when there is a supplement to the call to Meeting, the Company shall, starting on the date of publication thereof, also publish on its website the text of the proposals and rationales provided to the Company and to which such supplement refers. shall also be included in the order that they are received; (v) in the event of appointment, ratification or re-election of members of the Board of Directors, the identity, curriculum vitae and category to which each one of them belongs, as well as the proposals and reports of the Board of Directors or of the Appointments Committee, as applicable in each case pursuant to the Law, the Bylaws or the Rules and Regulations of the Board. In the case of a legal person, the information must include that corresponding to the physical person to be appointed to perform the duties of the position on a permanent basis; and (vi) the forms of the attendance, proxy-granting and distance voting card, unless they are sent directly by the Company to each shareholder. If they cannot be published on the website for technical reasons, the Company shall specify how to obtain the forms in paper format, which it shall send to all shareholders that request them. These forms shall be updated if the inclusion of new items on the agenda is requested or alternative proposed resolutions are submitted in accordance with applicable law. Furthermore, when there is a supplement to the call to Meeting, the Company shall disclose as soon as possible via its corporate website the text of the proposals and rationales provided to the Company and to which such supplement refers, without prejudice to the publication of the supplement in the terms indicated in (en) propuestas de acuerdos jgo 2016 (2) 43/123

44 2. Without prejudice to the provisions of other paragraphs of these Rules and Regulations and the requirements of any legal or bylaw provisions, beginning on the date of the announcement of the call to meeting, such information as is deemed appropriate to facilitate the attendance of the shareholders at the General Shareholders' Meeting and their participation therein shall also be contained in the Company s website, including: (i) Information on where the Meeting will be held, describing, if appropriate, how to gain access to (ii) the room. Description of the mechanisms that may be used for granting proxies and distance voting. (iii) Information, if appropriate, on systems or procedures to facilitate listening in on the meeting, such as means for simultaneous interpretation, broadcast using audiovisual media, information in other languages, etc. the foregoing article Without prejudice to the provisions of other paragraphs of these Rules and Regulations and the requirements of any legal or bylaw provisions, beginning on the date of the announcement of the call to meeting, such information as is deemed appropriate to facilitate the attendance of the shareholders at the General Shareholders' Meeting and their participation therein shall also be contained in the Company s website, including: (i) Information on where the Meeting will be held, describing, if appropriate, how to gain access to (ii) the room. Description of the mechanisms that may be used for granting proxies and distance voting. (iii) Information, if appropriate, on systems or procedures to facilitate listening in on the meeting, such as means for simultaneous interpretation, broadcast using audiovisual media, information in other languages, etc. Amendments proposed under item Six B of the Agenda Article 21. Voting on Proposed Resolutions 1. Once the shareholder presentations have ended and responses have been made pursuant to the provisions of these Rules and Regulations, the proposed resolutions regarding matters included in the agenda or which are not legally required to be set forth therein, including any proposals made by the shareholders during the meeting, shall be submitted to a vote. Article 21. Voting on Proposed Resolutions 1. Once the shareholder presentations have ended and, if applicable, responses have been made pursuant to the provisions of these Rules and Regulations, the proposed resolutions regarding matters included in the agenda or which are not legally required to be set forth therein, including any proposals made by the shareholders during the meeting in accordance with applicable law, shall be submitted to a vote. All validly made proposed resolutions shall be submitted to a vote in the terms set forth below. (en) propuestas de acuerdos jgo 2016 (2) 44/123

45 The adoption of resolutions shall proceed following the agenda set forth in the call to meeting. Resolutions proposed by the Board of Directors shall be first submitted to vote and then, if appropriate, resolutions proposed by others shall be voted upon following their priority in time. In any event, once a proposed resolution has been adopted, all others relating to the same matter and which are incompatible therewith shall be withdrawn and therefore need not be voted upon. If proposals have been made regarding matters that may be approved at the General Shareholders' Meeting without having appeared in the agenda, the Chairman shall decide the order in which they shall be submitted to a vote. It shall not be necessary for the Secretary to previously read aloud the text of proposed resolutions which has been provided to the shareholders at the beginning of the meeting, except when so requested by any shareholder or deemed appropriate by the Chairman for some or all of the proposals. In any event, the attendees shall be told to which item on the agenda the proposed resolution being submitted to vote refers. The adoption of resolutions shall proceed following the agenda set forth in the call to meeting. If there are alternative proposals regarding an item on the agenda, the Chairman shall decide the order in which they shall be submitted to a vote, which the Chairman shall also do if proposals have been made regarding matters that may be approved at the General Shareholders Meeting without having appeared in the agenda. In any event, the favourable vote of the General Shareholders Meeting of a proposed resolution with the necessary majority for its approval implies the rejection of those alternative proposals that are incompatible therewith. Likewise and pursuant to the provisions of article 23.5 below, when, at the time of voting, the Chairman of the General Shareholders Meeting notes the existence of a sufficient number of votes to approve or reject the proposed resolutions, the Chairman may, expressly stating that such circumstance has occurred, declare them approved or rejected, as applicable, without prejudice to the statements that the shareholders may wish to make to the Notary Public regarding the meaning of their vote or abstention. It shall not be necessary for the Secretary to previously read aloud the text of proposed resolutions which has been provided to the shareholders at the beginning of the meeting, except when so requested by any shareholder or deemed appropriate by the Chairman for some or all of the proposals. In any event, the attendees shall be told to which item on the agenda the proposed resolution being submitted to vote refers. (en) propuestas de acuerdos jgo 2016 (2) 45/123

46 2. When various proposals are included under a single item of the agenda, they shall be voted upon separately. In particular, there shall be separate voting on the appointment of each director and, in the event of amendments to the Bylaws or these Rules and Regulations, each article or group of articles that are substantially independent. As an exception, all those proposals made that are configured as unitary or indivisible, such as those relating to the approval of a complete text of the Bylaws or the Rules and Regulations for the General Shareholders Meeting, shall be voted on as a whole. 3. As a general rule, and without prejudice to the use of other alternative systems, at the election of the Chairman, voting on the proposed resolutions referred to in the preceding paragraph shall be carried out according to the following procedure: (i) Voting on the proposed resolutions referring to items included in the agenda shall be by a system of negative deduction. To this end, the votes corresponding to all shares present in person or by proxy, less (a) the votes corresponding to the shares whose holders or proxies state their vote against or in blank, or abstain, by communication or statement of their vote or abstention to the Notary Public, in order for note to be taken thereof for inclusion in the minutes, (b) the votes corresponding to the shares whose holders have voted against or in blank or have expressly stated their abstention by the means of communication to which the foregoing Article refers, and (c) the votes corresponding to the shares whose holders or 2. When various proposals are included under a single item of the agenda, they shall be voted upon separately. In particular, there shall be separate voting on the appointment of each director and, in the event of amendments to the Bylaws or these Rules and Regulations, each article or group of articles that are substantially independent. As an exception, all those proposals made that are configured as unitary or indivisible, such as those relating to the approval of a complete text of the Bylaws or the Rules and Regulations for the General Shareholders Meeting, shall be voted on as a whole. 3. As a general rule, and without prejudice to the use of other alternative systems, at the election of the Chairman, voting on the proposed resolutions referred to in the preceding paragraph shall be carried out according to the following procedure: (i) Voting on the proposed resolutions referring to items included in the agenda shall be by a system of negative deduction. To this end, the votes corresponding to all shares present in person or by proxy, less (a) the votes corresponding to the shares whose holders or proxies state their vote against or in blank, or abstain, by communication or statement of their vote or abstention to the Notary Public, in order for note to be taken thereof for inclusion in the minutes, (b) the votes corresponding to the shares whose holders have voted against or in blank or have expressly stated their abstention by the means of communication to which the foregoing Article refers, and (c) the votes corresponding to the shares whose holders or (en) propuestas de acuerdos jgo 2016 (2) 46/123

47 proxies have left the meeting prior to the vote on the proposed resolution in question and have left a record of such departure with the Notary Public, shall be deemed votes in favour. (ii) Voting on the proposed resolutions referring to items not included in the agenda shall be by a system of positive deduction. To this end, the votes corresponding to all shares present in person or by proxy, less (a) the votes corresponding to the shares whose holders or proxies state their vote in favour, or in blank, or abstain, by communication or statement of their vote or abstention to the Notary Public, in order for note to be taken thereof for inclusion in the minutes, and (b) the votes corresponding to the shares whose holders or proxies have left the meeting prior to the vote on the proposed resolution in question and have left a record of such departure with the Notary Public, shall be deemed votes against. (iii) The communications or statements to the Notary Public provided for in the two foregoing paragraphs with respect to the direction of the vote or abstention may be made individually for each of the proposed Resolutions or together for several or all of them, stating to the Notary Public the identity and status - shareholder or proxy of the person making such communication or statement, the number of shares to which it corresponds, and the direction of the vote or, if appropriate, the abstention. (iv) For the adoption of resolutions with respect to matters not proxies have left the meeting prior to the vote on the proposed resolution in question and have left a record of such departure with the Notary Public, shall be deemed votes in favour. (ii) Voting on the proposed resolutions referring to items not included in the agenda shall be by a system of positive deduction. To this end, the votes corresponding to all shares present in person or by proxy, less (a) the votes corresponding to the shares whose holders or proxies state their vote in favour, or in blank, or abstain, by communication or statement of their vote or abstention to the Notary Public, in order for note to be taken thereof for inclusion in the minutes, and (b) the votes corresponding to the shares whose holders or proxies have left the meeting prior to the vote on the proposed resolution in question and have left a record of such departure with the Notary Public, shall be deemed votes against. (iii) The communications or statements to the Notary Public provided for in the two foregoing paragraphs with respect to the direction of the vote or abstention may be made individually for each of the proposed Resolutions or together for several or all of them, stating to the Notary Public the identity and status - shareholder or proxy of the person making such communication or statement, the number of shares to which it corresponds, and the direction of the vote or, if appropriate, the abstention. (iv) For the adoption of resolutions with respect to matters not (en) propuestas de acuerdos jgo 2016 (2) 47/123

48 included in the agenda, the shares of shareholders who have participated in the Shareholders Meeting by distance voting shall not be deemed shares which are present in person or by proxy. For the adoption of any of the resolutions to which Sections 523 and 526 of the Spanish Capital Corporations Law or others in which the Law establishes any voting prohibition refer, the shares with respect to which no voting rights can be exercised based on the application of the provisions of said sections shall not be deemed shares present in person or by proxy. included in the agenda, the shares of shareholders who have participated in the Shareholders Meeting by distance voting shall not be deemed shares which are present in person or by proxy. For the adoption of any of the resolutions to which Sections 523 and 526 of the Spanish Capital Corporations Law or others in which the Law establishes any voting prohibition refer, the shares with respect to which no voting rights can be exercised based on the application of the provisions of said sections shall not be deemed shares present in person or by proxy. (en) propuestas de acuerdos jgo 2016 (2) 48/123

49 Proposals 1 : Item Six A With relation to article 6 of the Rules and Regulations for the General Shareholders Meeting, regarding the information available as of the date of the call to meeting, it is proposed to amend sub-section 1, without changing sub-section 2 of such rule, such that sub-section 1 of article 6 shall read as follows: 1. In addition to what is required by provisions of Law or the Bylaws, beginning on the date of publication of the announcement of the call and until the General Shareholders Meeting is held, the Company shall maintain the following information continuously published on its website: (i) (ii) (iii) (iv) (v) (vi) the announcement of the call to meeting; the total number of shares and voting rights on the date the meeting is called, with a breakdown by class of shares, if any such classes exist; the documents that must be submitted to the shareholders at the General Shareholders Meeting and, specifically, the reports prepared by directors, the external auditor and independent experts; the full text of the proposed resolutions submitted by the Board of Directors regarding each and every one of the items on the agenda or, with relation to merely informative items, a report prepared by the competent bodies, containing a discussion of such items. The proposed resolutions, if any, submitted by the shareholders as provided by Article 5.5 above shall also be included in the order that they are received; in the event of appointment, ratification or re-election of members of the Board of Directors, the identity, curriculum vitae and category to which each one of them belongs, as well as the proposals and reports of the Board of Directors or of the Appointments Committee, as applicable in each case pursuant to the Law, the Bylaws or the Rules and Regulations of the Board. In the case of a legal person, the information must include that corresponding to the physical person to be appointed to perform the duties of the position on a permanent basis; and the forms of the attendance, proxy-granting and distance voting card, unless they are sent directly by the Company to each shareholder. If they cannot be published on the website for technical reasons, the Company shall specify how to obtain the forms in paper format, which it shall send to all shareholders that request them. These forms shall be updated if the inclusion of new items on the agenda is requested or alternative proposed resolutions are submitted in accordance with applicable law. Furthermore, when there is a supplement to the call to Meeting, the Company shall disclose as soon as possible via its corporate website the text of the proposals and rationales provided to the Company and to which such supplement refers, without 1 Each one of the proposals made under items Six A and Six B shall be submitted to a separate vote. (en) propuestas de acuerdos jgo 2016 (2) 49/123

50 prejudice to the publication of the supplement in the terms indicated in the foregoing article 5. Item Six B It is proposed to amend sub-section 1 of article 21 of the Rules and Regulations for the General Shareholders Meeting, regarding voting on proposed resolutions, without changing the other sub-sections of such rule, such that the aforementioned sub-section 1 of article 21 shall read as follows: 1. Once the shareholder presentations have ended and, if applicable, responses have been made pursuant to the provisions of these Rules and Regulations, the proposed resolutions regarding matters included in the agenda or which are not legally required to be set forth therein, including any proposals made by the shareholders during the meeting in accordance with applicable law, shall be submitted to a vote. All validly made proposed resolutions shall be submitted to a vote in the terms set forth below. The adoption of resolutions shall proceed following the agenda set forth in the call to meeting. If there are alternative proposals regarding an item on the agenda, the Chairman shall decide the order in which they shall be submitted to a vote, which the Chairman shall also do if proposals have been made regarding matters that may be approved at the General Shareholders Meeting without having appeared in the agenda. In any event, the favourable vote of the General Shareholders Meeting of a proposed resolution with the necessary majority for its approval implies the rejection of those alternative proposals that are incompatible therewith. Likewise and pursuant to the provisions of article 23.5 below, when, at the time of voting, the Chairman of the General Shareholders Meeting notes the existence of a sufficient number of votes to approve or reject the proposed resolutions, the Chairman may, expressly stating that such circumstance has occurred, declare them approved or rejected, as applicable, without prejudice to the statements that the shareholders may wish to make to the Notary Public regarding the meaning of their vote or abstention. It shall not be necessary for the Secretary to previously read aloud the text of proposed resolutions which has been provided to the shareholders at the beginning of the meeting, except when so requested by any shareholder or deemed appropriate by the Chairman for some or all of the proposals. In any event, the attendees shall be told to which item on the agenda the proposed resolution being submitted to vote refers. (en) propuestas de acuerdos jgo 2016 (2) 50/123

51 Item Seven Delegation to the board of directors of the power to carry out the resolution to be adopted by the shareholders at the meeting to increase the share capital pursuant to the provisions of section a) of the Spanish Capital Corporations Law, depriving of effect the authorisation conferred under resolution Seven II) adopted at the ordinary general shareholders meeting of 27 March REPORT SUBMITTED BY THE BOARD OF DIRECTORS OF BANCO SANTANDER, S.A. REGARDING THE PROPOSAL REFERRED TO IN ITEM SEVEN OF THE AGENDA FOR THE ORDINARY GENERAL SHAREHOLDERS MEETING CALLED FOR 17 MARCH 2016, AT FIRST CALL, AND FOR 18 MARCH 2016, AT SECOND CALL This report is prepared in compliance with the provisions of sections 286, and of the Spanish Capital Corporations Law (Ley de Sociedades de Capital) in order to provide a rationale for the proposal relating to the capital increase with a delegation of powers to the board of directors to carry out such increase, the approval of which is proposed to the shareholders acting at the above-mentioned ordinary general shareholders meeting under item Seven of the agenda therefor. Pursuant to the provisions of section a) of the Spanish Capital Corporations Law, the shareholders acting at the general shareholders meeting may, if the requirements for amending the Bylaws are met, delegate to the directors the power to determine the date on which the previously-adopted resolution to increase the share capital should be carried out in the amount established in such resolution and to set the terms thereof for all matters not provided for in the resolution passed at the general shareholders meeting. The period for the exercise of this delegated power may not exceed one year. In this regard, the board of directors believes that the proposed resolution submitted at the general shareholders meeting is motivated by the opportunity provided under current corporate law to give the board an instrument which allows it to carry out a previouslyapproved capital increase at any time, within the limits and subject to the periods, terms and conditions decided by the shareholders at the meeting, without needing to hold another meeting. The dynamics of all commercial companies, particularly large companies, requires that their corporate decision-making bodies have the most suitable instruments at all times to adequately respond to the needs of the Company at any given time, according to the circumstances of the market. These needs may include the need to provide the Company with new funds, which will normally be accomplished by means of new capital contributions. Therefore, and for such purpose, the proposal set forth below is submitted to the shareholders acting at the general shareholders meeting, which proposal consists of delegating to the board the power to set the date on which the resolution of the shareholders to increase capital should be carried out, in the amount resolved at the meeting and within a period of one year, expressly authorising the board to delegate in turn to the executive committee the delegable powers it has received. Proposal: I) To rescind resolution Seven II) of the resolutions adopted by the shareholders acting at the ordinary general shareholders meeting of 27 March (en) propuestas de acuerdos jgo 2016 (2) 51/123

52 II) To delegate to the board of directors, pursuant to the provisions of section a) of the Spanish Capital Corporations Law, the broadest powers to do the following within one year from the date on which this general shareholders meeting is held: set the date and terms and conditions, as to all matters not provided for by the shareholders themselves acting at the general shareholders meeting, for a capital increase by issuing new shares that is approved at such general shareholders meeting in the amount of 500 million euros. In exercising these delegated powers, the board of directors shall (by way of example and not of limitation): determine if the new shares shall be issued with or without a premium and with or without voting rights; determine the deadline for exercising pre-emptive rights; freely offer the shares not subscribed for by such deadline; establish that, in the event the issue is not fully subscribed for, the capital will be increased only by the amount of the actual subscriptions; and amend the article of the Company s Bylaws regarding share capital. The capital increase referred to in this resolution shall become void if the board of directors does not exercise the powers delegated thereto within the period of one (1) year provided by the shareholders acting at the general shareholders meeting for carrying out the resolution. The board of directors is also authorised to delegate to the executive committee the delegable powers granted pursuant to this resolution. (en) propuestas de acuerdos jgo 2016 (2) 52/123

53 Item Eight Increase in share capital by such amount as may be determined pursuant to the terms of the resolution, by means of the issuance of new ordinary shares having a par value of one-half (0.5) euro each, with no share premium, of the same class and series as those that are currently outstanding, with a charge to reserves. Offer to acquire bonus share rights (derechos de asignación gratuita) at a guaranteed price. Express provision for the possibility of less than full allotment. Delegation of powers to the board of directors, which may in turn delegate such powers to the executive committee, to establish the terms and conditions of the increase as to all matters not provided for by the shareholders at this general shareholders meeting, to take such actions as may be required for implementation thereof, to amend the text of sections 1 and 2 of article 5 of the Bylaws to reflect the new amount of share capital, and to execute such public and private documents as may be necessary to carry out the increase. Application to the appropriate domestic and foreign authorities for admission to trading of the new shares on the Madrid, Barcelona, Bilbao and Valencia Stock Exchanges through Spain s Automated Quotation System (Mercado Continuo) and on the foreign Stock Exchanges on which the shares of Banco Santander are listed (currently Lisbon, London, Milan, Warsaw, Buenos Aires, Mexico and New York through American Depositary Shares (ADSs), and São Paulo through Brazilian Depositary Receipts (BDRs)) in the manner required by each of such Stock Exchanges. REPORT SUBMITTED BY THE BOARD OF DIRECTORS OF BANCO SANTANDER, S.A. REGARDING THE PROPOSAL INCLUDED IN ITEM EIGHT OF THE AGENDA FOR THE ORDINARY GENERAL SHAREHOLDERS MEETING CALLED FOR 17 MARCH 2016, ON FIRST CALL, AND FOR 18 MARCH 2016, ON SECOND CALL This report is prepared in relation with the proposal to increase share capital which will be submitted for approval under item Eight of the agenda for the said ordinary general shareholders meeting of Banco Santander, S.A. ( Banco Santander, Santander or the Bank ). The report is issued in compliance with the requirements established in sections 286 and 296 of the Spanish Capital Corporations Law (Ley de Sociedades de Capital) pursuant to which the board of directors must issue a report justifying the proposal to be submitted at the general shareholders meeting, given that the approval and execution of such proposal necessarily implies the amendment of sections 1 and 2 of article 5 of the Bylaws concerning share capital. For purposes of facilitating comprehension of the transaction giving rise to the proposed capital increase submitted at the general shareholders meeting, shareholders are first provided with a description of the purpose of and rationale for such capital increase. Next, a description of the main terms and conditions of the capital increase charged to reserves that constitutes the subject matter of this report is provided. Last, the proposed resolution to increase share capital which is submitted for approval at the general shareholders meeting is included. (en) propuestas de acuerdos jgo 2016 (2) 53/123

