Expert Corporate Governance Service (ECGS)
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Telefonica -AGM 07 June 2019

The meeting is expected to be held on second call on 7 June 2019.

The positions of Chairman and CEO were separated in practice in July 2017 through the appointment of Mr. Vilá Boix. Although the Company defines Mr. Álvarez-Pallete López as Chairman-CEO and Mr. Vilá Boix as COO, we note that the COO is responsible for the "highest executive functions over all the Company's business areas", which, in our opinion, are the typical responsibilities of a Chief Executive Officer.  This is why this report refers to Mr. Álvarez-Pallete López as Executive Chairman and Mr. Vilá Boix as CEO.  In any case, the roles of control and management are not separated, as the Chairman still holds executive powers.

In Item 5 (V on the proxy card), shareholders are called to a consultative vote on the Remuneration Report. Non-executive remuneration seems acceptable, as it does not include variable remuneration.  However, the Lead Independent Director (LID), Mr. de Paz Mancho received fees high enough to compromise his independent judgement relative to Company business.  This is of particular concern as the LID is an important role for providing independent leadership on the Board. 

The base salaries of the executive Directors are also quite high, which serves to increase their remuneration overall as it is used to calculate the variable remuneration.  Furthermore, the annual bonus of the executive Chairman is capped at 225% of his base salary (187.5% for the CEO), which is above our policy limit of 150%.  Total variable remuneration can also exceed ECGSnlimit of 300% of base salary. Finally, the severance payments are more than double ECGSnlimit of two years of base salary. Therefore, we recommend shareholders oppose.

Telefonica S.A.

Telefonica is engaged in the provision of public or private telecommunications services, including ancillary or complementary telecommunications services or related services. Co.'s fixed business includes: traditional fixed telecommunication services, Internet and broadband multimedia services, data and business-aplications services, and wholesale services for telecommunication operators. Co. also provides a range of mobile and related services and products to consumer and business customers, including mobile voice services, value added services, mobile data and Internet services, wholesale services, corporate services, roaming, fixed wireless, and, trunking and paging.


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