Last week’s announcement that Andrea Orcel would not be Banco Santander’s next Group CEO came as something of a shock, not least for the reason why: the cost. When the appointment was initially announced back in September, Santander’s board had agreed to remuneration terms with Mr. Orcel that “were in line with that of [his predecessor,] José Antonio Álvarez”. However, after looking more closely the board reconsidered, claiming that the value of the package was significantly above their original expectations.

This isn’t the first blowback that Mr. Orcel has faced. Back in September, the appointment prompted some unflattering reports with regard to his suitability for the role. Now, the board (and particularly the nomination and remuneration committee) will face tough questions about how they botched the succession – and how they let it get this far.

In her statement, Santander executive chair Ana Botín said that in making the decision the company had to balance the respect of various stakeholders with the very significant cost of hiring one individual. Very significant indeed — the amount floated in the media is roughly €50 million.

That figure doesn’t represent a special joining award intended to align Mr. Orcel’s interests with those of the company’s shareholders, or an exceptional LTI grant to incentivise him to deliver on strategy. Instead, it represents amounts previously earned at Mr. Orcel’s former employer, UBS Group, that remain subject to deferral – or forfeiture, if he were to leave UBS before they vest.

Executive pay is increasingly subject to deferral, particularly within the banking sector, both as a retention measure and as a way of mitigating against risky behaviour and short-termism. And as more and more payouts are being subjected to longer and longer deferral requirements, “make whole” awards have become increasingly common, particularly within the UK and among multi-national firms. These payments compensate externally hired executives for the deferred and unvested equity awards that they have forfeited by leaving their previous employer. In most cases, “make whole” awards are offered instead of additional sign-on payments.

The net impact is still a significant one-off cost to the company, so why bother with the switch? It’s largely a matter of marketing. Whereas “golden hello” sign-on awards are a lightning rod for voting opposition, boards have generally found shareholders more willing to accept “make whole” awards. That’s not to say that they haven’t received any criticism — governance enthusiasts have noted that effectively guaranteeing deferred and unvested awards serves to undermine their at-risk nature. However, by and large, presenting the payments as a standard cost of recruitment made “to compensate”, rather than as an exceptional incentive to sign on, appears to have reduced the level of scrutiny devoted to “make whole” grants. That is, until now.

While more common in other European countries, use of “make whole” awards or any type of sign-on bonuses to attract top talent has been relatively rare in Spain. Most recently, Banco Popular (which, coincidentally, has subsequently been acquired by Santander) dished out significant sign-on bonuses when its executive chair Emilio Saracho was entitled to a cash payment of €4 million on joining the company in 2017.

However regardless of what form recruitment awards take, shareholders are increasingly expecting these payments to incentivise performance and align the incoming executive’s interests with those of shareholders wherever possible. Moreover, the remuneration committee should fully disclose its methodology in determining award types and sizes; this is particularly pertinent for “make whole” awards, which may require extensive modelling to determine the potential value of equity that is still subject to holding requirements, performance conditions and share price fluctuations.

What happens next at Santander? José Antonio Álvarez, who has remained in the role since the announcement of Mr. Orcel’s hiring and who was planning to take on the role of chair of Santander Spain, will continue to serve in the CEO role without changes. He will also serve as vice chair of the board. As for Mr. Orcel, the allegedly abrasive executive is currently on gardening leave, but is reportedly getting set to pursue his deferred pay from UBS – along with a compensation offer from Santander in respect of lost future earnings.

Matti is an analyst covering the Iberian markets.