54 I. PURPOSE OF AND RATIONALE FOR THE PROPOSAL 1. Purpose In January 2015, Banco Santander reformulated its shareholder remuneration policy with the object of once again paying the majority of their quarterly remuneration in cash and announced its intention for the remuneration with a charge to financial year 2015 to amount to 0.20 euros per share. It also communicated its intention for the cash pay-out to represent between 30% and 40% of its recurring profit in subsequent years, instead of the then current 20%, and for shareholder remuneration to match the growth of its results. The Bank has the intention for remuneration with a charge to the 2016 results to be 0.21 euros per share, which would be paid, as always, in four payments, of which three would be received in cash and the other in shares or cash at the shareholder s discretion, under the Santander Dividendo Elección scrip dividend scheme. As such, the purpose of the proposed share capital increase submitted to the shareholders at the ordinary general shareholders meeting is to offer all shareholders of the Bank the option to receive their remuneration corresponding to one of the interim dividends for 2016 through the application of the Santander Dividendo Elección scrip dividend scheme. 2. Structure and options open to the shareholders The offer made to the shareholders to choose to receive, at their discretion, either shares of Banco Santander or cash upon the application of the Santander Dividendo Elección scheme (the Alternative Option ) is structured through a share capital increase to be charged to reserves (the Increase or the Capital Increase ), which is submitted for approval by the shareholders at the ordinary general shareholders meeting under item Eight of the agenda. Whenever the board of directors, or the executive committee by delegation therefrom, decides to carry out the Capital Increase: (a) (b) The shareholders of the Bank will receive a bonus share right (derecho de asignación gratuita) for each share of Santander that they own. These rights will be tradable and, as such, may be traded on the Spanish Stock Exchanges during a period of at least 15 calendar days. Once this period ends, the rights will automatically be converted into newly-issued shares of the Bank that will be allotted to their holders. The exact number of shares to be issued in the Increase, and therefore, the number of rights needed to receive a new share, will depend on the market price of the shares of the Bank at the time the Increase is carried out (the Market Price ), in accordance with the procedure described in this report. In any case, as further explained below, the maximum number of shares to be issued in the Increase will be such that the market value of those shares calculated at the Market Price will be approximately the amount respectively set forth in each case. The Bank, or an entity of its Group, will make an irrevocable commitment to acquire the bonus share rights for a fixed price from the shareholders who have received them on the record date (the Purchase Commitment ). Such fixed price will be calculated prior to the beginning of the trading period of the bonus share rights, on the basis of the Market Price (such that the price for each right (en) propuestas de acuerdos jgo 2016 (2) 54/123

55 will be the result of dividing the Market Price by the number of rights needed to receive a new share plus one). Thus, the Bank assures all its shareholders of the possibility of turning the bonus share rights into cash. Therefore, upon the implementation of the Increase, the shareholders of Banco Santander will have the option, at their discretion 1 : (a) (b) (c) Not to transfer their bonus share rights. In this case, at the end of the trading period, the shareholder shall receive, entirely free of charge, the corresponding number of new shares as fully paid-up. To transfer all or part of their bonus share rights to the Santander Group pursuant to the Purchase Commitment. Thus, instead of receiving shares, the shareholder would be opting to convert his rights into cash and to receive the Alternative Option in cash. To transfer all or part of their bonus share rights on the market. In this case, the shareholder would also be opting to convert his rights into cash, albeit not at a guaranteed fixed price, unlike in option (b) above. The gross value received by the shareholder in options (a) and (b) will be equivalent, given that the Market Price will be used to determine both the fixed price of the Purchase Commitment and the number of bonus share rights needed to receive a new share. In other words, the gross price that a shareholder will receive for selling to the Group all his bonus share rights under the Purchase Commitment will be approximately equal to the value of the new shares that he would receive if he did not sell his rights, calculated at Santander s market price on the date the Increase is carried out. However, the tax treatment of each option is different at present; option (a) has a more favourable tax treatment than option (b). The current tax treatment of the sales contemplated in options (b) and (c) is also different. See section II.6 below for a summary of the tax regime applicable to this structure in Spain. 3. Coordination with traditional dividends The Capital Increase would make it possible to apply the Santander Dividendo Elección scrip dividend scheme in lieu of one of the interim dividends for financial year 2016, it being expected, as stated, that the other two interim dividends and the final dividend with a charge to that financial year would be paid in cash. It is expected that the interim dividend in which the Santander Dividendo Elección scheme will be applied is that of November 2016, though the board of directors, or the executive committee by delegation therefrom, may decide not to apply such scheme or to apply it in lieu of another interim dividend. The board of directors, or the executive committee by delegation therefrom, may also decide not to apply the scheme to any of the interim dividends, in which case these would be paid in cash and the Increase would be ineffective pursuant to the provisions 1 The options available to the indirect shareholders of the Bank, such as participants in ADS or BDR programmes in the United States and Brazil, respectively, as holders of CDIs through the nominee services sponsored by Banco Santander in the United Kingdom or likewise, may bear certain differences due to the specific terms and conditions applicable to such programmes in which these shareholders participate. (en) propuestas de acuerdos jgo 2016 (2) 55/123

56 of section II.7 below. In this case, the board of directors could propose to apply the Santander Dividendo Elección scheme to the final dividend corresponding to financial year 2016, to which effect the board of directors would submit the corresponding capital increase resolution to the shareholders at the 2017 ordinary general shareholders meeting. 4. Amount of the Alternative Option and price of the Purchase Commitment On the date on which the interim dividend to which the Santander Dividendo Elección scrip dividend scheme applies is customarily paid, Banco Santander would offer the shareholders bonus shares whose market value would come to the amount set by the board of directors, or by the executive committee acting by delegation therefrom, subject to the limit of 750 million euros (the value that is set by the board of directors or the executive committee, the Amount of the Alternative Option ) 2. Given that, as stated above, the purpose of the Purchase Commitment is to allow the shareholders to convert the Amount of the Alternative Option into cash, and considering that in the Increase each outstanding share will grant its holder one bonus share right, the gross price per right at which the Purchase Commitment will be made would be equivalent to the amount per share of the Amount of the Alternative Option 3. The Amount of the Alternative Option and the purchase price of the bonus share rights will be determined and made public as provided in section II.3. II. MAIN TERMS AND CONDITIONS OF THE CAPITAL INCREASE The main terms and conditions of the Capital Increase are described below. 1. Amount of the Capital Increase, number of shares to be issued and number of bonus share rights needed to receive one new share The number of shares to be issued in the Capital Increase will be the result of dividing the Amount of the Alternative Option by the value of the shares of the Bank at the time the board of directors, or the executive committee by delegation therefrom, decides to carry out the Increase (i.e., the Market Price). The number so calculated will be rounded in order to obtain a whole number of shares and a ratio for conversion of rights into shares that is also whole. Additionally, for the same purposes, Banco Santander will ensure that a Santander Group company that holds Santander shares waives the necessary number of bonus share rights. Once the number of shares to be issued is established, the amount of the Capital Increase will be the result of multiplying that number by the par value of the Banco Santander shares (0.5 euro per share). Thus, the Capital Increase will be made at par value, with no share premium. Specifically, when the decision is made to carry out the Increase, the board of directors, or the executive committee by delegation therefrom, will determine the number of shares to be issued and, therefore, the amount of the Increase and the number of bonus share rights needed to receive a new share, using the following formula (rounded downwards to the nearest whole number): 2 Subject to rounding, if required, in accordance with the formulas set forth in section II.1 of this report. 3 Subject to rounding, if required, in accordance with the formulas set forth in section II.1 of this report. (en) propuestas de acuerdos jgo 2016 (2) 56/123

57 where, NNS = TNShrs / Num. rights NNS = Number of new shares to be issued; TNShrs = Number of outstanding shares of Banco Santander on the date the board of directors, or the executive committee by delegation therefrom, resolves to implement the Increase; and Num. rights = Number of bonus share rights needed for the allotment of one new share, which number will be obtained by applying the following formula, rounded up to the nearest whole number: where, Num. rights = TNShrs / Num. provisional shares Num. provisional shares = Amount of the Alternative Option / ListPri For the purposes hereof: Amount of the Alternative Option is the market value of the Increase, which shall be determined by the board of directors, or the executive committee by delegation therefrom, within the limit established in section I.4 above, based on the number of outstanding shares (i.e., TNShrs) and the remuneration paid through such time with a charge to financial year ListPri is the arithmetic mean of the average weighted prices of the Bank s shares on the Spanish Stock Exchanges in the 5 trading sessions ended prior to the resolution of the board of directors, or of the executive committee by delegation therefrom, to carry out the Capital Increase, rounded to the nearest one-thousandth of a euro and, in case of one-half of one-thousandth of a euro, rounded up to the nearest one-thousandth (amount referred to as Listing Price in this report). Example of calculation of the number of new shares to be issued, the amount of the Increase and the number of bonus share rights needed to receive a new share: Solely for the purpose of facilitating an understanding of how the formula should be applied, an example is given below. The results of these calculations are not representative of what the results will be when the Capital Increase is carried out, which results will depend on the various variables used in the formula. For the purposes of this example: - The Amount of the Alternative Option is 735,000,000 euros. - A ListPri of euros (closing price of Santander s shares on 10 February 2016) is assumed. - The TNShrs is 14,434,492,579 (number of shares of Santander outstanding on the date of this report). Therefore: (en) propuestas de acuerdos jgo 2016 (2) 57/123

58 Num. provisional shares = Amount of the Alternative Option / ListPri = 735,000,000 / = 206,809, Num. rights = TNShrs / Num. provisional shares = 14,434,492,579 / 206,809, = = 70 (rounded upwards) NNS = TNShrs / Num. rights = 14,434,492,579 / 70 = 206,207, = 206,207,036 (rounded downwards) Consequently, in this example, (i) the number of new shares to be issued in the Increase would be 206,207,036, (ii) the amount of the Increase would be 103,103, euros (206,207,036 x 0.5), and (iii) 70 bonus share rights (or old shares) would be needed to receive a new share Bonus share rights Each outstanding share of the Bank will grant its holder one bonus share right. The number of bonus share rights needed to receive a new share will be automatically determined according to the proportion between the number of new shares issued in the Increase and the number of outstanding shares, calculated in accordance with the formula set forth in section II.1 above. The holders of debentures or instruments convertible into shares of Banco Santander existing at any time shall have no bonus share rights; however, if applicable, they will be entitled to a modification of the ratio for conversion of debentures into shares (or of the minimum and/or maximum limits of such ratio, when the ratio is variable) in proportion to the amount of the Capital Increase. If the number of bonus share rights needed to receive one share (70 in the example above) multiplied by the number of new shares (206,207,036 in the same example) is lower than the number of outstanding shares (14,434,492,579), Santander, or a company of its Group, will waive a number of bonus share rights equal to the difference between the two figures (i.e. 59 rights in the above-mentioned example) for the sole purpose of having a whole number of new shares and not a fraction. The bonus share rights will be allotted to the shareholders of Banco Santander who appear as such in the book-entry registries of Sociedad de Gestión de los Sistemas de Registro, Compensación y Liquidación de Valores, S.A.U. (Iberclear) at the corresponding date in accordance with the applicable rules for clearing and settlement of securities. The bonus share rights may be traded for the term determined by the board of directors, or by the executive committee by delegation therefrom, subject to a minimum term of fifteen calendar days. 3. Commitment to Purchase bonus share rights As explained before, upon the implementation of the Increase, the Bank and/or, with the Bank s guarantee, any company of its Group, will make an irrevocable commitment to purchase the bonus share rights (the Purchase Commitment, as defined above), so that the shareholders of the Bank will be assured of the possibility of selling to the Bank, or to an entity of its Group, the bonus rights received on the record date, 4 In this example, a Santander Group company would have to waive 59 bonus share rights corresponding to 59 Santander shares owned by it, so that a whole number of shares is issued. (en) propuestas de acuerdos jgo 2016 (2) 58/123

59 receiving in return, at their choice, all or a part of the Alternative Option in cash. The Purchase Commitment will be in force and may be accepted within the trading period of the bonus share rights established by the board, or by the executive committee by delegation therefrom. The purchase price under the Purchase Commitment will be fixed and will be calculated prior to the opening of the trading period of the bonus share rights according to the following formula (in which the definitions set out in section II.1 above apply), rounded to the nearest one-thousandth of a euro and, in the event of onehalf of one-thousandth of a euro, rounded up to the nearest one-thousandth (the Purchase Price ): Purchase Price = ListPri / (Num. rights + 1). The final Purchase Price so calculated will be fixed and made public when the Increase is carried out. It is expected that Banco Santander will waive entitlement to the new shares corresponding to the bonus share rights acquired by Banco Santander under the Purchase Commitment, and the Bank s share capital will only be increased by the amount corresponding to the bonus share rights not waived. 4. Rights of the new shares The new shares to be issued in the Capital Increase will be ordinary shares with a par value of one-half (0.5) euro each, of the same class and series as those currently outstanding, represented in book-entry form, the records of which will be kept by Sociedad de Gestión de los Sistemas de Registro, Compensación y Liquidación de Valores, S.A.U. (Iberclear) and its member entities. The new shares will grant their holders the same economic, voting and related rights as those currently outstanding from the time at which the Increase is declared to have been subscribed and paid up. The new shares will be delivered fully paid-up and entirely free of charge. 5. Balance sheet and reserves to which the Capital Increase will be charged The balance sheet used for the purposes of the Capital Increase is that corresponding to 31 December 2015, which was audited by Deloitte, S.L. on 12 February 2016 and which is submitted for approval of the shareholders at the ordinary general shareholders meeting under item One A of the agenda therefor. The Capital Increase will be charged entirely to the reserves contemplated in section of the Spanish Capital Corporations Law. When the Increase is carried out, the board of directors, or the executive committee by delegation therefrom, shall determine the reserve to be used and the amount thereof in accordance with the balance sheet used for the purposes of the Increase. 6. Tax regime The tax regime applicable to shareholders in Spain will generally be as follows (without prejudice to the special provisions applicable to persons who are non-residents or who are subject to taxation in regional (foral) territories, as well as to potential future regulatory changes that may affect the applicable tax regime): The delivery of the shares issued in the Capital Increase will be considered for tax purposes as a delivery of fully paid-up bonus shares, and therefore, shall not be considered income for purposes of Personal Income Tax (Impuesto sobre la Renta de las Personas Físicas) ( IRPF ), Corporate Income Tax (Impuesto sobre Sociedades) (en) propuestas de acuerdos jgo 2016 (2) 59/123

60 ( IS ), or Non-Resident Income Tax (Impuesto sobre la Renta de no Residentes) ( IRNR ), whether or not the shareholders act through a permanent establishment in Spain. The acquisition value, both of the new shares received in the Capital Increase and of the shares from which they arise, will be the result of dividing the total cost by the applicable number of shares, both old and new. The acquisition date of the new shares will be that of the shares from which they arise. If the shareholders sell their bonus share rights on the market, the amount so obtained will be taxed as follows in 2016: For purposes of the IRPF and the IRNR without permanent establishment, the amount obtained in the sale of the bonus share rights on the market follows the same rules as those applying to pre-emptive rights. Consequently, the amount obtained in the transfer of the bonus share rights reduces the acquisition value for tax purposes of the shares giving rise to such rights, by application of section 37.1.a) of Law 35/2006, of 28 November, on IRPF 5. In this way, if the amount obtained in such transfer is higher than the acquisition value of the securities from which the rights arise, the excess amount will be treated as a capital gain for the seller in the tax period in which the transfer takes place. Taxation under the IS and the IRNR with permanent establishment in Spain, to the extent that a full business cycle has been completed, will be determined in accordance with the relevant accounting rules. In the event that the holders of the bonus share rights accept the Purchase Commitment made by the Group, the tax regime applicable to the amount obtained in the transfer to the Bank or to a subsidiary thereof of the bonus share rights held in their capacity as shareholders will be that applicable to cash dividends and, therefore, shall be subject to the corresponding tax withholding. 7. Delegation of powers and implementation of the Increase It is proposed to delegate to the board of directors, with express authority to delegate in turn to the executive committee, the power to decide the date on which the Increase to be approved by the shareholders at an ordinary general shareholders meeting will be implemented, as well as to establish the terms and conditions of the Capital Increase as to all matters not provided for by the shareholders at the general shareholders meeting, all upon the terms established in section a) of the Spanish Capital Corporations Law. Notwithstanding the foregoing, if the board of directors, after taking into account the market conditions, among other matters, does not consider it advisable to carry out the Capital Increase, it will be entitled to decide not to carry out such Increase, in which case, it shall report such decision to the shareholders at the next ordinary general 5 As stated, it is expected that the Santander Dividend Elección scrip dividend scheme will be applied in October/November If it were ultimately applied on the date of the third interim dividend (January/February 2017), the taxation of the sale of rights on the market would be different from that which is set out here. From 1 January 2017, the amount obtained in the sale of the bonus share rights on the market will be considered as a capital gain for the seller. Such capital gain will be subject to IRPF tax withholding at the corresponding taxation rate. (en) propuestas de acuerdos jgo 2016 (2) 60/123

61 shareholders meeting. The Increase shall be null and void if the board of directors does not exercise the powers delegated thereto within the one-year period established by the shareholders for implementation of the resolution. When the board of directors, or the executive committee by delegation therefrom, agrees to carry out the Increase and establish all the terms and conditions thereof not already established by the shareholders at the general shareholders meeting, the Bank will make those terms and conditions public. In particular, prior to the beginning of the bonus period, the Bank will make publicly available a document containing information on the number and nature of the shares and the reasons for the Increase, all in accordance with section 26.1.e) of Royal Decree 1310/2005, of 4 November, which partially develops the provisions of Law 24/1988 of 28 July on the Securities Markets. Upon completion of the bonus share rights trading period: (a) The new shares will be allotted to the holders of the bonus share rights in the corresponding proportion. (b) The board of directors, or the executive committee by delegation therefrom, will declare the bonus share rights trading period closed and will reflect in the Bank s accounts the application of the reserves to the Capital Increase in the required amount, thus fully paying up the new shares. Finally, the board of directors, or the executive committee by delegation therefrom, will adopt the relevant resolutions amending the Bylaws in order to reflect the new amount of share capital resulting from the Capital Increase and applying for admission to listing of the new shares. 8. Admission to listing of the new shares The Bank will apply for the admission to listing of the new shares on the Madrid, Barcelona, Bilbao and Valencia Stock Exchanges through Spain s Automated Quotation System (Mercado Continuo), and will take the necessary steps and actions before the competent authorities of the foreign Stock Exchanges on which Banco Santander s shares are traded (currently, Lisbon, London, Milan, Warsaw, Buenos Aires, Mexico and New York through American Depositary Shares (ADSs), and São Paulo through Brazilian Depositary Receipts (BDRs)) in order for the new shares issued through the Increase to be admitted to listing. III. PROPOSED RESOLUTION TO BE SUBMITTED TO THE SHAREHOLDERS AT THE GENERAL SHAREHOLDERS MEETING The full text of the Capital Increase proposal that is submitted to the shareholders at the ordinary general shareholders meeting under item Eight of the agenda is as follows: Increase in share capital with a charge to reserves 1.- Capital increase It is resolved to increase the share capital by the amount that results from multiplying (a) the par value of one-half (0.5) euro per share of Banco Santander, S.A. ( Banco Santander or the Bank ) by (b) the determinable number of new shares of Banco Santander resulting from the formula set forth under section 2 below (the New Shares ). (en) propuestas de acuerdos jgo 2016 (2) 61/123

