David Vélez terminates his variable compensation award to support Nubank’s efficiency program￼
As a result of the 2021 CSA termination, the company expects to see aggregate savings of 356M USD in the seven years following the decision
Nov 29 , 2022
São Paulo, November 29, 2022 – Nubank communicated to the market today that David Vélez, founder, chairman and CEO, has decided to terminate the 2021 Contingent Share Award (the 2021 CSA), the main compensation agreement through which he was potentially eligible to receive company shares in the future conditioned to aggressive stock price targets. Vélez will continue to receive his fixed salary, without any changes, and declined to receive any other variable compensation in 2022 or 2023.
“My decision is largely motivated by the change in the macroeconomic scenario since the agreement was established in 2021, and this adjustment will make a meaningful contribution to the continuous improvement of our results. We have a strong track record of performance and results as a public company, combined with a leading capital and liquidity position in our sector. I am fully confident we will reach our long term goals, and my decision serves to support our immediate companywide efficiency and readiness efforts,” said David Vélez.
The 2021 CSA termination was acknowledged by the Company’s Board of Directors and the Leadership, Development, Diversity and Compensation Committee as a unilateral transfer of future value back to the company and its shareholders, without impact to the CEO’s responsibilities and motivation. Vélez (through its holding company Rua California Ltd.) currently owns over 20% of the company’s share capital, which aligns his interests to the long term value creation for all shareholders. Vélez has also committed to the Giving Pledge and will dedicate the majority of his family wealth to philanthropy through the VelezReyes+ foundation, focused on initiatives that improve conditions for vulnerable and disadvantaged children and youth in Latin America.
As a result of the 2021 CSA termination, the company expects to see aggregate savings of 356M USD in the seven years following the decision, because the continuous accounting recognition of the potential future grant will no longer be required. Additionally, the termination will also avoid the potential shareholder dilution of up to 2% of total ordinary shares. In parallel, there will be a one-time, non-cash recognition of expenses of US$356 million in the 2022 fourth quarter results. Accounting guidelines require the termination to be registered as an accelerated vesting, even if there is no actual vesting or disbursement.
“The termination of the 2021 CSA is a strong tailwind to the Company and its shareholders. It provides material savings over the next few years by meaningfully reducing our share-based compensation. It eliminates the potential dilution our shareholders could have as a result of this instrument. And it does so while preserving the strong alignment between David with our other shareholders. From the perspective of the Company, it is a win-win situation.” said Guilherme Lago, Nubank’s Chief Financial Officer.
Context on the 2021 CSA
The agreement was established on November 22, 2021, and determined David Vélez (through its holding company Rua California Ltd.) would be granted ordinary shares if and only if the stock price reached certain triggers in the next years:
- 1% of the total shares if the stock reached US$18.69 (market cap of about USD 100 billion)
- an additional 1% of the total shares if the stock reached US$35.30 (market cap of about USD 200 billion)
According to accounting guidelines, the fair value of this potential future award was estimated at US$423 million and was expected to be recognized by the Company between 2021 and 2029, regardless of meeting the triggers or actually issuing the grant. This annual accounting recognition was registered in the company’s CVM Formulário de Referência alongside aggregate executive compensation, but should not be interpreted as actual disbursed executive compensation (Clarification Note).
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