62 The capital increase is carried out through the issuance and flotation of the New Shares, which shall be ordinary shares with a par value of one-half (0.5) euro each, of the same class and series as those currently outstanding, represented in book-entry form. The capital increase is entirely charged to reserves of the type contemplated in section of the Spanish Capital Corporations Law. The New Shares are issued at par value, i.e., for their par value of one-half (0.5) euro, with no share premium, and will be allotted free of charge to the shareholders of the Bank. Pursuant to section 311 of the Spanish Capital Corporations Law, provision is made for the possibility of less than full allotment. 2.- New Shares to be issued The number of New Shares will be obtained by applying the following formula, rounded down to the nearest whole number: where, NNS = TNShrs / Num. rights NNS = Number of New Shares to be issued; TNShrs = Number of Banco Santander shares outstanding on the date the board of directors, or the executive committee by delegation therefrom, resolves to implement the capital increase; and Num. rights = Number of bonus share rights needed for the allotment of one New Share, which number will be obtained by applying the following formula, rounded up to the nearest whole number: Num. rights = TNShrs / Num. provisional shares where, Num. provisional shares = Amount of the Alternative Option / ListPri For the purposes hereof: Amount of the Alternative Option is the market value of the capital increase, which shall be determined by the board of directors, or by the executive committee by delegation therefrom, based on the number of outstanding shares (i.e. TNShrs) and the remuneration paid to the shareholders with a charge to financial year 2016 to that date, and which shall not exceed 750 million euros. ListPri is the arithmetic mean of the average weighted prices of the Bank s shares on the Spanish Stock Exchanges in the 5 trading sessions ended prior to the resolution of the board of directors, or of the executive committee by delegation therefrom, to carry out the capital increase, rounded to the nearest one-thousandth of a euro and, in case of one-half of onethousandth of a euro, rounded up to the nearest one-thousandth. 3.- Bonus share rights Each outstanding share of the Bank will grant its holder one bonus share right. The number of bonus share rights needed to receive a New Share will be automatically determined according to the proportion existing between the number of New Shares and the (en) propuestas de acuerdos jgo 2016 (2) 62/123

63 number of outstanding shares (TNShrs). Specifically, shareholders will be entitled to receive one New Share for as many bonus share rights held by them, determined in accordance with section 2 above (Num. rights). The holders of debentures or instruments convertible into shares of Banco Santander existing at any time shall have no bonus share rights; however, if applicable, they will be entitled to a modification of the ratio for conversion of debentures into share (or of the minimum and/or maximum limits of such ratio, when the ratio is variable), in proportion to the amount of the capital increase. In the event that (i) the number of bonus share rights needed for the allotment of one share (Num. rights) multiplied by the New Shares (NNS) is lower than (ii) the number of outstanding shares (TNShrs), Banco Santander, or a company of its Group, will waive a number of bonus share rights equal to the difference between the two figures, for the sole purpose of having a whole number of New Shares and not a fraction. The bonus share rights will be allotted to the shareholders of Banco Santander who appear as such in the book-entry registries of Sociedad de Gestión de los Sistemas de Registro, Compensación y Liquidación de Valores, S.A.U. (Iberclear) at the corresponding date in accordance with the applicable rules for clearing and settlement of securities. During the bonus share rights trading period, a sufficient number of bonus share rights may be acquired on the market, in the proportion needed to subscribe for New Shares. The bonus share rights may be traded on the market for the period determined by the board of directors, or by the executive committee by delegation therefrom, subject to a minimum term of fifteen calendar days. 4.- Irrevocable commitment to acquire bonus share rights The Bank or, with the Bank s guarantee, the company of its Group that shall be determined, will make an irrevocable commitment to purchase the bonus share rights at the price specified below. The purchase commitment will be in force and may be accepted by such shareholders during the term, within the bonus share rights trading period, which will be determined by the board of directors, or by the executive committee by delegation therefrom. To this end, it is resolved to authorise the Bank, or the respective company of its Group, to acquire such bonus share rights (as well as the shares corresponding to those rights), subject to the maximum limit of the total number of rights issued and to the duty to comply in all cases with any limitations established by law. The Purchase Price of each bonus share right will be equal to the price resulting from the following formula, rounded to the nearest one-thousandth of a euro and, in the case of one-half of one-thousandth of a euro, rounded up to the nearest onethousandth: Purchase Price = ListPri / (Num. rights + 1) 5.- Balance sheet for the transaction and reserve to which the increase will be charged The balance sheet used for purposes of this capital increase is the balance sheet as of 31 December 2015, duly audited and approved by the shareholders at this ordinary general shareholders meeting. As mentioned above, the capital increase will be charged in its entirety to reserves of the type contemplated in section of the Spanish Capital Corporations Law. Upon implementation of the increase, the board of directors or, by delegation therefrom, the executive committee, will determine the reserve to be used and the amount thereof in accordance with the balance sheet used for the transaction. (en) propuestas de acuerdos jgo 2016 (2) 63/123

64 6.- Representation of the new shares The shares to be issued will be represented in book-entry form and the relevant records shall be kept by Sociedad de Gestión de los Sistemas de Registro, Compensación y Liquidación de Valores, S.A.U. (Iberclear) and its member entities. 7.- Rights of the new shares The new shares will confer the same economic, voting and related rights upon their holders as the currently outstanding ordinary shares of Banco Santander as from the time at which the capital increase is declared to have been subscribed and paid up. 8.- Shares on deposit Once the bonus share rights trading period has ended, the New Shares that it has not been possible to allot for reasons not attributable to Banco Santander will be held on deposit and will be available to those who evidence lawful ownership of the respective bonus share rights. Three years after the date of conclusion of the bonus share rights trading period, the shares that have still to be allotted may be sold as provided in section 117 of the Spanish Capital Corporations Law, for the account and at the risk of the interested parties. The net proceeds from the sale will be deposited with Bank of Spain or with the General Deposit Bank (Caja General de Depósitos) and will be at the disposal of the interested parties. 9.- Application for admission to listing It is resolved to apply for the listing of the New Shares on the Madrid, Barcelona, Bilbao and Valencia Stock Exchanges through Spain s Automated Quotation System (Mercado Continuo), as well as to take the steps and actions that may be necessary and file the required documents with the competent authorities of the foreign Stock Exchanges on which Banco Santander shares are traded (currently, Lisbon, London, Milan, Warsaw, Buenos Aires, Mexico and New York through American Depositary Shares (ADSs), and São Paulo through Brazilian Depositary Receipts (BDRs)), for the New Shares issued under this capital increase to be admitted to listing, expressly stating Banco Santander s submission to such rules as may now be in force or hereafter be issued on stock exchange matters and, especially, on trading, continued listing and delisting. It is expressly stated for the record that, if the delisting of the Banco Santander shares is subsequently requested, the delisting resolution will be adopted with the same formalities that may be applicable and, in such event, the interests of shareholders opposing or not voting on the delisting resolution will be safeguarded in compliance with the requirements established in the Spanish Capital Corporations Law and related provisions, all in accordance with the provisions of the restated text of the Securities Market Law and its implementing provisions in force at any time Implementation of the capital increase Within one year of the date of this resolution, the board of directors, or the executive committee by delegation therefrom, may resolve to carry out the capital increase and to set the conditions therefor as to all matters not provided for in this resolution. However, if the board of directors does not consider it advisable to carry out the capital increase, it may decide not to do so and shall report such decision to the shareholders at the first ordinary general shareholders meeting held thereafter. In particular, in deciding to implement the increase, the board of directors or, by delegation therefrom, the executive committee, will analyse and take into account market conditions, among other issues, and in the case that such conditions or other elements mean it is not advisable in the view of the board to implement the increase, it (en) propuestas de acuerdos jgo 2016 (2) 64/123

65 may decide not to do so, reporting such decision to the shareholders at the ordinary general shareholders meeting on the aforementioned terms. The capital increase to which this resolution refers shall be null and void if the board of directors does not exercise the powers delegated thereto within the one-year period set by the shareholders at the general shareholders meeting for implementation of the resolution. Upon conclusion of the bonus share rights trading period: (a) (b) The New Shares will be allotted to those who, in accordance with the book-entry registry of Iberclear and its member entities, are holders of bonus share rights in the proportion resulting from section 3 above. The board of directors, or the executive committee by delegation therefrom, will declare the bonus share rights trading period closed and will reflect in the Bank s accounts the application of reserves in the amount of the capital increase, which increase will thus be fully paid up. Likewise, upon conclusion of the bonus share rights trading period, the board of directors, or the executive committee by delegation therefrom, will adopt the relevant resolutions amending the Bylaws in order to reflect the new amount of share capital resulting from the capital increase and applying for admission to listing of the new shares on the Spanish and foreign Stock Exchanges on which the shares of the Bank are listed Delegation for purposes of implementation Pursuant to the provisions of section 297.1a) of the Spanish Capital Corporations Law, it is resolved to delegate to the board of directors, with express authority to delegate, in turn, to the executive committee, the power to establish the terms and conditions of the capital increase as to all matters not provided for in this resolution. Specifically, and for illustrative purposes only, the following powers are delegated to the board of directors, with express authority to, in turn, delegate them to the executive committee: 1.- To determine, within one year as from approval thereof, the date on which the resolution so adopted to increase the share capital is to be implemented, and to set the Amount of the Alternative Option, the reserves out of which the capital increase is to be made from among those provided for in the resolution, the record date for the allotment of the bonus share rights and the duration of the bonus share rights trading period, as well as carrying out such operating adjustments, if applicable, that are necessary with relation to the provisions of this resolution as a consequence of the entry into force of the new regime for clearing and settlement of securities. 2.- To determine the exact amount of the capital increase, the number of New Shares and the bonus share rights needed for the allotment of New Shares in accordance with the rules established by the shareholders at this general shareholders meeting. 3.- To declare the capital increase to be closed and implemented. 4.- To amend sections 1 and 2 of article 5 of Banco Santander s Bylaws regarding share capital to conform it to the result of the implementation of the capital increase. 5.- To waive the right to the New Shares corresponding to the bonus share rights acquired by the Bank or by the respective company of its Group under the purchase commitment. 6.- To carry out all formalities that may be necessary to have the New Shares issued in the capital increase registered in the book-entry registry of Iberclear and admitted to listing on the domestic and foreign Stock Exchanges on which the shares of the Bank are (en) propuestas de acuerdos jgo 2016 (2) 65/123

66 listed, in accordance with the applicable procedures established at each of such Stock Exchanges. 7.- To take such actions as may be necessary or appropriate to implement and formalise the capital increase before any public or private, Spanish or foreign authorities or agencies, including actions for purposes of statement, supplementation or correction of defects or omissions that might prevent or hinder the full effectiveness of the preceding resolutions. In consideration of the foregoing, the shareholders are requested to approve the proposal submitted by the board of directors. (en) propuestas de acuerdos jgo 2016 (2) 66/123

67 Item Nine Proposal: Delegation to the board of directors of the power to issue nonconvertible fixed-income securities, preferred interests or debt instruments of a similar nature (including certificates, promissory notes and warrants), rescinding to the extent of the unused amount the delegations in force conferred by the shareholders acting at previous ordinary general shareholders meetings in such respect. I. To rescind, to the extent of the unused amount: - resolution Ten B approved at the ordinary general shareholders meeting of 27 March 2015, - resolution Eleven B approved at the ordinary general shareholders meeting of 28 March 2014, - resolution Twelve B approved at the ordinary general shareholders meeting of 22 March 2013, - resolution Ten B approved at the ordinary general shareholders meeting of 30 March 2012, and - resolution Nine B approved at the ordinary general shareholders meeting of 17 June II. To delegate to the board of directors, in accordance with the general regulations on the issuance of debentures and pursuant to the provisions of section 319 of the Regulations of the Commercial Registry, the power to issue, on one or more occasions, up to an amount of 50,000 million euros or its equivalent in another currency, in fixed-income securities, in any of the forms admitted under law and including bonds, certificates, promissory notes, debentures and preferred interests or other debt instruments of a similar nature (including warrants, settled through physical delivery or on a net basis). The board of directors may implement this power within a period of five years from the date of approval of the resolution by the shareholders at the general shareholders meeting, at the end of which period it will be rescinded, to the extent of the unused amount, due to expiration. In the exercise of the delegated powers granted herein, and by way of example and not of limitation, the board of directors shall be responsible for determining the amount of each issuance, always within the stated overall quantitative limit; the place of issuance domestic or foreign and the currency and, if it is foreign, the equivalent thereof in euros; the denomination, whether bonds (bonos), debentures (obligaciones), preferred interests (participaciones preferentes) or any other denomination permitted by law including those that are subordinated, if any, among those contemplated in articles 52 or 63 of (EU) Regulation No. 575/2013 of the European Parliament and of the Council, of 26 June 2013, regarding prudential requirements for credit institutions and investment companies ; the issuance date(s); the possibility of their being exchangeable, in whole or in part, for outstanding shares or other securities of other entities and, if exchangeable, whether mandatorily or voluntarily so, and in the latter case, whether at the option of the holder of the securities or the issuer or of including a call option on such shares; the interest rate, dates, and procedures for payment of the coupon; whether they are to be callable or not and, in the former case, the redemption period and events of redemption (in whole or in part); whether they are to be with or without a maturity date and, in the former case, the maturity date; the (en) propuestas de acuerdos jgo 2016 (2) 67/123

68 type of repayment, premiums and tranches; guarantees, including mortgages; form of representation, whether certificated or as book entries; the number of securities and the nominal value thereof; subscription procedure; applicable law, whether domestic or foreign; the application, if any, for admission to trading on official or unofficial, organised or unorganised, domestic or foreign secondary markets of the securities that are issued in compliance with the requirements in each case established by applicable laws and regulations; and, in general, any other condition applicable to the issuance, and, if applicable, appointing the Examiner (Comisario) and approving the basic rules that are to govern the legal relations between the Bank and the syndicate, if any and allowed, of holders of the securities that are issued. The delegation also includes the grant to the board of directors of the power, in each case, to decide the conditions for repayment of the fixed-income securities issued in reliance on this authorisation, including the power of the board to use, to the extent applicable, the means of withdrawal referred to in section 430 of the Spanish Capital Corporations Law or any other means that may be appropriate. In addition, the board of directors is authorised, whenever it deems appropriate, and subject to the necessary official authorisations being obtained as well as, if required, the approval of the Meetings of the respective syndicates or bodies representing the holders of the securities, to modify the conditions for repayment of the fixedincome securities issued and the maturity thereof, as well as the interest rate, if any, of those included in each of the issuances made pursuant to this authorisation. As to limits on the delegation, the aforementioned amount of 50,000 million euros is the maximum overall limit that may be reached at any time by the outstanding nominal balance of the promissory notes or similar securities issued, added to the nominal amount issued of other securities also issued under this authorisation granted to the board of directors. In the case of warrants, the sum of the premiums and exercise prices of the warrants from each issuance approved in accordance with this delegation shall be taken into account for the calculation of the above-mentioned limit. The board of directors is hereby authorised to delegate in turn to the executive committee those powers conferred pursuant to this resolution that may be delegated. (en) propuestas de acuerdos jgo 2016 (2) 68/123

69 Item Ten Director remuneration policy. REASONED PROPOSAL SUBMITTED BY THE BOARD OF DIRECTORS OF BANCO SANTANDER, S.A. REGARDING ITEM TEN OF THE AGENDA FOR THE GENERAL SHAREHOLDERS MEETING CALLED TO BE HELD ON 17 MARCH 2016, ON FIRST CALL, AND ON 18 MARCH 2016, ON SECOND CALL Under item Ten of the agenda, the remuneration policy for the directors of Banco Santander, S.A. (the Bank or the Company ), formulated as provided by section 529 novodecies of the Spanish Capital Corporations Law (Ley de Sociedades de Capital) (the Remuneration Policy ), is submitted to the shareholders for approval at the general shareholders meeting. The board has decided to submit to the shareholders at the general shareholders meeting the text attached as an Exhibit to this reasoned proposal and which stems from the report and proposal received from the remuneration committee, which report and proposal the board adopts as its own as to all the terms thereof. Although the aforementioned section 529 novodecies would allow the approval of a policy until 2019, the period covered by the Remuneration Policy only includes financial years 2016, with respect to which the policy approved at the last general shareholders meeting is completed and updated, 2017 and Consequently, the board shall propose to the shareholders at the ordinary general shareholders meeting the approval of a new remuneration policy no later than financial year The remuneration of the directors in their capacity as such included in the Remuneration Policy is consistent with the remuneration system contemplated in article 58 of the Bylaws and article 28 of the rules and regulations of the board and with the proposed establishment of the maximum amount of such remuneration submitted to the shareholders at the general shareholders meeting under item Eleven of the agenda. In addition, the remuneration for performance of executive duties that is also described in the Remuneration Policy complies with the requirements provided by the Spanish Capital Corporations Law and with the principles and rules set forth in the Company s Bylaws and rules and regulations of the board, as well as with such existing provisions as are especially applicable to the directors of the Company because of the status thereof as a credit institution (primarily, Law 10/2014 of 26 June on organisation, supervision and solvency of credit institutions, which transposes in Spain the content of Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, and related provisions). With respect to the variable components of remuneration for the discharge of executive duties, and as described in more detail in the report of the remuneration committee, some changes are made to the policy approved at the last general shareholders meeting, which would be applicable from this financial year The changes are intended to: (i) simplify the structure of the variable components of remuneration, including within a single component (described as the Award ) the bonus and the long-term incentive established for executive directors in the previous policy; (ii) improve the ex ante risk adjustment of the variable remuneration, using a single group of annual quantitative and qualitative metrics that allow appropriate decisions within the appropriate risk framework to be compensated and (en) propuestas de acuerdos jgo 2016 (2) 69/123

70 strengthen the alignment of the variable remuneration with the long-term interests and objectives of the Bank; and (iii) increase the impact of the long-term elements and the multiyear performance measures and combine more effectively the short-term and long-term objectives (since fulfilment of short-term objectives will determine the maximum amount of the long-term amount and such amount may only be reduced, but not increased) 1. At the proposal of the remuneration committee, the board of directors has also approved a corporate share ownership policy in this financial year, applicable to the executive directors of the Company (as well as other senior management of the Group), which will require the executive directors, after a phase-in period, to maintain ownership of a volume of shares equal to twice the amount of their fixed remuneration, under the terms provided for in recommendation 62 of the Good Governance Code of Listed Companies. The board believes that the Remuneration Policy proposed for approval is reasonably in proportion to the importance of the Company, is in line with the financial situation thereof and is consistent with market standards at comparable companies. Furthermore, the factors that affect the various components of remuneration for the performance of executive duties are compatible with an appropriate and effective management of risks, without offering the executive directors incentives to assume risks that exceed the level tolerated by the Company, which is also consistent with the Company s strategy, objectives, values and interests over the long term. 1 In addition to the description included in the attached Remuneration Policy, the directors report regarding item Thirteen of the agenda, in which it is proposed to approve the delivery of shares in application of the new Award system (item Thirteen A in the case of executive directors), also contains a description of the changes with regard to the variable remuneration of executive directors. (en) propuestas de acuerdos jgo 2016 (2) 70/123

71 EXHIBIT DIRECTOR REMUNERATION POLICY FOR FINANCIAL YEARS 2016, 2017 AND 2018 (A) (i) (a) INTRODUCTION Principles of the remuneration policy Remuneration of directors in their capacity as such Remuneration of directors in their capacity as such will be based on the positions held by the directors on the collective decision-making body, membership on and attendance at the various committees, and any other objective circumstances that the board may take into account. (b) Remuneration of executive directors The principles of the remuneration policy for the performance of executive duties are as follows: (ii) Remuneration must be compatible with rigorous risk management, without favouring an inappropriate assumption thereof, and must be in line with the interests of the shareholders, fostering the longterm creation of value. Fixed remuneration must represent a significant proportion of total compensation. Variable remuneration must compensate directors performance in achieving the Group s objectives. The overall remuneration package and the structure thereof must be competitive, facilitating the attraction, retention, and appropriate remuneration of the directors. System for the remuneration of directors in their capacity as such The director remuneration system is regulated by article 58 of the Bylaws of Banco Santander and article 28 of the Rules and Regulations of the Board. Pursuant to such system, the remuneration of the directors in their capacity as such will consist of a fixed annual amount determined by the shareholders, which shall remain in effect until the shareholders resolve to amend it, though the board may reduce its amount in the years it considers such reduction appropriate. This remuneration will have two components: (a) annual allotment and (b) attendance fees. The specific amount payable for the above-mentioned items to each of the directors and the form of payment shall be determined by the board of directors. For such purpose, it shall take into consideration the positions held by each director on the board itself, membership on the various committees and attendance at committee meetings and any other objective criteria. In addition, the company will obtain a civil liability insurance policy for its directors upon customary terms that are proportionate to the circumstances of the company, and the directors may be entitled to receive compensation by means of the delivery of shares or option rights thereon, or by any other compensation system tied to the value of shares, provided the application of such compensation systems is previously approved by the shareholders at the general shareholders meeting. (en) propuestas de acuerdos jgo 2016 (2) 71/123

72 Independently of the directors right to receive remuneration in their capacity as such, they are also entitled to receive other compensation (salaries, incentives, bonuses, pensions, insurance and severance payments) as, following a proposal made by the remuneration committee and upon resolution by the board of directors, may be deemed appropriate in consideration for the performance of other duties in the company, whether they are the duties of an executive director or otherwise, other than the supervisory and collective decision-making duties that they discharge in their capacity as members of the board. (iii) Remuneration of executive directors For the performance of executive duties, executive directors shall be entitled to receive remuneration (including, if applicable, salaries, incentives, bonuses, possible severance payments for early termination from such duties, and amounts to be paid by the company for insurance premiums or contributions to savings schemes) which, following a proposal from the remuneration committee and by resolution of the board of directors, is deemed to be appropriate, subject to the limits of applicable law. (B) REMUNERATION OF DIRECTORS FOR Remuneration of directors in their capacity as such In 2016, the directors, in their capacity as such, shall continue to receive remuneration for the performance of supervisory and collective decision-making duties for a collective amount of up to EUR 6 million as authorised by the shareholders at the 2015 annual general shareholders meeting (and again subject to approval by the shareholders at the 2016 general shareholders meeting), with two components: (i) (ii) annual allotment; and attendance fees. The specific amount payable for the above-mentioned items to each of the directors and the form of payment thereof shall be determined by the board of directors under the terms set forth in section (A)(ii) above. In addition, as stated in the description of the director remuneration system, in 2016 the company will pay the premium for the civil liability insurance for its directors, obtained upon customary market terms and proportional to the circumstances of the company. (en) propuestas de acuerdos jgo 2016 (2) 72/123

73 2. Remuneration of directors for the performance of executive duties 2.1 Fixed components of remuneration Gross annual salary At the proposal of the committee, the board approved the following amounts as gross annual salary for executive directors in 2016: Thousands of euros Var (%) Ms Ana Botín-Sanz de Sautuola y O Shea 2,500 2,500 0% Mr José Antonio Álvarez Álvarez 1 2,000 2,000 0% Mr Rodrigo Echenique Gordillo 2 1,500 1,500 0% Mr Matías Rodríguez Inciarte 1,710 1,710 0% 1. At its meeting of 25 November 2014, the board of directors appointed Mr José Antonio Álvarez Álvarez as chief executive officer to replace Mr Javier Marín Romano. Mr José Antonio Álvarez Álvarez took office as director on 13 January 2015, with Mr Javier Marín Romano withdrawing from the position effective 12 January Executive director since 16 January Other fixed components of remuneration (i) Benefits systems: defined contribution plans (see section D below) 2. (ii) Company benefits: executive directors will also receive certain company benefits such as life insurance premiums, medical insurance, company vouchers and, as the case may be, allocating earnings from loans granted under employee conditions in accordance with the normal policy established by the Bank for senior management. Information in addition to this project is included in section D) below. 2.2 Variable components of remuneration The variable remuneration policy 3 for executive directors for 2016, which was approved by the board at the proposal of the remuneration committee, is based on the principles of the remuneration policy described in section A above. The variable remuneration4 of the executive directors is combined in one single amount, that of the previous bonus and LTI, thereby simplifying its structure and aligning it with the company s long-term sustainability and the interests of its shareholders. It consists of a single incentive linked to the achievement of short and long term objectives, structured as follows: The final amount of the incentive will be determined at the start of the following year (2017) based on the benchmark amount and subject to compliance with the short term objectives described in section (ii) below. 2 As stated in section D below, contributions to the benefits systems for some executive directors include both fixed components and variable components. 3 As shown in section D below, the contribution to pension systems for two executive directors includes both fixed and variable components, which are part of the total variable remuneration. (en) propuestas de acuerdos jgo 2016 (2) 73/123

74 40% of the resulting incentive shall be paid immediately and the remaining 60% shall be deferred in equal parts over five years, as follows: o The payment of the amount deferred over the first two years, payable in the two following years, 2018 and 2019, shall be conditional upon none of the malus clauses described in section (v) being triggered. o The amount deferred over the next three years (36% of the total), payable in 2020, 2021 and 2022, shall be conditional not only upon the aforementioned malus clauses not being triggered but also upon the achievement of the long term objectives described in section (iv) (deferred incentive subject to long-term performance objectives). The structure of the new incentive can be illustrated as follows (incentive for 2016): The variable components of executive directors total remuneration for 2016 must not exceed a limit of 200% of the fixed components, which must be authorised at the general shareholders meeting. (i) Benchmark incentive 2016 variable remuneration for executive directors shall be determined based on a standard benchmark bonus conditional on compliance with 100% of the established targets. The benchmark for 2016 has been set aggregating the following components: The 2015 benchmark incentive. The long-term benchmark incentive for 2015 (20% of the previous amount). At the proposal of the committee, the board of directors has factored in the following: The variable remuneration structure has been simplified by combining the bonus and LTI in a single incentive. A higher weighting is given to long-term objectives in total variable remuneration, as these will represent up to 36% of the new incentive. More efficient combination of the short and long term objectives as meeting the short term objectives will determine the maximum long-term amount and this may only be reduced, never increased. (en) propuestas de acuerdos jgo 2016 (2) 74/123

75 (ii) Setting the final incentive based on results for the year Based on the scheme described, 2016 variable remuneration for executive directors shall be set on the basis of the following key factors: A group of short term quantitative metrics measured against annual objectives. A qualitative assessment supported by accredited evidence which cannot adjust the quantitative result by more than 25% upwards or downwards. An exceptional adjustment that must be supported by substantiated evidence and that may result in amendments deriving from deficiencies in control and/or risks, negative assessments from supervisors or unexpected material events. (en) propuestas de acuerdos jgo 2016 (2) 75/123

76 Profitability (50%) Shareholders (70%) Capital (10%) Risks (10%) This document is a translation of an original text in Spanish. In case of any discrepancy between both texts, the The quantitative metrics, qualitative assessment factors and weightings are as follows: Category & weight Quantitative metrics Qualitative assessment Customers (15%) Customer satisfaction rankings Number of loyal customers Number of digital customers Employees (10%) Results of commitment survey Society (5%) Santander Universities programme Non-Performing Loans Cost of lending ratio Target capital ratio Risk Weighted Assets (RWA) cap Net ordinary profit (NOP) 4 RoRWA: return on risk weighted assets) Effective development of the franchise Compliance with adequate sales and loyalty conduct Evidence of a strong Simple, Personal & Fair culture Support for the society of the future Effective risk appetite management Reinforcing culture and risk control Operational risk management Progress towards risk management Pillar II Management of regulatory changes affecting capital Effective capital management in business decisions Progress in the capital plan to achieving Pillar III objectives Growth compared to the prior year allowing for market environment and competitors Sustainable profits and capital management Cost management Effective capital allocation Lastly, and as additional conditions, in determining the incentive, it will be verified whether or not the following circumstances occurred: If the Group s NOP for 2016 is less than 50% of the NOP for 2015, the incentive would in no case exceed 50% of the benchmark incentive for If the Group s NOP is negative, the incentive would be zero. 4 For this purpose, NOP is net ordinary attributable profit, adjusted up or down for transactions whose impact the board of directors deems to be unrelated to the performance of the executives evaluated, considering to this end any extraordinary capital gains, corporate transactions, special write-offs and accounting or legal adjustments that may take place over the course of the year. (en) propuestas de acuerdos jgo 2016 (2) 76/123

77 (iii) Form of payment of the incentive The variable remuneration is paid 50% in cash and 50% in shares, part in 2017 and the deferred portion over five years and subject to long-term metrics, as follows: (a) (b) (iv) 40% of the incentive is paid in 2017 net of taxes, half in cash and half in shares. 60% is paid, if applicable, in equal parts in 2018, 2019, 2020, 2021 and 2022 net of taxes, half in cash and half in shares, subject to the conditions stipulated in section (v) below. The last three payments shall also be conditional on the long-term objectives described in section (iv) below. The portion paid in shares may not be sold until one year has elapsed from delivery thereof. Deferred performance-based incentive As mentioned, the amounts deferred in 2020, 2021 and 2022 shall be conditional upon, in addition to the terms described in section (v), compliance with the Group s long-term objectives for The long-term metrics, which may only reduce the deferred amounts, and number of deferred shares are as follows: (a) Compliance with Banco Santander s consolidated EPS per share growth target in 2018 vs The EPS ratio relating to this target is shown in the table below: EPS growth 2018 (% vs 2015) EPS ratio 25% 1 0% but < 25% 0 1 (*) < 0% 0 * Straight-line increase in the EPS Ratio based on the specific growth percentage of 2018 EPS growth with respect to 2015 EPS within this bracket of the scale. (b) Relative performance of the total shareholder return ( TSR ) of the Bank in compared to the weighted TSRs of a peer group comprising 35 credit institutions (the Peer Group ), applying the appropriate TSR ratio according to the Bank s TSR within the Peer Group. Ranking of Santander s TSR TSR ratio Above the 66th percentile 1 Between the 33rd and 66th percentile 0-1 * Lower than the 33rd percentile 0 * Proportional increase in the TRS ratio according to the number of positions moved up in the ranking within this line of the scale. TSR 5 measures the return on investment for shareholders as a sum of the change in share price plus dividends and other similar items (including the Santander Scrip Dividend programme) that shareholders may receive during the period in question. 5 TSR is the difference (expressed as a percentage) between the end value of an investment in ordinary shares of Banco Santander and the initial value of the same investment, factoring in to the calculation of the final (en) propuestas de acuerdos jgo 2016 (2) 77/123

78 The Peer Group will consist of the following entities: BBVA, CaixaBank, Bankia, Popular, Sabadell, BCP, BPI, HSBC, RBS, Barclays, Lloyds, BNP Paribas, Crédit Agricole, Deutsche Bank, Société Générale, Nordea, Intesa San Paolo, Unicredit, Itaú, Bradesco, Banco do Brasil, Banorte, Banco de Chile, M&T Bank Corp, Keycorp, Fifth Third Bancorp, BB&T Corp., Citizens, Crédit Acceptance Corp., Ally Financial Inc., PKO, PEKAO, Millenium, ING Poland and mbank. (c) Compliance with the common equity tier 1 ("CET1") fully loaded ratio set for 2018 (higher than 11% at 31 December 2018). If this objective is met, a CET1 ratio of 1 shall be assigned to this metric, otherwise the CET1 ratio will be 0. To verify compliance with this objective, possible increases in CET1 resulting from capital increases shall be disregarded (with the exception of those related to the Santander Scrip Dividend programme). Further, the CET1 ratio at 31 December 2018 could be adjusted to strip out the impact of any regulatory changes affecting its calculation implemented until that date. (d) Compliance with Grupo Santander s underlying return on risk-weighted assets ( RoRWA ) growth target for 2018 measured against The RoRWA ratio shall be obtained based on the following table: RoRWA growth in 2018 vs 2015 RoRWA ratio 20% 1 10% but < 20% * < 10% 0 * Straight-line increase in the RoRWA ratio according to the specific growth percentage of 2018 RoRWA with respect to 2015 RoRWA within this line of the scale. To determine the annual amount of the deferred incentive tied to performance, corresponding, if applicable to each executive director in 2020, 2021 and 2022 (each of these payments a Final Annuity ) and without prejudice to any adjustment deriving from the malus clauses, the following formula shall be applied: where, Final annuity = Amt. x (0.25 x A x B x C x D) Amt. is one third of the incentive amount deferred conditional on performance (i.e. Amt. will be 12% of the total incentive set in early 2017). A is the EPS ratio thrown up by the scale in section (a) above, according EPS growth in 2018 vs value the dividends or other similar instruments (such as the Santander Scrip Dividend Programme) received by the shareholder in relation to this investment during the corresponding period of time as if an investment had been made in more shares of the same type at the first date on which the dividend or similar concept was payable to shareholders and the weighted average share price at that date. To calculate TSR, the average weighted daily volume of the average weighted listing prices for the fifteen trading sessions prior to 1 January 2016 (exclusive) is taken into consideration (to calculate the initial value) and that of the fifteen trading sessions prior to 1 January 2019 (exclusive) (to calculate the final value). (en) propuestas de acuerdos jgo 2016 (2) 78/123

79 (v) (a) B is the TSR ratio thrown up the scale in section (b) above according to the relative performance of TSR in vs the peer group. C is the CET1 ratio according to compliance with the CET1 target ratio described in section (c) above. D is the RoRWA ratio deriving from the scale in section (d) above according to the level of RoRWA growth in 2018 vs Other incentive terms Continuity and applicable malus clauses In addition to the continuity of the beneficiary within the Group 6, the accrual of the deferred remuneration (performance-linked or otherwise) is conditional upon none of the following circumstances arising, in the opinion of the board of directors, at the proposal of the remuneration committee, during the period before each delivery under the terms of the Group s malus policy. 1. Poor financial performance of the Group; 2. Violation by the beneficiary of internal regulations, particularly those relating to risks; 3. Material restatement of the Group s financial statements, when so considered by the external auditors, except when appropriate pursuant to a change in accounting standards; or 4. Significant changes in the financial capital or risk profile of the Group. The board of directors, at the proposal of the remuneration committee and based on the level of achievement of such conditions, will determine the specific amount of the deferred portion of the incentive. 6 When the relationship with Banco Santander or another entity of Grupo Santander is terminated due to retirement, early retirement or pre-retirement of the beneficiary, a dismissal considered by the courts to be improper, unilateral withdrawal for good cause by an employee (which includes, in any case, the situations set forth in article 10.3 of Royal Decree 1382/1985, of 1 August, governing the special relationship of senior management, for the persons subject to these rules), permanent disability or death, or as a result of an employer other than Banco Santander ceasing to belong to Grupo Santander, as well as in those cases of mandatory redundancy, the right to receive theincentive shall remain under the same conditions in force as if none of such circumstances had occurred. In the case of death, the right shall pass to the successors of the beneficiary. In cases of justified temporary leave due to temporary disability, suspension of the contract due to maternity or paternity leave, or leave to care for children or a relative, there shall be no change in the rights of the beneficiary. If the beneficiary goes to another company of Grupo Santander (including through international assignment and/or expatriation), there shall be no change in the rights thereof. If the relationship terminates by mutual agreement or because the beneficiary obtains a leave not referred to in any of the preceding paragraphs, the terms of the termination or temporary leave agreement shall apply. None of the above circumstances shall give the right to receive the deferred amount of the incentive in advance. If the beneficiary or the successors thereof maintain the right to receive the deferred amount of the incentive, it shall be delivered within the periods and under the terms provided in the rules for the plans. (en) propuestas de acuerdos jgo 2016 (2) 79/123

80 (b) Other rules applicable to the incentive The hedging of Santander shares received during the retention and deferral periods is expressly prohibited. The sale of shares is also prohibited for one year from the receipt thereof. 2.3 Holding shares Following a proposal submitted by the remuneration committee, the board of directors approved a share holding policy aimed at strengthening the alignment of executive directors with shareholders long-term interests. According to this policy, each executive director active on 1 January 2016 shall have five years in which to demonstrate that his/her personal assets include an investment in the Bank s shares equivalent to twice the net tax amount of his/her gross annual salary at the same date. If an executive director is appointed after that date, the five year term shall commence on his/her joining date. Once this level of investment has been obtained, it must be maintained while the executive director continues to perform this function. The share holding policy also reflects the executive directors commitment to maintaining a significant personal investment in the Bank s shares while they are actively performing their duties within the Group. (C) REMUNERATION OF DIRECTORS FOR 2017 AND Remuneration of directors in their capacity as such In 2017 and 2018, the directors, in their capacity as such, shall receive remuneration for the performance of supervisory and collective decision-making duties for a collective amount of up to EUR 6 million as authorised by the shareholders at the 2015 annual general shareholders meeting (and again subject to approval by the shareholders at the 2016 general shareholders meeting), unless the shareholders approve a higher amount. According to the remuneration system, the components of the remuneration shall be: (a) (b) Annual allotment; and Attendance fees. The specific amount corresponding to the above items for each of the directors and the form of payment will be determined by the board of directors, which will take into account, respectively, (a) the duties performed by each director within their own decision-making body and their membership on various board committees, (b) attendance at meetings of the board and, if applicable, of the committees to which the director belongs, and (c) any other objective criteria. In addition, in 2017 and 2018 the company will pay the premium for the civil liability insurance for its directors, obtained upon customary market terms and proportional to the circumstances of the company. Independently of the directors right to receive remuneration in their capacity as such, they are also entitled to receive other compensation (salaries, incentives, bonuses, pensions, insurance and severance payments) as, following a proposal made by the remuneration committee and upon resolution by the board of directors, may be deemed appropriate in consideration for the performance of other duties in the company, whether they are the duties of an executive director or otherwise, other than the supervisory and collective decision- making duties that they discharge in their capacity as directors. (en) propuestas de acuerdos jgo 2016 (2) 80/123

81 2. Remuneration of directors for the performance of executive duties Remuneration of executive directors shall conform to principles similar to those applied in 2016, as described below. 2.1 Fixed components of remuneration Gross annual salary The gross annual salary for executive directors shall be the amount established by the board, at the proposal of the remuneration committee, that is consistent with the level of responsibility within the Bank such that it favours the retention of key professionals and attracts the best talent and such that the amount represents a significant proportion of their total compensation. The annual gross fixed remuneration may be revised each year depending on the criteria approved at each moment by the remuneration committee. The maximum increase for the 2017 and 2018 fiscal years for each executive director may not exceed 3% of his or her annual gross salary for the 2016 or 2017 fiscal year, as the case may be. Nonetheless, this increase may be higher for one or several directors provided that, when applying the rules or requirements or supervisory recommendations that may be applicable and if so proposed by the remuneration committee, it is appropriate to adjust their remuneration mix and, particularly, their variable remuneration in view of the functions they perform, without these increases possibly leading to an increase in the total remuneration of the mentioned directors for this reason. In the event this circumstance occurs, it will be described in the corresponding remuneration committee report and in the annual report on board member remuneration that is put to an advisory vote each year at the general shareholders meeting Other fixed components of remuneration (i) (ii) Benefits systems: defined contribution plans (see section D below). Social welfare benefits: Executive directors will also receive certain social welfare benefits such as life insurance premiums, medical insurance, company store vouchers and, if applicable, the allocation of remuneration for employee loans, all on market terms. 2.2 Variable components of remuneration The variable remuneration policy for executive directors for 2017 and 2018 shall be based on principles similar to those of 2016, as described below: Variable remuneration executive directors include an incentive to be received partly in cash and partly in shares, while deferring collection of a portion thereof for at least five years; and a portion of the deferred incentive conditional upon meeting the longterm objectives that may only reduce its amount 7. Variable remuneration limits. The variable components of executive directors total remuneration for 2017 and 2018 must not exceed a limit of 200% of the fixed components. 7 As shown in section D below, the contribution to pension systems for two executive directors includes both fixed and variable components, which are part of the total variable remuneration. (en) propuestas de acuerdos jgo 2016 (2) 81/123

82 (i) Setting the incentive The 2017 and 2018 variable remuneration for executive directors shall be determined based on a benchmark incentive approved for each year which takes into account: A group of short term quantitative metrics measured against annual objectives. These metrics will be aligned with the Group strategic plan and include shareholder return targets, risk objectives, capital, customers and employees. The metrics may be measured at Group level, and, where applicable, at division level if the executive director is responsible for managing a specific business division. The results of each metric may be compared to both the budget established for the financial year as well as to growth compared to the prior year. A qualitative assessment supported by accredited evidence which cannot adjust the quantitative result by more than 25% upwards or downwards. The qualitative assessment shall be performed on the same categories as the quantitative metrics, including shareholder returns, risk and capital management, customers and employees. Potential exceptional adjustments that must be supported by clear evidence and that may result in amendments deriving from deficiencies in control and/or risks, negative assessments from supervisors or unexpected material events. The quantitative metrics, qualitative assessment and potential extraordinary adjustments will ensure that the main objectives are considered from the perspective of different stakeholders, a suitable balance between quantitative metrics and qualitative assessment, and that the importance of risk and capital management is factored in. Additionally, in determining the incentive it will be verified whether or not the following circumstances have occurred: (ii) If the quantitative metrics linked to profit do not reach a certain compliance threshold, the incentive may not be greater than 50% of the benchmark incentive for the corresponding year. If the results of the metrics linked to profit are negative, the incentive shall be zero. Form of payment of the incentive (1) For the 2017 incentive A minimum of 50% of the incentive shall be paid in shares and the remaining amount in cash, part in 2018 and a part deferred for at least five years, as follows: 40% of the incentive will be paid in % of the incentive will be paid in 2019, 2020, 2021, 2022 and 2023, in equal parts and the three last years shall be conditional on the achievement of long-term objectives that can only reduce the amount payable. (2) For the 2018 incentive A minimum of 50% of the incentive shall be paid in shares and the remaining amount in cash, part in 2019 and a part deferred for at least five years, as follows: 40% of the incentive will be paid in (en) propuestas de acuerdos jgo 2016 (2) 82/123

83 (iii) 60% of the incentive will be paid in 2020, 2021, 2022, 2023 and 2024, in equal parts and the three last years shall be conditional on the achievement of long-term objectives that can only reduce the amount payable. Deferred performance-based incentive For the 2017 incentive, the amounts deferred in 2021, 2022 and 2023 shall be conditional upon, in addition to the terms described in section (iv), compliance with the Group s longterm objectives for at least the period For the 2018 incentive, the amounts deferred in 2022, 2023 and 2024 shall also be conditional upon, in addition to the terms described in section (iv) below, compliance with the Group s long-term objectives for at least the period The achievement of long-term objectives may only confirm or reduce the amounts and number of shares deferred and a minimum threshold shall be set below which the deferred incentives shall not be accrued. Long-term metrics include objectives relating to value-creation and shareholder returns, risk and capital in a multiyear period of at least three years. These metrics shall be aligned with the Group s strategic plan and reflect its main priorities from a stakeholders perspective. These metrics may be measured at the level of the Group or of the country or business, when appropriate, and the performance thereof may be relatively compared to a peer group. The portion paid in shares in the 2017 and 2018 incentives may not be sold until at least one year has elapsed from delivery thereof. (iv) Other incentive terms Accrual of the deferred amounts, including performance-linked amounts, shall also be conditional upon the beneficiary remaining in the Group and none of the circumstances set forth in the related malus clauses taking place, all under terms similar to those indicated for The hedging of Santander shares received during the retention and deferral periods is expressly prohibited. The sale of shares is also prohibited for at least one year from the receipt thereof. The remuneration committee may propose to the board adjustments in variable remuneration under exceptional circumstances due to internal or external factors and such as regulatory requirements or requests or recommendations issued by regulators or supervisory authorities. If that were the case, such adjustments will be described in detail in the corresponding report of the remuneration committee and in the annual report on director remuneration submitted each year to a consultative vote of the shareholders at the general shareholders meeting. 2.3 Holding shares The share holding policy approved in 2016 will apply in 2017 and 2018, unless the remuneration committee, under exceptional circumstances such as regulatory requirements or requests or recommendations issued by regulatory or supervisory bodies, were to propose amendments to this policy to the board. Any eventual amendments would be described in detail in the corresponding report of the remuneration committee and in the annual report on director remuneration submitted each year to a consultative vote at the general shareholders meeting. (en) propuestas de acuerdos jgo 2016 (2) 83/123

84 (D) TERMS AND CONDITIONS OF EXECUTIVE DIRECTORS CONTRACTS The terms for the provision of services by each of the executive directors are governed by the contracts signed by each of them with the Bank. The basic terms and conditions of the contracts of the executive directors, besides those relating to the remuneration, are the following: (a) Exclusivity and non-competition Executive directors may not enter into contracts to provide services to other companies or entities except where expressly authorized by the board of directors. In all cases, a duty of non-competition is established with respect to companies and activities similar in nature to those of the Bank and its consolidated Group. Likewise, the contracts of the executive directors provide for certain prohibitions against competition and the poaching of clients, employees and suppliers that may be enforced for two years after the termination thereof for reasons other than retirement, pre-retirement or a breach by the Bank. The compensation to be paid by the Bank for this prohibition against competition is 80% of the fixed remuneration of the corresponding director, payable 40% on termination of the contract and 60% at the end of the 2-year period. (b) Code of conduct There is an obligation to strictly observe the provisions of the Group s general code and of the code of conduct in securities markets, in particular with respect to rules of confidentiality, professional ethics and conflicts of interest. (c) Termination The contracts are of indefinite duration and do not provide for any severance payment in the case of termination other than as may be required by law. Notwithstanding the foregoing, if Mr Rodrigo Echenique Gordillo s contract is terminated before 1 January 2018 for reasons other than his own decision, death or permanent disability or to a serious breach of his obligations, he shall be entitled to receive a severance payment amounting to twice his gross annual salary. In the event of termination of her contract by the Bank, Ms Ana Botín-Sanz de Sautuola y O Shea must remain available to the Bank for a period of four months to ensure a proper transition, during which period she would continue to receive her gross annual salary.. (d) Pre-retirement and benefit plans The contracts of the following executive directors acknowledge their right to pre-retire under the terms stated below when they have not yet reached retirement age: Ms Ana Botín-Sanz de Sautuola will be entitled to pre-retirement in the event of leaving her post for reasons other than breach of duty. In this case, she will be entitled to an annual allotment equal to the sum of her fixed remuneration and 30% of the average amount of the last variable remunerations of the executive chairman, to a maximum of three. This allotment shall be reduced by 20% in the event of voluntary termination prior to the age of 60. Mr José Antonio Álvarez Álvarez will be entitled to pre-retire in the event of leaving his post for reasons other than his own free will or breach of duty In that case, he will (en) propuestas de acuerdos jgo 2016 (2) 84/123

85 be entitled to an annual allocation equivalent to the fixed remuneration corresponding to him as a senior executive vice president. If Ms Ana Botín-Sanz de Sautuola y O Shea or Mr José Antonio Álvarez Álvarez take preretirement, they are entitled to receive the annual allotments in the form of an annuity or as capital (i.e. in a lump sum), in whole but not in part. The executive directors other than Mr Rodrigo Echenique participate in the defined benefit system created in 2012, which covers the contingencies of retirement, disability and death. The Bank makes annual contributions to the benefit plans for the benefit of the other executive directors, except in the case of Mr Matías Rodríguez Inciarte, for whom new contributions are not made. The annual contributions are calculated in proportion to the respective pensionable bases of the executive directors, and shall continue to be made until they leave the Group or until their retirement within the Group, or their death or disability (including, if applicable, during pre-retirement). The pensionable base for purposes of the annual contributions is the one indicated above for the calculation of the allotment for preretirement (except in the case of Mr José Antonio Álvarez, who, during his term of office as CEO, will have a pensionable base equal to the sum of his fixed remuneration as such and 30% of the average of the last three variable remuneration payments), with the amount of the contributions being 55% in the cases of Ms Ana Botín-Sanz de Sautuola y O Shea and Mr José Antonio Álvarez Álvarez. The benefit plan is outsourced to Santander Seguros y Reaseguros, Compañía Aseguradora, S.A., and the economic rights of the foregoing directors thereunder belong to them regardless of whether or not they are active in the Bank at the time of their retirement, death or disability. As stated in section c) above, the contracts of these directors do not provide for any severance payment in the case of termination other than as may be required by law. Mr Rodrigo Echenique Gordillo s contract does not provide for any charge to Banco Santander regarding benefits, without prejudice to the pension rights to which Mr Echenique was entitled prior to his appointment as executive director. Finally, the contracts of Ms Ana Botín-Sanz de Sautuola and Mr José Antonio Álvarez Álvarez include a supplemental benefit scheme for the contingencies of death (surviving spouse and child benefits) and permanent disability of serving directors, which entitles the widow/widower and any children under the age of 25 in the case of death, or the director in case of disability, the right to a pension supplemental to that which they would be entitled to receive from Social Security up to an annual maximum amount equal to their respective pensionable bases, as indicated above in connection with the pre-retirement (refers to fixed remuneration as chief executive officer in the case of Mr Álvarez). Income to be received from the benefit system described above shall be deducted from the amount of the supplemental benefit, and the supplemental pension could reach zero (but not less than zero). (e) Insurance and other benefits in kind The Group has arranged life and health insurance policies for the directors. In 2016, the premiums for this insurance amounted to 479 thousand euros. In 2017 and 2018, these premiums could vary in the event of a change in the fixed remuneration of directors or in their actuarial circumstances. Similarly, executive directors are insured by the Bank s civil liability policy. (en) propuestas de acuerdos jgo 2016 (2) 85/123

86 Finally, executive directors may receive other benefits in kind (such as employee loans) in accordance with the Bank s usual policy in regard to senior management. (f) Confidentiality and return of documents A strict duty of confidentiality is established during the relationship and following termination thereof, pursuant to which executive directors must return to the Bank the documents and items related to their activities that are in their possession. (g) Other conditions The advance notice periods contained in the contracts with the executive directors are as follows: Date of current contract By decision of the Bank (months) By decision of the director (months) Ms Ana Botín-Sanz de Sautuola y O Shea 26/01/ Mr José Antonio Álvarez Álvarez 23/02/2015 Mr Rodrigo Echenique Gordillo 26/01/2015 Mr Matías Rodríguez Inciarte 26/12/ Payment clauses in place of pre-notice periods are not contemplated. (E) APPOINTMENT OF NEW EXECUTIVE DIRECTORS The components of remuneration and basic structure of the agreements described in this remunerations policy will apply to any new director that is given executive functions, notwithstanding the possibility of amending specific terms of agreements so that, overall, they have conditions similar to those previously described. In particular, the total remuneration of said director for performing executive duties may not be greater than the highest remuneration received by the current executive directors of the company pursuant to the remuneration policy approved by the shareholders. The same rules shall apply if a director assumes new duties that said director did not previously discharge or becomes an executive director. If executive responsibilities are assumed with respect to a specific division or country, the board of directors, at the proposal of the remuneration committee, may adapt the metrics used for the establishing and accrual of the incentive in order to take into account not just the Group but also the respective division or country. As regards the remuneration of directors in their capacity as such, it shall be included within the maximum distributable amount set by the shareholders and to be distributed by the board of directors as described above. Additionally, if the new director comes from an entity not included in Grupo Santander, he/she could be the beneficiary of a buy out to offset the loss of variable remuneration corresponding to his/her prior post if he/she had not accepted the engagement offer of the Group. According to the buy out policy approved by the board, following a proposal by the remuneration committee, compensation could be paid fully or partly in shares, subject to the delivery limits approved at the general shareholders meeting. Therefore, at the next meeting, authorisation is expected to be sought to deliver a specified maximum number of shares as part of any hires to which the buy out policy applies. (en) propuestas de acuerdos jgo 2016 (2) 86/123

87 Proposal To approve, pursuant to the provisions of section 529 novodecies of the Spanish Capital Corporations Law (Ley de Sociedades de Capital), the director remuneration policy of Banco Santander, S.A. for financial years 2016, 2017 and 2018, the text of which has been made available to the shareholders within the framework of the call to the general shareholders meeting and which, regarding the variable components of the remuneration of executive directors for 2016 and to the extent that they make up a remuneration system that includes the delivery of shares of the Bank or of rights thereto, is also submitted to the general shareholders meeting under Item Thirteen A. (en) propuestas de acuerdos jgo 2016 (2) 87/123

88 Item Eleven Proposal: Director remuneration system: setting of the maximum amount of total annual remuneration of directors in their capacity as directors. To approve, for purposes of the provisions in sub-section 2 of article 58 of the Bylaws, the fixed total annual amount of remuneration of the directors acting as such of 6,000,000 euros, an amount that shall be applicable to remuneration corresponding to financial year 2016 and that shall remain effective until the shareholders acting at a general shareholders meeting resolve to amend it, the board of directors being able to reduce it on the terms established in the aforementioned provision of the Bylaws. (en) propuestas de acuerdos jgo 2016 (2) 88/123

89 Item Twelve Remuneration system: approval of maximum ratio between fixed and variable components of total remuneration of executive directors and other employees belonging to categories which professional activities impact significantly on the risk profile. DETAILED PROPOSAL AND RECOMMENDATION SUBMITTED BY THE BOARD OF DIRECTORS OF BANCO SANTANDER, S.A. REGARDING ITEM TWELVE OF THE AGENDA FOR THE GENERAL SHAREHOLDERS MEETING CALLED TO BE HELD ON 17 MARCH 2016, ON FIRST CALL, AND ON 18 MARCH 2016, ON SECOND CALL Under item Twelve of the agenda, the establishment of the maximum limit for the variable components of the total remuneration of a certain group within Banco Santander, S.A. (the Bank or the Company ) and its Group is submitted to the shareholders for approval at the general shareholders meeting, such limit being stated as the maximum percentage that the variable components of remuneration represent with respect to the fixed components thereof (the Maximum Variable Remuneration Ratio ). Article 58.6 of the Bylaws and Law 10/2014 of 26 June on organisation, supervision and solvency of credit institutions ( Law 10/2014 ), which transposes in Spain the content of Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms ( Directive CRD IV ), provide for the need to submit to the shareholders for approval at a general shareholders meeting the establishment of a Maximum Variable Remuneration Ratio in excess of 100%, which, in any event, shall not exceed 200%. The group with respect to which such approval is required is the group defined in section 32.1 of Law 10/2014, i.e. the categories of staff whose professional activities have a material impact on the risk profile of the institution, its group, parent company or subsidiaries (the Identified Staff ). This definition, which includes the executive directors of the Bank, among others, derives from article 92(2) of Directive CRD IV and has been further developed by Commission Delegated Regulation (EU) No 604/2014 of 4 March 2014 supplementing Directive 2013/36/EU of the European Parliament and of the Council with regard to regulatory technical standards with respect to qualitative and appropriate quantitative criteria to identify categories of staff whose professional activities have a material impact on an institution s risk profile (the Delegated Regulation ). The proposal submitted to the shareholders at the general shareholders meeting entails renewing the authorisation of a Maximum Variable Remuneration Ratio of 200% for all members of the Identified Staff at the Santander Group. The remuneration policy for the Identified Staff within the Santander Group is guided by principles similar to those described in connection with executive directors in the director remuneration policy, which is submitted to the shareholders for approval under item Ten of (en) propuestas de acuerdos jgo 2016 (2) 89/123

90 the agenda. Therefore, the purpose of variable remuneration of the Identified Staff 1 is to reward employee performance consistently with rigorous risk management, without encouraging inappropriate risk-taking and seeking an alignment with the interests of the shareholders and with the Group s strategic objectives, thus fostering the creation of value over the long term. Without prejudice to the foregoing, the total remuneration package for each employee and the structure thereof must be competitive, such that it facilitates attracting and retaining, as well as adequately remunerating, the persons included in the Identified Staff, taking into account the duties and responsibilities assigned to each of them. In this regard, the following considerations are in order: Compliance with the regulatory provisions mentioned above (Law 10/2014 and Directive CRD IV) is required of European credit institutions regardless of where they operate, whereas non-european Community institutions are required to comply with them only with respect to their activities in Europe. As a consequence, global institutions like the Santander Group must compete in terms of talent attraction and retention with institutions that are not subject to the same regulations, such that it is advisable to have maximum flexibility in remuneration matters within applicable legal limits. Even in the European banking sector, the Bank has verified that its main competitors approved Maximum Variable Remuneration Ratios in excess of 100% in financial year 2015, as they did in financial year Specifically, the Bank requested the firm Willis Towers Watson to prepare a report that reviews 11 (10 European or global and one Spanish) banking groups, 91% of which (10 out of 11) approved or had in effect Maximum Variable Remuneration Ratios in excess of 100% in 2015, and 82% of which requested such authorisation for the entire Identified Staff and not only for a portion thereof. Therefore, the proposal submitted to the shareholders at the general shareholders meeting under item Twelve of the agenda will allow Banco Santander to compete on similar terms with the European institutions whose activities and size are similar to those of Banco Santander. The renewal of the resolution for the entire Identified Staff is due to the advisability of maintaining the Bank s flexibility to compete in the international markets, without provision being made for the ratios to exceed 100% in all cases. In fact, the average ratio of variable components to fixed components of the remuneration of all of the categories of management or employees within the Identified Staff during the past financial year is far less than the approved maximum percentage of 200%. Specifically, on average in 2015, the variable components of remuneration of Identified Staff represented 90% of the fixed components, 87% for the executive directors of the Bank, 87% in the case of the vice presidents, 107% for Identified Staff 1 In accordance with the standards established by the Delegated Regulation, certain persons that do not currently receive variable remuneration, such as the Bank s non-executive directors, are included in the Identified Staff at the Santander Group. (en) propuestas de acuerdos jgo 2016 (2) 90/123

91 in wholesale business (excluding vice presidents) and 86% for the rest of the Identified Staff. Approximately 36% of members of the Identified Staff exceeded the ratio of 100% in 2015, the median being a 80% ratio and percentile 75 reaching a 115% ratio. Just a 2% of the Identified Staff reached ratios over 195%. In addition, the renewal of Maximum Variable Remuneration Ratios of 200% for the entire Identified Staff allows for simpler and more efficient payroll management. The annual adjustment of the components of remuneration of the members of the Identified Staff with a view to maintaining an appropriate level of motivation, the high level of internal mobility within the Group, and the remuneration structure that is peculiar to each business area 2 make it advisable to have as much flexibility as possible. Notwithstanding the above, the Group takes into account applicable regulations and best practices as regards remuneration and, in particular, is planning to review and, if needed, update during this financial year the compensation mix of Identified Staff members performing internal control functions (i.e., risk management, compliance and internal audit) in light of the Guidelines on sound remuneration policies under Articles 74(3) and 75(2) of Directive 2013/36/UE and disclosures under Article 450 of Regulation (EU) No. 575/2013, which were published by the European Banking Authority (EBA) on 21 December 2015 and will enter into force on 1 January 2017, and any regulations that may be approved in Spain in light thereof. Moreover, the authorisation of higher Maximum Variable Remuneration Ratios within legal limits is more efficient as a tool to retain talent in view of possible competitor moves than increasing the amount of the fixed components of remuneration to cover items traditionally associated with the variable components of remuneration, which, if it occurred, might entail an increase in the Group s fixed costs. Finally, without prejudice to all other regulations applicable in the area of remuneration in order to avoid excessive risk-taking by Group employees, a Maximum Variable Remuneration Ratio of up to 200% would also allow, in certain positions that are key to the prudent achievement of results and business objectives, for a more significant portion of total remuneration to be subject to the achievement of such results and objectives, thus making it possible to reward outstanding performance where necessary. The foregoing constitutes the rationale for the proposal submitted to the shareholders for approval at the general shareholders meeting under item Twelve of the agenda. In addition, as stated above, the authorisation of a Maximum Variable Remuneration Ratio that is higher than generally provided gives the Bank greater flexibility to adapt the remuneration schemes 2 For example, a feature of the wholesale business is that it adopts remuneration structures in which the weight of variable remuneration over fixed remuneration is more significant than in other businesses. Talent attraction and retention in this business requires maintaining remuneration structures that are aligned with market practices, and therefore, it is particularly desirable to obtain the authorisation to pay a Maximum Variable Remuneration Ratio in excess of 100% to those who perform duties in this area. In this regard, approximately 21% of the Identified Staff performs duties in the Group s wholesale business. (en) propuestas de acuerdos jgo 2016 (2) 91/123

92 applicable to each employee profile, without jeopardising the general objectives of bringing the remuneration policy into line with the Group s risk profile, as such ratio is subject in all cases to the legal limit of 200%, to the remuneration policy approved by the Company, and to all other legal restrictions applicable to variable remuneration. In this regard, the remuneration policy for the members of the Identified Staff follows standards that are similar to those included with respect to the executive directors in the director remuneration policy that is submitted to the shareholders at the general shareholders meeting for approval under item Ten of the agenda. Thus, the variable components of remuneration of this group for 2016 include, inter alia, an Award (whether Award A or Award B, according to the definition of these terms in the directors report and the proposed resolutions included under item Thirteen below), to be received partly in cash and partly in shares, with collection of a portion of such Award being deferred over a period of three or five years (depending on the beneficiary s profile). The accrual of the Award is subject to metrics that allow for the alignment thereof with the Group s strategic plan and which take into account, among other aspects, the quality of the results achieved, the appropriate management of risk and the efficient use of capital, in addition to the accrual of part of the deferred remuneration in the case of Award A being subject to fulfilment of specific longterm metrics allowing for confirmation, if applicable, that the decisions initially made have resulted in sustainable long-term results 3. For purposes of calculating the Maximum Variable Remuneration Ratio in compliance with the aforementioned provisions, the total remuneration of the Identified Staff members for all items has been taken into account, with a breakdown into variable components (i.e. those the accrual of which is subject to the achievement of results or specific objectives) and fixed components (all other remuneration items), as described in more detail in the director remuneration policy. Given that the number of persons that may belong to the Identified Staff derives from specific and predetermined regulations, it is not possible to limit the number thereof. However, a maximum number of Identified Staff members benefiting from a Maximun Variable Remuneration Ratio of 200% can be established and Identified Staff members exceeding such maximum number will be subject to a maximum ratio of 100%. Consequently, the board of directors proposes to the shareholders at the general shareholders meeting that the Maximum Variable Remuneration Ratios set forth below be approved in connection with the total remuneration of all members that belong to the Identified Staff insofar as this agreement is not amended, including those who become a member of such group, up to a maximum of 1,700 persons (0.88% of the workforce). At 31 December 2015, taking into account the standards established by the Delegated Regulation and by the policy for determining the Group s Identified Staff, the number of members of the Identified Staff comes to 1,281 persons (0.66% of the workforce), although it is estimated that the number might increase in the future, considering the ordinary course of business activities and changes in the Group s workforce. The Exhibit to this report includes a breakdown of the aforementioned number of 3 Further information on the metrics and conditions to which the Award is subject can be found in the report from the remuneration committee and in the directors report regarding item Thirteen of the agenda. (en) propuestas de acuerdos jgo 2016 (2) 92/123

93 persons that make up the Identified Staff at 31 December 2015 and the respective positions thereof. As stated, the ratio of 200% is not expected to be reached for all the members of the Identified Staff, taking into account their benchmark awards and the variable remuneration policy established for this financial year. In fact, under a standard scenario of fulfilment of targets (but slightly better than 2015 s performance), the total amount of the variable components of the remuneration would be equivalent to the total amount of the fixed components thereof (i.e., an average ratio of 100%). Assuming a scenario where targets are fulfilled at 125%, the excess of the variable components of remuneration over 100% of the fixed components is 58 million euros in 2016, equivalent to approximately 45 thousand euros per person (calculated according to the number of persons that made up the Identified Staff at 31 December 2015). Not all the members of the Identified Staff would have reached a ratio in excess of 100% in such estimate, though it is not possible to estimate the number of persons that in fact would, since this will depend on the level of achievement of the Group s objectives in 2016, among other circumstances. The hypothetical maximum amount in 2016 of the excess of the variable components of remuneration over 100% of the fixed components for the 1,281 persons who made up the Identified Staff at 31 December 2015, if all such persons reached the Maximum Variable Remuneration Ratio of 200%, would be 421 million euros, equivalent to approximately 328 thousand euros per person. In view of this data and of the considerations set forth above regarding the alignment of remuneration with the Group s long-term interests, it is noted that the decision to approve a maximum level of variable remuneration for the persons indicated above would not affect the Bank s maintenance of a solid equity base or its obligations under the solvency rules. Specifically, the impact on the total capital ratio of the Santander Group at 31 December 2015 in the aforementioned circumstances estimated by the Bank (58 million euros of excess of variable remuneration over 100% of the fixed components) would amount to 1 basis point and, in the circumstance of the ratio of the Identified Staff reaching 200%, would amount to 6 basis points. Moreover, the proposed resolution is understood without prejudice to the need for the companies of the Group in which the members of the Identified Staff provide services to comply with the obligations that correspond thereto in each case for purposes of permitting the 100% ratio to be exceeded. (en) propuestas de acuerdos jgo 2016 (2) 93/123

94 EXHIBIT IDENTIFIED STAFF AT 31 DECEMBER 2015 Nº Role persons GERMANY 40 Board Member 1 Member of the Managing Board 7 Area Manager 10 ARGENTINA 11 Presidente 1 Gerente Principal 10 AUSTRIA 1 CEO 1 BELGIUM 1 CEO 1 BRASIL 231 Banker Senior II 3 Dir Presidente 1 Dir Vice Presidente Exec 7 Dir Vice Presidente Exec Sr 2 Diretor 30 Diretor Executivo 4 Economista Chefe 1 Presidente 1 Membro Comite Auditoria 3 Membro Conselho Administracao 6 Presid Conselho Administracao 1 Sales GBM Senior 1 Senior Executive 30 Senior Investiment Banker 9 Supte Coml Private Banking 2 Supte Exec 111 Trader III 6 Trader Senior 5 Manager I 8 ITALY 5 CEO 1 Head 1 Country Head 1 Managing Director 1 Role Nº persons Managing Director and General 1 Manager NETHERLANDS 1 CEO 1 NORWAY 2 CEO 1 Financial Control Director 1 CANADA 2 Chief Executive Officer 1 Chief Operating Officer 1 CHILE 39 CONTROLLER GRUPO 1 JEFE AREA III 2 Head 3 CONSEJERO 12 JEFE DIVISION II 6 JEFE DIVISION I 5 Head CIB 1 Head GBM 1 GERENTE GENERAL 1 Jefe Finanzas I 1 Director 2 DIRECTOR CORPORATIVO 1 JEFE AREA II 2 Manager I 1 CHINA 7 CEO 1 Risk Manager 1 Branch Manager 2 Head of Consumer Finance 1 Head of Corporate & Investment 1 Banking Santander Cooperation Project Leader 1 COLOMBIA 1 PRESIDENTE EJECUTIVO 1 MEXICO 71 Consejero No Independiente serie F 3 (en) propuestas de acuerdos jgo 2016 (2) 94/123

95 Role Nº persons Consejero Independiente serie F 5 Consejero Independiente serie B 6 Vicepresidente Banca Comercial 1 Vicepresidente Admon y Finanz 1 Dir Product Principal 4 Dir Head of Segmento Red 1 Presidente Ejec Dir Gral GF 2 Presidente Del Consejo 1 Dir MM FI Flow 1 Dir Managing Custodia 1 Dir Gral Adj 12 Dir Ejecutivo 32 Manager I 1 SPAIN 345 CEO 2 Dir Vice Presidente Exec 1 Head of 41 CONSEJERO 2 Director 97 Director de Área 130 Banker Senior III 1 Vicepresidente - Consejero Ejecutivo 2 Presidente 1 Vocal del Consejo - Consejero Externo 2 Independiente Vicepresidente. Consejero externo 1 (independiente) Director General 3 Director División 11 Director Territorial 17 Director División Adjunto 3 Director General Adjunto 1 Director Adjunto 1 Manager II 23 Manager I 4 Managing Director 2 FRANCE 8 Chief Executive Officer 1 Chief Finance Officer 1 Director de Área 1 Role Nº persons Director Crédit Risk France, Italy et 1 Allemagne Chargé d'affaires CIB 2 Head of FIG 1 Head of SGBM France & Benelux 1 HONG KONG 17 Head 4 Managing Director 11 Manager I 2 TOKYO 1 Director 1 PERU 1 GERENTE GENERAL 1 POLAND 93 CEO 1 Head 3 Director 9 Board Member 11 President of the Management Board 2 Department Director 29 Area Director 17 Chief bank economist 1 Macroregional director 8 Corporate office director 1 SME Portfolio BI and Risk 1 Management Supervisory Board member 7 Area deputy Director 3 PORTUGAL 44 CEO 1 RG CONTR/FUNC GESTAO RISCOS 1 ASSESSOR SANTANDER UNIVERS 1 DIR AGREGADO CE 2 D NEGÓCIO INTERNACIONAL 1 PRESIDENTE CE SEGURADORA 1 VOGAL CONSELHO 1 ADMINISTRACAO PRESIDENTE EXECUTIVO DA CE 1 RESP AREA FOMENTO CONSTRUCAO 1 (en) propuestas de acuerdos jgo 2016 (2) 95/123

96 Role Nº persons PRESIDENTE ASSET 1 MANAGEMENT PRESIDENTE CONSELHO 1 ADMINISTRAÇÃO ADJ ADM AREA 15 DC 17 PUERTO RICO 4 Chief Executive Officer 1 Chief Operating Officer 1 Chief Officer 2 SINGAPORE 3 Head 1 Managing Director 2 SWITZERLAND 1 General Manager 1 USA 157 CEO 1 Trader III 1 Trader Senior 1 Head 6 Director 22 Chief Executive Officer 4 Managing Director 16 Board of Directors 12 Deputy CRO - Financial Risk 1 General Counsel 3 EVP Origination Strategies 2 Chief Internal Auditor 1 US Chief Internal Auditor 1 General Manager Branch 1 CFO 3 Treasurer 2 Regional Director 1 Senior Banker III 3 President 1 EVP and Treasurer 1 Product Specialist III 1 EVP New Business 1 Account Executive 3 Role Nº persons Deputy Chief Financial Officer 1 CCAR Dir Rsk Methodology - US 1 Senior Banker 1 EVP Personal Lending 1 USPP 1 COO 1 Retl Invstmts Finl Conslt III 2 CART Project Lead 1 Comptroller 1 CEVF Bus Develpmnt Officer III 1 Senior Banker II 3 EVP Regulatory Risk Mgmt 1 Controller SBNA 1 Chief Officer 28 Manager I 6 Manager II 14 Director II 1 Vice President 2 Director III 2 UK 198 CEO 2 Head 25 Chief Executive Officer 1 Managing Director 17 General Manager 2 Senior Banker II (WHL) 6 Analyst 1 Trader 1 Senior Banker I (WHL) 2 Non-Executive Director 12 Specialist 1 Chief Internal Auditor 1 UK Director 61 Financial Controller 1 Chief Information & Change Office 1 Wholesale Credit Risk Management 1 Divisional Managing Director 7 Executive Chief Risk Officer 1 (en) propuestas de acuerdos jgo 2016 (2) 96/123

97 Role Nº persons Company Secretary 1 Deputy Chief Internal Auditor 1 Director General 1 Senior Manager 1 CCO, Retail 1 Group Money Laundering Officer 1 Chief Officer 8 Manager I 20 Manager II 21 URUGUAY 1 Country Head 1 OTHERS 14 NA 14 TOTAL 1,281 (en) propuestas de acuerdos jgo 2016 (2) 97/123

98 Proposal: To approve a maximum ratio of 200% between the variable and fixed components of the total remuneration of the executive directors and of the employees belonging to categories which professional activities have a material impact on the risk profile of the Group upon the terms set forth below: (i) (ii) Number of affected persons: all members of the Identified Staff (1,281 at 31 December 2015, as described in the Exhibit to the detailed recommendation prepared by the board of directors), including those who join it after the date hereof, up to a maximum of 1,700 persons. The beneficiaries of this resolution include the executive directors of Banco Santander and other employees of Banco Santander or other companies of the Group belonging to categories which professional activities impact significantly on the risk profile of the Bank or of the Group, including senior executives, risk-taking employees or employees engaged in control functions, as well as other workers whose total remuneration places them within the same remuneration bracket as that of the preceding categories (the Identified Staff ). It is noted that the members of this group have been identified pursuant to the standards established in Commission Delegated Regulation (EU) No 604/2014, of 4 March 2014, supplementing Directive 2013/36/EU of the European Parliament and of the Council with regard to regulatory technical standards with respect to qualitative and appropriate quantitative criteria to identify the categories of staff whose professional activities have a material impact on an institution s risk profile and those of the policy for determining the Group s Identified Staff. Authorisation. Without prejudice to the general provisions set forth in item Fourteen or to the powers of the board of directors in remuneration matters under the Bylaws and the rules and regulations of the board, the board of directors of the Bank is hereby authorised, to the extent required, to implement this resolution, with the power to elaborate, as necessary, on the content hereof and that of the agreements and other documents to be used or adapted for such purpose. Specifically, and merely by way of example, the board of directors shall have the following powers: (a) (b) (c) (d) To determine any modifications that should be made in the group of Identified Staff members that benefit from this agreement, within the maximum limit established by the shareholders at the general shareholders meeting, as well as the composition and amount of the fixed and variable components of the total remuneration of those persons. To approve the basic contents of the agreements and any other supplementary documents that may be required or appropriate. To approve all such notices and supplementary documentation as may be necessary or appropriate to file with the European Central Bank, the Bank of Spain or any other public or private entity. To take any action, carry out any procedure or make any statement before any public or private entity or agency to secure any required authorisation or verification. (en) propuestas de acuerdos jgo 2016 (2) 98/123

99 (e) (f) To interpret the foregoing resolutions, with powers to adapt them to the circumstances that may arise at any time without affecting their basic content, including any regulations or provisions or supervisor s recommendations that may prevent their implementation upon the terms approved or that require the adjustment thereof. In general, to take any actions and execute all such documents as may be necessary or appropriate. The board of directors may delegate to the executive committee all the powers conferred in this resolution Twelve (except for those that may not be delegated under the law). The Company will communicate the approval of this agreement to all Group companies engaging executives or employees belonging to the Identified Staff, without prejudice to the exercise by such of the Bank s subsidiaries as may be appropriate in each case of the powers they hold to implement the remuneration policy with respect to those executives and employees and, if applicable, to adjust such policy to regulations or to the requirements of competent authorities in the respective jurisdiction, as well as to comply with the obligations that bind them for such purpose. (en) propuestas de acuerdos jgo 2016 (2) 99/123

100 Item Thirteen Thirteen A. Thirteen B. Thirteen C. Thirteen D. Approval of the application of remuneration plans which entail the delivery of shares or options on shares. First cycle of the Deferred Multiyear Objectives Variable Remuneration Plan Plan. Sixth cycle of the Deferred and Conditional Variable Remuneration Plan. Application of Santander Group s buy-out policy. Plan for employees of Santander UK plc. and other companies of the Group in the United Kingdom by means of options on shares of the Bank linked to the contribution of periodic monetary amounts and to certain continuity requirements. REPORT AND PROPOSALS SUBMITTED BY THE BOARD OF DIRECTORS OF BANCO SANTANDER, S.A. REGARDING ITEMS THIRTEEN A, THIRTEEN B AND THIRTEEN C OF THE AGENDA FOR THE ORDINARY GENERAL SHAREHOLDERS MEETING CALLED FOR 17 MARCH 2016, ON FIRST CALL, AND FOR 18 MARCH 2016, ON SECOND CALL Within the framework of its policy on remuneration tied to the delivery of shares, Banco Santander, S.A. (the Bank or the Company ) has maintained the Deferred and Conditional Variable Remuneration Plan (Plan de Retribución Variable Diferida y Condicionada) in effect since 2011, which plan conformed at that time to Directive 2010/76/EU of 24 November and to the Guidelines on Remuneration Policies and Practices approved by the Committee of European Banking Supervisors (CEBS), published on 10 December 2010, and which since financial year 2014 has conformed to Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms ( Directive CRD IV ). Directive CRD IV, which was transposed into Spanish law by Law 10/2014 of 26 June on organisation, supervision and solvency of credit institutions ( Law 10/2014 ), entailed a revision of the rules previously in effect in two ways: (i) there was a tightening of the rules governing the variable remuneration of a certain group of employees of the relevant institutions (for example, by setting limits on the amount of the variable components of remuneration; see the report on item Twelve of the agenda), and (ii) the group to which such rules apply (hereinafter, the Identified Staff ) was redefined in more stringent terms. As stated above, such changes were already reflected by the Bank in the policy on variable remuneration for the Identified Staff for financial years 2014 and For financial year 2016, changes have been made to the policy on variable remuneration of the Identified Staff (hereinafter, the 2016 Variable Remuneration Policy ) taking into account the development of the best international practices as regards remuneration and the (en) propuestas de acuerdos jgo 2016 (2) 100/123

101 recommendations issued in this respect by the competent authorities, including the recent Guidelines on Sound Remuneration Policies under Articles 74(3) and 75(2) of Directive 2013/36/EU and Disclosures under Article 450 of Regulation (EU) No. 575/2013, published by the European Banking Authority (EBA) on 21 December 2015 and which will apply from 1 January 2017, superseding the aforementioned Guidelines on Remuneration Policies and Practices of The main new features of the 2016 Variable Remuneration Policy are intended to: (i) simplify the beneficiary remuneration structure, by integrating the variable components of the total remuneration within a single plan 1 ; (ii) improve the ex ante risk adjustment of the variable remuneration, using a single group of annual quantitative and qualitative metrics that allow appropriate decisions within the appropriate risk framework to be compensated and strengthen the alignment of the variable remuneration with the long-term interests and objectives of the Bank; and (iii) increase the impact of the long-term elements and the multiyear performance measures, particularly for those members of the Identified Staff who have the largest impact on the institution s risk profile, and combine more effectively the short-term and long-term objectives (since fulfilment of short-term objectives will determine the maximum amount of the long-term amount and such amount may only be reduced, but not increased) 2. The main features of the 2016 Variable Remuneration Policy are described below. I. Purpose and Beneficiaries The 2016 Variable Remuneration Policy regulates the provisions applicable to the payment and, where applicable, quantification of the variable remuneration of the Identified Staff in line with the objectives of the Bank s remuneration policies and in compliance with applicable laws and regulations. The 2016 Variable Remuneration Policy is applicable to the Group s entire Identified Staff 3, which composition is described in the report that accompanies the proposed resolution submitted to the shareholders at the general shareholders meeting under item Twelve of the agenda. 1 Except, where applicable, for contributions to benefits schemes that are calculated based on the variable remuneration and are therefore considered a variable component of total remuneration. 2 The director remuneration policy submitted for the approval of the shareholders at the general shareholders meeting under item Ten of the agenda and the report of the remuneration committee that is published upon the call to the general shareholders meeting contain greater detail regarding the quantitative metrics and qualitative factors that will determine, where applicable, the amount of the variable remuneration for financial year It is noted that pursuant to the standards established in Commission Delegated Regulation (EU) No 604/2014, the Identified Staff includes certain persons who do not receive any variable remuneration. Therefore, such persons do not form part of the group of beneficiaries of the 2016 Variable Remuneration Policy. (en) propuestas de acuerdos jgo 2016 (2) 101/123

102 Taking into account the varying impacts that different members of the Identified Staff may have on the Santander Group s risk profile, the variable remuneration for financial year 2016 is implemented as follows: (i) (ii) for executive directors, vice presidents, country heads, other key executives of the main countries in which the Group operates, and, in general, Top Red executives of the Group, through the first cycle of a new plan called the Deferred Multiyear Objectives Variable Remuneration Plan (the variable remuneration calculated through this plan, Award A ), to which item Thirteen A of the agenda refers; and for the rest of the Identified Staff, through a sixth cycle of the Deferred and Conditional Variable Remuneration Plan (the variable remuneration calculated through this plan, Award B and, together with Award A, the Award ), to which item Thirteen B of the agenda refers. The beneficiaries of Award A will not receive Award B, and vice versa. The envisaged number of beneficiaries of Award A is approximately 400 persons, and the number of beneficiaries of Award B is approximately 900 persons (without prejudice to the specific number of appointments, removals and promotions that finally occur during financial year 2016). II. General Features of the Variable Remuneration of the Identified Staff Components of variable remuneration. The variable components of the total remuneration of the beneficiaries of the 2016 Variable Remuneration Policy will include an Award (Award A or Award B, as appropriate), to be received partly in cash and partly in shares, while deferring collection of a portion thereof over a period of three or five years, as applicable, according to the beneficiary s profile 4. Scope of application. As stated, the 2016 Variable Remuneration Policy will apply to all of the members of the Identified Staff who receive variable remuneration (at 31 December 2015, the Identified Staff is comprised of 1,281 persons) and provides for the delivery of shares o similar instruments of Banco Santander or, if applicable, of shares or similar instruments of its listed subsidiaries. Specifically, the possibility of total or partial delivery is contemplated of securities of the respective listed subsidiary in Mexico, Chile, Brazil, Poland and Santander Consumer USA. The board of directors, at the proposal of the remuneration committee, may approve total or partial payment in shares of Banco Santander and/or of the corresponding subsidiary in the proportion that it deems appropriate in each case and subject, in any case, to the maximum number of Santander shares that the shareholders at the general shareholders meeting resolve to deliver and to any regulatory restrictions that may be applicable in each jurisdiction. 4 In relation to certain members of the Identified Staff, the variable components of their remuneration include contributions to benefits schemes calculated based on the variable remuneration of the corresponding member. On the other hand, in certain countries, the deferral period may be longer to comply with applicable local regulations or with the requirements of the competent authority in each case. (en) propuestas de acuerdos jgo 2016 (2) 102/123

103 III. Taking the foregoing into account, the proposals submitted to the shareholders at the general shareholders meeting under items Thirteen A and Thirteen B only contemplate a decision on the application of a first cycle of the Deferred Multiyear Objectives Variable Remuneration Plan and of a sixth cycle of the Deferred and Conditional Variable Remuneration Plan to authorise the delivery of shares of the Company (and not of the respective subsidiaries) to the members of the Identified Staff. Limits on variable remuneration. The variable components of the total remuneration, that will be paid, if applicable, to each member of the Identified Staff in connection with financial year 2016 shall not exceed 100% of the fixed components or, if the resolution contemplated in item Twelve of the agenda is approved, 200% of such fixed components. Buy-out policy. This financial year 2016, at the proposal of the remuneration committee, the board of directors has approved a buy-out policy aimed at establishing homogeneous rules applicable to hiring by any entity of the Santander Group in which such entity assumes, as a part of the offer to the corresponding executive or employee (whether or not he or she belongs to the Identified Staff), the cost of the variable remuneration that such persons would have been paid by their previous company and that they would lose as a consequence of accepting the offer from the Group. This type of policy is compatible with the regulations and recommendations applicable to the Company and is widespread in the market; the purpose is to maintain a degree of flexibility to be able to attract the best talent and to be fair with respect to the loss of rights that an executive or employee assumes due to joining the Group. In general, the Group has paid such amounts in cash, paying the executive or employee the corresponding amounts. As a new feature, the new buy-out policy establishes the possibility of paying such amounts in Santander shares, which permits a better alignment with the Company s long-term interests. The delivery of shares of the Bank within the framework of the application of the aforementioned policy with respect to hiring during 2016 and before the next ordinary general shareholders meeting is submitted for the approval of the shareholders at this general shareholders meeting under item Thirteen C of the agenda. This buy-out policy will be applicable regardless of the possible inclusion of the executive or employee hired among the beneficiaries of Award A or of Award B, depending on the category to which they are assigned within the Group. Award Determination of Award. At the beginning of 2017 and following a proposal of the remuneration committee, the board of directors will verify if the targets on which the maximum amount of the 2016 Award is contingent have been met. Subsequently, if applicable, the Award for each member of the Identified Staff will be established based on the benchmark award for such financial year. The Award setting will take (en) propuestas de acuerdos jgo 2016 (2) 103/123

104 into account the quantitative metrics and qualitative factors applicable to the Award and which have been revised with respect to those of previous financial years 5. Form of payment of the Award. The Award will be paid 50% in cash and 50% in shares, part in 2017 and part on a deferred basis over three or five years, as follows: Award A beneficiaries: 40% to 60% of Award A, depending on the category to which the beneficiary belongs, will be paid in 2017, in halves and net of taxes, in cash and in shares (this part of the total amount of Award A, the Immediate Payment Amount ). The amount corresponding to the remaining percentage (the Deferred Amount ) will be deferred by thirds or fifths, as applicable, in the case of Award A and by thirds in the case of Award B, and will be paid, if applicable, in the following financial years (until financial year 2020 or 2022, as applicable). Each year the respective amount will be paid, net of taxes, half in cash and half in shares. These deferral periods may be extended (but not reduced) in certain territories to conform them to applicable legal provisions in such jurisdiction or to the requirements of the competent authority. Award B beneficiaries: A 60% of Award B will be paid in 2017, in halves and net of taxes, in cash and in shares (this part of the total amount of Award A or of Award B, the Immediate Payment Amount ). The amount corresponding to the remaining percentage (the Deferred Amount ) will be deferred by thirds and will be paid, if applicable, in the following financial years (until financial year 2020). Each year the respective amount will be paid, net of taxes, half in cash and half in shares. This deferral period may be extended (but not reduced) in certain territories to conform it to applicable legal provisions in such jurisdiction or to the requirements of the competent authority. By way of exception, if the regulations so allow, it is possible that Awards B payments of less than 50,000 euros will not be deferred. Conditions for the accrual of the deferred portion of the Award. In addition to the beneficiary remaining with the Santander Group, the accrual of the deferred part of both Award A and Award B is conditional upon the non-existence of so-called bad actor (malus) provisions revealing improper risk-taking in accordance with the Group s malus policy. Additionally, the accrual of the deferred portion of Award A to be paid in financial years 2020 and, if applicable, 2021 and 2022 (the Deferred Portion Subject to Objectives ) is subject to compliance with certain targets for the period 5 See footnote 2 of this report. (en) propuestas de acuerdos jgo 2016 (2) 104/123

105 (the Multiyear Objectives ) and to the metrics and compliance scales associated with such Multiyear Objectives, which are those set forth below: (a) Compliance with consolidated earnings-per-share ( EPS ) growth target of Banco Santander for 2018 against The coefficient corresponding to this target (the EPS Coefficient ) will be obtained from the following table: 2018 EPS growth (% against 2015) EPS Coefficient 25% 1 0% but < 25% 0 1 (*) < 0% 0 (*) Straight-line increase in EPS Coefficient based on the specific percentage of growth of 2018 s EPS with respect to 2015 s EPS within this bracket of the scale. (b) Relative performance of total shareholder return ( TSR ) of the Bank for the period compared to the weighted TSRs of a group of 35 credit institutions (the Peer Group ), assigning the corresponding TSR Coefficient depending on the Bank s RTA position within the Peer Group. TSR position of Santander TSR Coefficient Exceeding percentile 66 1 Between percentiles 33 and (*) Below percentile 33 0 (*) Proportional increase of TSR Coefficient, such that, within this line of the scale, the coefficient increases depending on the number of positions risen in the ranking. TSR measures a shareholder s return on investment as the sum of the change in the share price plus dividends and other similar items (including the Santander Dividendo Elección scrip dividend scheme) that the shareholder may receive during the period under consideration. The Peer Group will be made up of the following institutions: BBVA, CaixaBank, Bankia, Popular, Sabadell, BCP, BPI, HSBC, RBS, Barclays, Lloyds, BNP Paribas, Crédit Agricole, Deutsche Bank, Société Générale, Nordea, Intesa San Paolo, Unicredit, Itaú, Bradesco, Banco do Brasil, Banorte, Banco de Chile, M&T Bank Corp, Keycorp, Fifth Third Bancorp, BB&T Corp., Citizens, Crédit Acceptance Corp., Ally Financial Inc., PKO, PEKAO, Millenium, ING Polonia and mbank. (c) Compliance with the fully-loaded common equity tier 1 ( CET1 ) ratio target for financial year 2018, being such target that at 31 December 2018 the consolidated fully-loaded CET1 ratio for the Santander Group is greater than 11%. If such target is achieved, this metric will be assigned a coefficient ( CET1 Coefficient ) of 1, and if it is not achieved, the CET1 Coefficient will be 0. In order to verify if this target has been met, any potential increase in CET1 deriving from share capital increases (other than those implemented under the Santander Dividendo Elección scrip dividend scheme) will be disregarded. Moreover, the CET1 ratio at (en) propuestas de acuerdos jgo 2016 (2) 105/123

106 31 December 2018 may be adjusted in order to remove the effects of any regulatory change on the calculation rules thereof that may occur until such date. (d) Compliance with Santander Group s underlying return on risk-weighted assets ( RoRWA ) growth target for financial year 2018 compared to financial year The corresponding coefficient (the RoRWA Coefficient ) will be obtained from the following table: 2018 RoRWA growth (% against 2015) RoRWA Coefficient 20% 1 10% but < 20% (*) < 10% 0 (*) Straight-line increase in RoRWA Coefficient based on the specific percentage of growth of 2018 s RORWA with respect to 2015 s RoRWA within this bracket of the scale. The following formula will be applied to determine the annual amount of the Deferred Portion Subject to Objectives, if any, for each beneficiary in financial years 2020 and, if applicable, 2021 and 2022 (each one of these payments, a Final Annual Payment ), without prejudice to any adjustments that may result from bad actor (malus) clauses: Final Annual Payment = Amt. x (0.25 x A x B x C x D) where: Amt. corresponds to a fifth or a third, based on the beneficiary s profile, of the Deferred Amount of Award A. A is the EPS Coefficient according to the scale in paragraph (a) above based on EPS growth in 2018 with respect to B is the TSR Coefficient according to the scale in paragraph (b) above based on the relative performance of the TSR of the Bank for the period with respect to the Peer Group. C is the CET1 Coefficient according to compliance with the CET1 target described in paragraph (c) above. D is the RoRWA Coefficient according to the scale in paragraph (d) above based on the level of RoRWA growth in 2018 with respect to (en) propuestas de acuerdos jgo 2016 (2) 106/123

107 Proposals 1 : Thirteen A First Cycle of the Deferred Multiyear Objectives Variable Remuneration Plan To approve the implementation of the first cycle of the Deferred Multiyear Objectives Variable Remuneration Plan, inasmuch as it is a remuneration system that includes the delivery of shares of the Bank or rights thereon, which has been approved by the board of directors on the terms and conditions described below: I. Purpose and Beneficiaries The first cycle of the Deferred Multiyear Objectives Variable Remuneration Plan will be implemented in connection with the variable remuneration or award (hereinafter, Award A ) for financial year 2016 that is approved by the board of directors or the appropriate body in each case, for executive directors of Banco Santander, vice presidents, country heads, other key executives from the main countries in which the Group operates and, in general, the Top Red executives of the Group, all of them belonging to the Identified Staff (that is, to categories of staff whose professional activities have a material impact on the risk profile of the institution or its Group in accordance with section 32.1 of Law 10/2014 of 26 June on organisation, supervision and solvency of credit institutions, and the regulations in implementation thereof). The envisaged number of beneficiaries of Award A is 400 persons, though this resolution does not affect those persons whose Award A is not paid, either in whole or in part, in shares or similar instruments of Banco Santander, but rather in shares or similar instruments of subsidiaries of Banco Santander. Taking into account possible changes in the workforce, the number of beneficiaries of this resolution may change. The board of directors, or the executive committee acting by delegation therefrom, may approve inclusions (through promotion or hiring at the Santander Group) or exclusions from the Identified Staff, without at any time changing the authorised maximum total number of shares to be delivered. The purpose of this first cycle of the Deferred Multiyear Objectives Variable Remuneration Plan is (a) to defer a portion of Award A over a period of three to five years, depending on the beneficiary, subject to the non-occurrence of certain circumstances, (b) in turn, to link a portion of such amount to the performance of the Bank over a multiyear period, (c) for its payment, if applicable, in cash and in Santander shares, and (d) also paying the other portion of such variable remuneration in cash and in Santander shares upon commencement, all in accordance with the rules set forth below. II. Operation Award A of the beneficiaries for financial year 2016 will be paid according to the following percentages, depending on the time of payment and on the group to which the beneficiary belongs (the Immediate Payment Percentage, to identify the portion for which payment is 1 Each one of the items Thirteen A to Thirteen D will be subject to a separate vote. (en) propuestas de acuerdos jgo 2016 (2) 107/123

108 not deferred, and the Deferred Percentage, to identify the portion for which payment is deferred): Executive directors and members of the Identified Staff whose total variable remuneration is 2.7 mill. Vice presidents, country heads of countries representing at least 1% of the Group s financial capital and other Identified Staff members whose total variable remuneration is 1.7 mill. (< 2.7 mill). Remaining Identified Staff members who are beneficiaries of Award A. Immediate Payment Percentage Deferred Percentage Deferral Period (*) 40% 60% 5 years 50% 50% 5 years 60% 40% 3 years Deferred Portion Subject to Objectives Last 3 years (3/5 of Deferred Percentage) Last 3 years (3/5 of Deferred Percentage) Last year (1/3 of Deferred Percentage) (*) In certain countries, the deferral period may be longer to comply with applicable local regulations or with the requirements of the competent authority in each case. Taking the foregoing into account, the Award A for financial year 2016 will be paid as follows: (i) (ii) (iii) (iv) (iv) Each beneficiary will receive in 2017, depending on the group to which such beneficiary belongs, the Immediate Payment Percentage applicable in each case, in halves and net of taxes (or withholdings), in cash and in Santander shares (the Initial Date, meaning the specific date on which the Immediate Payment Percentage is paid). Payment of the Deferred Percentage of the Award applicable in each case depending on the group to which the beneficiary belongs will be deferred over a period of 3 or 5 years (the Deferral Period ) and will be paid in thirds or fifths, as applicable, within thirty days of the anniversaries of the Initial Date in 2018, 2019 and 2020 and, if applicable, 2021 and 2022 (the Anniversaries ), provided that the conditions described below are met. After deduction of any taxes (or withholdings) applicable at any time, the net amount of the deferred portion will be paid in thirds or fifths (each one, an Annual Payment ), which will determine the maximum amount to be paid, if applicable, on each one of the Anniversaries. Each one of the payments that are applicable on the Anniversaries will be paid 50% in cash and the other 50% in Santander shares. The beneficiaries receiving Santander shares pursuant to paragraphs (i) to (iv) above may not transfer them or hedge them directly or indirectly for one year as from each delivery of shares. The beneficiaries may likewise not hedge the shares directly or indirectly prior to delivery thereof. (en) propuestas de acuerdos jgo 2016 (2) 108/123

109 In addition to continuity of the beneficiary within the Santander Group 2, the accrual of all the Annual Payments is subject to none of the following circumstances arising, in the opinion of the board of directors at the proposal of the remuneration committee in each case, and in accordance with the Group s malus policy, during the period before each one of the deliveries (such circumstances, collectively, shall hereinafter be referred to as the Malus Clause ): (i) (ii) (iii) (iv) poor financial performance of the Group; breach by the beneficiary of internal regulations, particularly those relating to risks; material restatement of the Group s financial statements, when so considered by the external auditors, except when appropriate pursuant to a change in accounting standards; or significant changes in the financial capital or risk profile of the Group. The board of directors, at the proposal of the remuneration committee and based on the level of compliance with such conditions, shall determine the specific amount of the corresponding Annual Payments to be paid (or of the corresponding Final Annual Payments, as this term is defined below). 2 When termination of the relationship with Banco Santander or another entity of the Santander Group is due to retirement, early retirement or pre-retirement of the beneficiary, for a termination judicially declared to be improper, unilateral separation for good cause by an employee (which includes, in any case, the situations set forth in section 10.3 of Royal Decree 1382/1985, of 1 August, governing the special relationship of senior management, for the persons subject to these rules), permanent disability or death, or as a result of an employer other than Banco Santander ceasing to belong to the Santander Group, as well as in those cases of mandatory redundancy, the right to delivery of the shares and the cash amounts that have been deferred shall remain under the same conditions in force as if none of such circumstances had occurred. In the event of death, the right shall pass to the successors of the beneficiary. In cases of justified temporary leave due to temporary disability, suspension of the contract of employment due to maternity or paternity, or leave to care for children or a relative, there shall be no change in the rights of the beneficiary. If the beneficiary goes to another company of the Santander Group (including through international assignment and/or expatriation), there shall be no change in the rights thereof. If the relationship terminates by mutual agreement or because the beneficiary obtains a leave not referred to in any of the preceding paragraphs, the terms of the termination or temporary leave agreement shall apply. None of the above circumstances shall give the right to receive the deferred amount in advance. If the beneficiary or the successors thereof maintain the right to receive deferred remuneration in shares and in cash, such remuneration shall be delivered within the periods and upon the terms set forth in the plan rules. (en) propuestas de acuerdos jgo 2016 (2) 109/123

110 Additionally, the accrual of the third and, if applicable, fourth and fifth Annual Payments (these Annual Payments, together, the Deferred Portion Subject to Objectives ) is subject to compliance with certain targets referring to the period (the Multiyear Objectives ) and to the metrics and compliance scales associated with such Multiyear Objectives, which are those set forth below: (a) Compliance with consolidated earnings-per-share ( EPS ) growth target of Banco Santander for 2018 against The coefficient corresponding to this target (the EPS Coefficient ) will be obtained from the following table: 2018 EPS growth (% against 2015) EPS Coefficient 25% 1 0% but < 25% 0 1 (*) < 0% 0 (*) Straight-line increase in EPS Coefficient based on the specific percentage of growth of 2018 s EPS with respect to 2015 s EPS within this bracket of the scale. (b) Relative performance of total shareholder return ( TSR ) of the Bank for the period compared to the weighted TSRs of a peer group of 35 credit institutions. For these purposes: TSR means the difference (expressed as a percentage) between the final value of an investment in ordinary shares of Banco Santander and the initial value of the same investment, taking into account that for the calculation of such final value, dividends or other similar items (such as the Santander Dividendo Elección scrip dividend scheme) received by the shareholder due to such investment during the corresponding period of time will be considered as if they had been invested in more shares of the same class at the first date on which the dividend or similar item is owed to the shareholders and at the average weighted listing price on said date. To calculate TSR the average weighted daily volume of the average weighted listing prices corresponding to the fifteen trading sessions prior to 1 January 2016 (excluded) (for the calculation of the initial value) and of the fifteen trading sessions prior to 1 January 2019 (excluded) (for the calculation of the final value) will be taken into account. Peer Group means the group made up of the following 35 financial institutions: BBVA, CaixaBank, Bankia, Popular, Sabadell, BCP, BPI, HSBC, RBS, Barclays, Lloyds, BNP Paribas, Crédit Agricole, Deutsche Bank, Société Générale, Nordea, Intesa San Paolo, Unicredit, Itaú, Bradesco, Banco do Brasil, Banorte, Banco de Chile, M&T Bank Corp, Keycorp, Fifth Third Bancorp, BB&T Corp., Citizens, Crédit Acceptance Corp., Ally Financial Inc., PKO, PEKAO, Millenium, ING Polonia and mbank. (en) propuestas de acuerdos jgo 2016 (2) 110/123

111 For this TSR metric, the following achievement scale is established: (c) (d) TSR position of Santander TSR Coefficient Exceeding percentile 66 1 Between percentiles 33 and (*) Below percentile 33 0 (*) Proportional increase of TSR Coefficient, such that, within this line of the scale, the coefficient increases depending on the number of positions risen in the ranking. Compliance with the fully-loaded common equity tier 1 ( CET1 ) ratio target for financial year 2018, being such target that at 31 December 2018 the consolidated fully-loaded CET1 ratio for the Santander Group is greater than 11%. If such target is achieved, this metric will be assigned a coefficient ( CET1 Coefficient ) of 1, and if it is not achieved, the CET1 Coefficient will be 0. In order to verify if this target has been met, any potential increase in CET1 deriving from share capital increases (other than those implemented under the Santander Dividendo Elección scrip dividend scheme) will be disregarded. Moreover, the CET1 ratio at 31 December 2018 may be adjusted in order to remove the effects of any regulatory change on the calculation rules thereof that may occur until such date. Compliance with Santander Group s underlying return on risk-weighted assets ( RoRWA ) growth target for financial year 2018 compared to financial year The corresponding coefficient (the RoRWA Coefficient ) will be obtained from the following table: 2018 RoRWA growth (% against 2015) RoRWA Coefficient 20% 1 10% but < 20% (*) < 10% 0 (*) Straight-line increase in RoRWA Coefficient based on the specific percentage of growth of 2018 s RORWA with respect to 2015 s RoRWA within this bracket of the scale. To determine the amount of the Deferred Portion Subject to Objectives that, if applicable, must be paid to each beneficiary on the corresponding Anniversaries (each payment, a Final Annual Payment ), and without prejudice to the adjustments that may result from the Malus Clause, the following formula will be applied to each one of the Annual Payments pending payment: where: Final Annual Payment = Amt. x (0.25 x A x B x C x D) Amt. corresponds to the amount of Award A equivalent to an Annual Payment. A is the EPS Coefficient according to the scale in paragraph (a) above based on EPS growth in 2018 with respect to (en) propuestas de acuerdos jgo 2016 (2) 111/123

112 III. B is the TSR Coefficient according to the scale in paragraph (b) above based on the relative performance of the TSR of the Bank for the period with respect to the Peer Group. C is the CET1 Coefficient according to compliance with the CET1 target described in paragraph (c) above. D is the RoRWA Coefficient according to the scale in paragraph (d) above based on the level of RoRWA growth in 2018 with respect to Maximum Number of Shares to Be Delivered The final number of shares delivered to each beneficiary, including both those for immediate payment and those for deferred payment, shall be calculated taking into account: (i) the amount resulting from applying applicable taxes (or withholdings); and (ii) the average weighted daily volume of the average weighted listing prices of the shares of Santander for the fifteen trading sessions prior to the Friday (exclusive) of the previous week to the date on which the board of directors approves Award A for the executive directors of the Bank for financial year 2016 (hereinafter, the 2017 Listing Price ). Taking into account that the board of directors has estimated that the maximum amount of Award A to be delivered in shares to the beneficiaries of the first cycle of the Deferred Multiyear Objectives Variable Remuneration Plan will come to 200 million euros (the Maximum Amount of Award A Distributable in Shares or MAAADS ), the maximum number of shares of Santander that may be delivered to such beneficiaries under this plan (the Limit of Award A in Shares or LAAS ) will be determined, after deducting any applicable taxes (or withholdings), by applying the following formula: LAAS = MAAADS 2017 Listing Price Included in the Maximum Amount of Award A Distributable in Shares is the estimated maximum amount of Award A to be delivered in shares to the executive directors of the Bank, which comes to 14 million euros (the Maximum Amount Distributable in Shares for Executive Directors or MADSED ). The maximum number of Santander shares that may be delivered to the executive directors under this plan (the Limit on Shares for Executive Directors or LSED ) will be determined, after deducting any applicable taxes (or withholdings), by applying the following formula: IV. Other Rules LSDE = MADSED 2017 Listing Price In the event of a change in the number of shares due to a decrease or increase in the par value of the shares or a transaction with an equivalent effect, the number of shares to be delivered will be modified so as to maintain the percentage of the total share capital represented by them. Information from the stock exchange with the largest trading volume will be used to determine the listing price of the share. (en) propuestas de acuerdos jgo 2016 (2) 112/123

113 If necessary or appropriate for legal, regulatory or other similar reasons, the delivery mechanisms provided for herein may be adapted in specific cases without altering the maximum number of shares linked to the plan or the basic conditions upon which the delivery thereof is made contingent. Such adaptations may include the substitution of the delivery of shares with the delivery of equivalent amounts in cash, or vice versa. The shares to be delivered may be owned by the Bank or by any of its subsidiaries, be newlyissued shares, or be obtained from third parties with whom agreements have been signed to ensure that the commitments made will be met. V. Authorisation Without prejudice to the general provisions set forth in item Fourteen or in preceding sections or to the powers of the board in remuneration matters under the Bylaws and the rules and regulations of the board, the board of directors of the Bank is hereby authorised, to the extent required, to implement this resolution, with the power to elaborate, as necessary, on the rules set forth herein and on the content of the agreements and other documents to be used. Specifically, and merely by way of example, the board of directors will have the following powers: (i) (ii) (iii) (iv) (v) (vi) To approve the basic contents of the agreements and of such other supplementary documentation as may be necessary or appropriate. To approve all such notices and supplementary documentation as may be necessary or appropriate to file with any government agency or private entity, including, if required, the respective prospectuses. To take any action, carry out any procedure or make any statement before any public or private entity or agency to secure any required authorisation or verification. To determine the specific number of shares to be received by each of the beneficiaries of the plan to which this resolution refers, observing the established maximum limits. To determine the assignment of the beneficiaries of the plan to one category or another of those described in this resolution and to set the specific number of beneficiaries of the plan without altering the maximum amount of Award A to be delivered in shares, except in the event that Top Red executives or executives in a similar category initially ascribed to the remuneration plan to which item Thirteen B refers are finally ascribed to this plan implementing Award A, in which case the board will be entitled to use for the Award A the excess of the maximum amount set under item Thirteen B (so that, altogether, the maximum amount set under items Thirteen A and Thirteen B is under no circumstances exceeded). Additionally, the board will be entitled to apply the measures and mechanisms that may be appropriate to compensate for the dilution effect, if any, that may occur as a result of corporate transactions; and, in the event that the maximum amount distributable in shares to be delivered is exceeded with relation to any of the three groups to which the plan is directed, to authorise the deferral and payment of the excess in cash. To approve, where applicable, the engagement of one or more internationally recognised third parties to verify the achievement of the Multiyear Objectives. In (en) propuestas de acuerdos jgo 2016 (2) 113/123

114 (vii) particular, and merely by way of example, it may ask such third parties: to obtain, from appropriate sources, the data upon which the calculations of TSR are to be based; to allocate or validate the allocation of the corresponding weights to each entity of the Peer Group (based on the size or market capitalisation or other criteria deemed relevant for the purposes of the comparison); to perform the calculations of the TSR of the Bank and the weighted TSRs of the Peer Group s entities; to compare the Bank s TSR with the weighted TSRs of the institutions within the Peer Group; to recalculate CET1 removing the effects of share capital increases and regulatory changes; and to provide advice on the decision as to how to act in the event of unexpected changes in the Peer Group that may require adjustments to the rules for comparison among them or on the amendment of the Peer Group in light of objective circumstances that justify such amendment. To interpret the foregoing resolutions, with powers to adapt them, without affecting their basic content, to the circumstances that may arise at any time, including in particular adapting the delivery mechanisms, without altering the maximum number of shares linked to the plan or the basic conditions upon which the delivery thereof is made contingent, which may include the substitution of the delivery of shares with the delivery of equivalent amounts in cash, or the alteration of the mechanisms for net delivery of shares under the procedures that are established for the payment of taxes. In addition, the board may adapt the aforementioned plan (including the adjustment or removal of any metrics and scales of compliance for the Multiyear Objectives, the inclusion of additional targets for the delivery of any deferred amount of Award A or the increase of the Deferred Percentages or of the Deferral Period) to any mandatory regulations or administrative interpretation that may prevent the implementation thereof on the approved terms. (viii) To develop and specify the conditions upon which the receipt by the beneficiaries of the corresponding shares or deferred amounts is contingent, as well as to determine whether, according to the plan to which this resolution refers, the conditions upon which the receipt by the beneficiaries of the respective shares or cash amounts is made contingent have been fulfilled, with the power to modulate the cash amounts and the number of shares to be delivered depending on the existing circumstances, all following a proposal of the remuneration committee. (ix) In general, to take any actions and execute all such documents as may be necessary or appropriate. The board of directors may delegate to the executive committee all the powers conferred in this resolution Thirteen A (except for those that may not be delegated under the law). The provisions of this resolution are deemed to be without prejudice to the exercise by such of the Bank s subsidiaries as may be appropriate in each case of the powers they hold to implement the variable remuneration policy, the plan and the cycles thereof with respect to their own executives and employees and, if applicable, to adjust them to regulations or to the requirements of competent authorities in the respective jurisdiction. (en) propuestas de acuerdos jgo 2016 (2) 114/123

115 Thirteen B Sixth Cycle of the Deferred and Conditional Variable Remuneration Plan To approve the implementation of the sixth cycle of the Deferred and Conditional Variable Remuneration Plan, inasmuch as it is a remuneration system that includes the delivery of shares of the Bank or of rights thereon, which has been approved by the board of directors on the terms and conditions described below: I. Purpose and Beneficiaries The sixth cycle of the Deferred and Conditional Variable Remuneration Plan will be implemented with respect to the variable remuneration or award (hereinafter, Award B ) to be approved by the board of directors, or by the appropriate body in each case, for financial year 2016 for categories of staff whose professional activities have a material impact on the risk profile of the institution or its Group (all of them together, the Identified Staff and identified under section 32.1 of Law 10/2014 of 26 June on the organisation, supervision and solvency of credit institutions, and the regulations in implementation thereof), or other persons included in this group under regulatory or corporate standards in a specific country, and who are not beneficiaries of the plan to which item Thirteen A above refers. The number of members of the Identified Staff who would be beneficiaries of this plan comes to approximately 900 persons, though this resolution does not affect those whose Award is not paid, either in whole or in part, in shares or similar instruments of Banco Santander, but rather in shares or similar instruments of subsidiaries of Banco Santander. Taking into account possible changes in the workforce, the number of beneficiaries of this resolution may change. The board of directors, or the executive committee acting by delegation therefrom, may approve inclusions (through promotion or hiring at the Group) in or exclusions from the members of the Identified Staff that are beneficiaries of this plan, without at any time changing the authorised maximum total number of shares to be delivered. The purpose of this sixth cycle of the Deferred and Conditional Variable Remuneration Plan is to defer a portion of Award B for a period of three years for its payment, if applicable, in cash and in Santander shares (subject to the non-occurrence of certain circumstances), also paying the other portion of such variable remuneration in cash and in Santander shares at the outset, all in accordance with the rules set forth below. II. Operation 60% of the beneficiaries Award B for financial year 2016 will be paid immediately and 40% on a deferred basis, the deferral period being 3 years. In certain countries, the deferral period may be longer to comply with applicable local regulations or with the requirements of the competent authority in each case. Taking into account the foregoing, the Award B for financial year 2016 will be paid as follows: (i) Each beneficiary will receive 60% of Award B in 2017, in halves and net of taxes (or withholdings), in cash and in Santander shares (the Initial Date, meaning the specific date on which 60% of Award B is paid). (en) propuestas de acuerdos jgo 2016 (2) 115/123

116 (ii) (iii) (iv) Payment of 40% of Award B will be deferred over a period of 3 years and will be paid in thirds within thirty days following the anniversaries of the Initial Date in 2018, 2019 and 2020 (the Anniversaries ), provided that the conditions described below are met. After deduction of any taxes (or withholdings) applicable at any time, the net amount of the deferred portion will be paid in thirds, 50% in cash and the other 50% in Santander shares. The beneficiaries receiving Santander shares pursuant to paragraphs (i) to (iii) above may not transfer them or hedge them directly or indirectly for one year as from each delivery of shares. The beneficiaries may likewise not hedge the shares directly or indirectly prior to delivery thereof. In addition to continuity of the beneficiary within the Santander Group 3, the accrual of the deferred remuneration is subject to none of the following circumstances arising, in the opinion of the board of directors at the proposal of the remuneration committee, and in accordance with the Group s malus policy, during the period before each one of the deliveries: (i) (ii) (iii) (iv) poor financial performance of the Group; breach by the beneficiary of internal regulations, particularly those relating to risks; material restatement of the Group s financial statements, when so considered by the external auditors, except when appropriate pursuant to a change in accounting standards; or significant changes in the financial capital or risk profile of the Group. The board of directors, at the proposal of the remuneration committee and based on the level of achievement of such conditions, shall determine the specific amount of deferred remuneration to be paid on each occasion. 3 When termination of the relationship with Banco Santander or another entity of the Santander Group is due to retirement, early retirement or pre-retirement of the beneficiary, for a termination judicially declared to be improper, unilateral separation for good cause by an employee (which includes, in any case, the situations set forth in section 10.3 of Royal Decree 1382/1985 of 1 August governing the special relationship of senior management, for the persons subject to these rules), permanent disability or death, or as a result of an employer other than Banco Santander ceasing to belong to the Santander Group, as well as in those cases of mandatory redundancy, the right to delivery of the shares and the cash amounts that have been deferred shall remain under the same conditions in force as if none of such circumstances had occurred. In the event of death, the right shall pass to the successors of the beneficiary. In cases of justified temporary leave due to temporary disability, suspension of the contract of employment due to maternity or paternity, or leave to care for children or a relative, there shall be no change in the rights of the beneficiary. If the beneficiary goes to another company of the Santander Group (including through international assignment and/or expatriation), there shall be no change in the rights thereof. If the relationship terminates by mutual agreement or because the beneficiary obtains a leave not referred to in any of the preceding paragraphs, the terms of the termination or temporary leave agreement shall apply. None of the above circumstances shall give the right to receive the deferred amount in advance. If the beneficiary or the successors thereof maintain the right to receive deferred remuneration in shares and in cash, such remuneration shall be delivered within the periods and upon the terms set forth in the plan rules. (en) propuestas de acuerdos jgo 2016 (2) 116/123

117 If the foregoing requirements are met on each Anniversary, the beneficiaries shall receive the cash and shares, in thirds, within thirty days of the first, second and third Anniversary. III. Maximum Number of Shares to Be Delivered The final number of shares to be delivered to each beneficiary, including both those for immediate payment and those for deferred payment, shall be calculated taking into account: (i) the amount resulting from applying applicable taxes (or withholdings), and (ii) the average weighted daily volume of the average weighted listing prices of the shares of Santander for the fifteen trading sessions prior to the Friday (exclusive) of the previous week to the date on which the board of directors approves Award A for the executive directors of the Bank for financial year 2016 (hereinafter, the 2017 Listing Price ). Taking into account that the board of directors has estimated that the maximum amount of Award B to be delivered in shares to the beneficiaries of the sixth cycle of the Deferred and Conditional Variable Remuneration Plan comes to 80 million euros (the Maximum Amount of Award B Distributable in Shares or MAABDS ), the maximum number of Santander shares that may be delivered to such beneficiaries under this plan (the Limit of Award B in Shares or LABS ) will be determined, after deducting any applicable taxes (or withholdings), by applying the following formula: IV. Other Rules LABS = MAABDS 2017 Listing Price In the event of a change in the number of shares due to a decrease or increase in the par value of the shares or a transaction with an equivalent effect, the number of shares to be delivered will be modified so as to maintain the percentage of the total share capital represented by them. Information from the stock exchange with the largest trading volume will be used to determine the listing price of the share. If necessary or appropriate for legal, regulatory or similar reasons, the delivery mechanisms provided for herein may be adapted in specific cases without altering the maximum number of shares linked to the plan or the basic conditions upon which the delivery thereof is made contingent. Such adaptations may include the substitution of the delivery of shares with the delivery of equivalent amounts in cash, or vice versa. The shares to be delivered may be owned by the Bank or by any of its subsidiaries, be newlyissued shares, or be obtained from third parties with whom agreements have been signed to ensure that the commitments made will be met. V. Authorisation Without prejudice to the general provisions set forth in item Fourteen or in preceding sections or to the powers of the board of directors in remuneration matters under the Bylaws and the rules and regulations of the board, the board of directors of the Bank is hereby authorised, to the extent required, to implement this resolution, with the power to elaborate, as necessary, on the rules set forth herein and on the content of the agreements and other documents to be (en) propuestas de acuerdos jgo 2016 (2) 117/123

118 used. Specifically, and merely by way of example, the board of directors will have the following powers: (i) (ii) (iii) (iv) (v) (vi) (vii) To approve the basic contents of the agreements and of such other supplementary documentation as may be necessary or appropriate. To approve all such notices and supplementary documentation as may be necessary or appropriate to file with any government agency or private entity, including, if required, the respective prospectuses. To take any action, carry out any procedure or make any statement before any public or private entity or agency to secure any required authorisation or verification. To determine the specific number of shares to be received by each of the beneficiaries of the plan to which this resolution refers, observing the established maximum limits. To set, without altering the maximum amount of Award B to be delivered in shares, the specific number of beneficiaries of the plan; to apply the measures and mechanisms that may be appropriate to compensate for the dilution effect, if any, that may occur as a result of corporate transactions; and, in the event that the maximum amount distributable in shares to be delivered to the beneficiaries of the plan is exceeded, to authorise the deferral and payment of the excess in cash. To interpret the foregoing resolutions, with powers to adapt them, without affecting their basic content, to the circumstances that may arise at any time, including, in particular, adapting the delivery mechanisms, without altering the maximum number of shares linked to the plan or the basic conditions upon which the delivery thereof is made contingent, which may include the substitution of the delivery of shares with the delivery of equivalent amounts in cash or the alteration of the mechanisms for the net delivery of shares under the procedures that are established for the payment of taxes. In addition, the board may adapt the aforementioned plan (including the introduction of new conditions for the delivery of any deferred amount of Award B or the amendment of existing conditions and, if applicable, the increase of the deferred percentages or the deferral period) to any mandatory regulations or administrative interpretation that may prevent the implementation thereof on the approved terms. To further develop and specify the conditions upon which the receipt by the beneficiaries of the respective shares or deferred amounts is contingent, as well as to determine whether, according to the plan to which this resolution refers, the conditions upon which the receipt by the beneficiaries of the respective shares or cash amounts is made contingent have been fulfilled, with the power to modulate the cash amounts and the number of shares to be delivered depending on the existing circumstances, all following a proposal of the remuneration committee. (viii) In general, to take any actions and execute all such documents as may be necessary or appropriate. The board of directors may delegate to the executive committee all the powers conferred in this resolution Thirteen B (except for those that may not be delegated under the law). The provisions of this resolution are deemed to be without prejudice to the exercise by such of the Bank s subsidiaries as may be appropriate in each case of the powers they hold to (en) propuestas de acuerdos jgo 2016 (2) 118/123

119 implement the variable remuneration policy, the plan and the cycles thereof with respect to their own executives and employees and, if applicable, to adjust them to regulations or to the requirements of competent authorities in the respective jurisdiction. Item Thirteen C Application of Santander Group s buy-out policy To authorise, inasmuch as it is a remuneration system that includes the delivery of shares of the Bank or of rights thereon or that is linked to the price of the shares, the (immediate or deferred) delivery of shares of the Bank within the application of the Group s buy-out policy which has been approved by the board of directors of the Bank, following a proposal of the remuneration committee. Such buy-out policy is an instrument to be selectively used in the engagement of executives or employees who, as a result of accepting a job offer from the Bank (or from other Santander Group s companies), lose the right to receive certain variable remuneration from their previous company. Therefore, this policy, which takes into account regulations and recommendations that apply to the Bank, allows the maintenance of certain flexibility to be able to attract the best talent and to be fair with respect to the loss of rights that an executive or employee assumes due to joining the Group, given that the conditions of the buy-out take into account the conditions applicable to the remunerations the loss of which is compensated. The maximum number of shares that may be delivered under this resolution is a number such that, multiplying the number of shares delivered (or recognised) on each occasion by the average weighted daily volume of the averaged weighted listing prices for Santander shares corresponding to the fifteen trading sessions prior to the date on which they are delivered (or recognised), does not exceed the amount of 40 million euros. The authorisation granted hereby may be used to undertake commitments to deliver shares with relation to the engagements that occur during financial year 2016 and until the following ordinary general shareholders meeting is held. Item Thirteen D Plan for employees Santander UK plc. and of other Group companies in the United Kingdom by means of options on shares of the Bank and linked to the contribution of periodic cash amounts and to certain continuity requirements. To approve, inasmuch as it is a remuneration system that includes the delivery of shares of the Bank or of rights thereon or that is linked to the price of the shares, the implementation of a voluntary savings plan ( sharesave scheme ) intended for the employees of Santander UK plc, of companies within the subgroup thereof and of the other companies of the Santander Group registered in the United Kingdom (in which the Group directly or indirectly holds at least 90% of the capital), including employees at United Kingdom branches of Banco Santander, S.A. or of companies within its Group (and in which the Group directly or indirectly holds at least 90% of the capital), which has been approved by the board of directors on the terms and conditions described below: (en) propuestas de acuerdos jgo 2016 (2) 119/123

120 A plan in which between 5 and 500 pounds Sterling is deducted from the employee s net salary every month, as chosen by the employee, who may, at the end of the chosen period (3 or 5 years), choose between collecting the amount contributed, the interest accrued and a bonus (tax-exempt in the United Kingdom), or exercising options on shares of Banco Santander, S.A. in an amount equal to the sum of such three amounts at a fixed price. In case of voluntary resignation, the employee will recover the amount contributed to that time, but will forfeit the right to exercise the options. The exercise price in pounds Sterling will be the result of reducing by up to a maximum of 20% the average of the purchase and sale prices of Santander shares at the close of trading in London for the 3 trading days prior to the reference date. In the event that these listing prices are unavailable for any reason, such reduction will be applied to the average price weighted by average traded volumes on the Spanish Continuous Market for the 15 trading days prior to the reference date. This amount will be converted into pounds Sterling using, for each day of listing, the average exchange rate for that day as published in the Financial Times, London edition, on the following day. The reference date will be set in the final approval of the plan by the British Tax Authority ( invitation date ) and will occur between 21 and 41 days following the date of publication of the consolidated results of Banco Santander, S.A. for the first half of The employees must decide upon their participation in the plan within a period between 42 and 63 days following publication of the consolidated results of Banco Santander, S.A. for the first half of The maximum monthly amount that each employee may assign to all voluntary savings plans subscribed by such employee (whether for the plan to which this resolution refers or other past or future sharesave schemes ) is 500 pounds Sterling. The maximum number of shares of Banco Santander, S.A. to be delivered under this plan, approved for 2016, is 18,600,000, equal to % of the share capital as of the date of the call to meeting. The plan is subject to the approval of the tax authorities of the United Kingdom. Each of the subgroups and companies covered by the plan will ultimately decide whether or not to implement this plan in connection with its employees. Without prejudice to the generality of the provisions of resolution Fourteen below, and without prejudice to the powers of the board of directors in remuneration matters under the Bylaws and the rules and regulations of the board, the board of directors is hereby authorised, as required, to the broadest extent permitted by law and with the express power of delegation to the executive committee, to carry out any acts that may be necessary or merely appropriate in order to implement the aforementioned plan, as well as to further develop and elaborate, to the extent required, on the rules set forth herein. All of the foregoing will also be deemed to be without prejudice to the acts that the decision-making bodies of Santander UK plc, of companies within the subgroup thereof and of the other companies of the Santander Group registered in the United Kingdom or having branches therein and referred to in the first paragraph above have already performed or may hereafter perform in the exercise of their powers, within the framework defined by this resolution of the shareholders acting at the (en) propuestas de acuerdos jgo 2016 (2) 120/123

121 general shareholders meeting, in order to implement the plan and to establish, develop and elaborate on the rules applicable thereto. (en) propuestas de acuerdos jgo 2016 (2) 121/123

122 Item Fourteen Proposal: Authorisation to the board of directors to interpret, remedy, supplement, implement and develop the resolutions approved by the shareholders at the meeting, as well as to delegate the powers received from the shareholders at the meeting, and grant of powers to convert such resolutions into notarial instruments. Without prejudice to the delegations of powers contained in the preceding resolutions, it is hereby resolved: A) To authorise the board of directors to interpret, remedy, supplement, carry out and further develop the preceding resolutions, including the adaptation thereof to verbal or written evaluations of the Commercial Registry or of any other authorities, officials or institutions which are competent to do so, as well as to comply with any requirements that may legally need to be satisfied for the effectiveness thereof, and in particular, to delegate to the executive committee all or any of the powers received from the shareholders at this general shareholders meeting by virtue of the preceding resolutions as well as under this resolution Fourteen. B) To authorise Ms Ana Patricia Botín-Sanz de Sautuola y O Shea, Mr José Antonio Álvarez Álvarez, Mr Rodrigo Echenique Gordillo, Mr Matías Rodríguez Inciarte and Mr Jaime Pérez Renovales so that any of them, acting severally and without prejudice to any other existing power of attorney whereby authority is granted to record the corporate resolutions in a public instrument, may appear before a Notary Public and execute, on behalf of the Bank, any public instruments that may be required or appropriate in connection with the resolutions adopted by the shareholders at this general shareholders meeting. In addition, the aforementioned persons are empowered, also on a several basis, to carry out the required filing of the annual accounts and other documentation with the Commercial Registry. (en) propuestas de acuerdos jgo 2016 (2) 122/123

123 ITEM TO BE SUBMITTED TO A CONSULTATIVE VOTE Item Fifteen Annual director remuneration report Annual director remuneration report. The shareholders are asked to provide a consultative vote on the annual director remuneration report, approved by the board of directors, following a proposal of the remuneration committee, on the terms established by law and in Circular 4/2013, of 12 June, of the National Securities Market Commission (as amended by Circular 7/2015, of 22 December). (en) propuestas de acuerdos jgo 2016 (2) 123/123