[42] Variable remuneration

KEEP employee share option programme

On 1 October 2014, the Executive Board of KION GROUP AG decided to introduce an employee share option programme for employees in Germany and to issue an offer in connection with this programme. The period during which eligible employees could take up this offer by making a declaration of acceptance ran from 2 to 31 October 2014. To be eligible to participate in the KION Employee Equity Programme (KEEP), employees must, at the start of the offer phase, have had a permanent, uninterrupted employment contract with a participating KION Group company for at least one year. Currently, KION GROUP AG plus twelve German subsidiaries are taking part in KEEP. The Company is considering whether to extend the employee share option programme to subsidiaries in China, Brazil, France, the United Kingdom, Italy, Spain, Poland and the Czech Republic over the coming years.

The KEEP programme is a share matching plan. Participating employees acquire KION shares for their own investment purposes. Each set of three KION shares represents a block of shares. Once the three-year holding period has expired, employees are entitled to one free matching share (bonus share) for each block. However, KION GROUP AG has the right to satisfy each programme participant’s entitlement by paying a cash settlement instead of granting a bonus share. For employees taking part for the first time, the KION Group is offering a special incentive in the form of starter blocks: the KION Group will bear the cost of one KION share (free share) in each of the first twelve blocks of shares that an employee takes up.

The right to obtain a bonus share lapses if participants sell their own investment in KION shares or cease to work for the KION Group. The change in the number of bonus shares to be granted is shown in > TABLE 115.

In 2014, 20,856 free shares were issued to employees as part of their starter blocks.

The free shares to be issued are measured at their fair value on the day on which employees obtain the right to acquire shares as their own investment. The fair value on the grant date is determined on the basis of Monte Carlo simulation. The measurement parameters used are shown in > TABLE 116.

For the 2014 programme, the fair value of a bonus share was €26.59.

The fair value of the bonus shares to be granted is recognised as an expense and paid into capital reserves over the three-year holding period.

In 2014, an expense of €0.7 million was recognised under functional costs for free shares and bonus shares in connection with the employee share option programme (2013: €0.0 million).

Each year, the Executive Board of KION GROUP AG decides whether there will be an offer made under the share option programme that year and which companies will participate.


KION performance share plan (PSP) for managers

In November 2014, the Company decided to introduce long-term, variable remuneration (the KION Long-Term Incentive Plan for Top Management 2014) for managers in the KION Group so that the remuneration structure would be based on the sustainable performance of the Company. The plan was introduced retrospectively from 1 January 2014.

Under this performance share plan, managers are granted virtual shares over a defined period (three years). The remuneration component measured over the long term is based in equal parts on the total shareholder return (TSR) of KION GROUP AG shares compared with the STOXX^® Europe TMI Industrial Engineering index as a measure of market performance, and with return on capital employed (ROCE) as an internal measure. It also depends on the performance of KION GROUP AG shares during the relevant period.

The first performance period for the 2014 tranche ends on 31 December 2016. At the beginning of the performance period, the managers were granted a total of 0.2 million virtual shares for this tranche based on a particular percentage of their individual gross annual remuneration at the time of grant. At the end of the performance period, the number of the virtual shares is amended depending on the degree to which the relevant targets are achieved. The resulting final number of virtual shares multiplied by the smoothed price of KION GROUP AG shares at the end of the performance period determines the amount of cash actually paid. The KION Group has the right to adjust the amount payable at the end of the performance period in the event of exceptional occurrences or developments. The maximum amount payable is limited to 200 per cent of the value of the shares allotted to an individual at the grant date.

The pro-rata expense calculation based on the fair value of the virtual shares on each valuation date is carried out using Monte Carlo simulation. The measurement parameters shown in > TABLE 117 were used to value the virtual shares on the reporting date.

The historic volatility of shares in similar companies (peer group) was used to determine the volatility of KION shares on which the valuation is based. As at 31 December 2014, the fair value of one virtual share was €27.23 for the 2014 tranche and the total fair value based on 0.2 million virtual shares was €4.9 million on that date. Because the performance period for the 2014 tranche has been set at 36 months, a liability of €1.6 million was recognised as a pro-rata expense under functional costs for twelve months in 2014.

KION performance share plan (PSP) for the Executive Board

As part of the KION GROUP AG performance share plan, the Executive Board members are allocated virtual shares over a fixed period (two-and-a-half years for the 2013 tranche and three years for all subsequent tranches). The remuneration component measured over the long term is based in equal parts on the total shareholder return (TSR) of KION GROUP AG shares compared with the STOXX^® Europe TMI Industrial Engineering index as a measure of market performance, and with return on capital employed (ROCE) as an internal measure. It also depends on the performance of KION GROUP AG shares during the relevant period.

The performance period for the 2014 tranche ends on 31 December 2016 (2013 tranche: 31 December 2015). At the beginning of the performance period on 1 January 2014 (2013 tranche: 29 June 2013), the Executive Board members were granted a total of 0.2 million virtual shares for this tranche (2013 tranche: 0.3 million virtual shares) with a specific fair value based on an allocation value in euros specified in each Executive Board member’s service contract.

At the end of the performance period, the number of the virtual shares is amended depending on the degree to which the relevant targets are achieved. The resulting final number of virtual shares multiplied by the smoothed price of KION GROUP AG shares at the end of the performance period determines the amount of cash actually paid. The Supervisory Board can also use a discretionary personal performance factor to adjust the final payment at the end of the performance period by +/- 20 per cent. The maximum amount payable is limited to 200 per cent of the value of the shares allotted to an individual at the grant date.

The pro-rata expense calculation based on the fair value of the virtual shares on each valuation date is carried out using Monte Carlo simulation. The measurement parameters shown in > TABLE 118 were used to value the virtual shares on the reporting date.

The historic volatility of shares in similar companies (peer group) was used to determine the volatility of KION shares on which the valuation for the 2014 tranche is based. Taking account of the remaining term of one year, the historic volatility of KION shares was used to determine the volatility on which the valuation for the 2013 tranche is based. As at 31 December 2014, the fair value of one virtual share was €27.72 for the 2013 tranche (31 December 2013: €23.74) and €26.79 for the 2014 tranche. On that date, the total fair value based on 0.3 million and 0.2 million virtual shares respectively was €7.3 million (2013 tranche; 31 December 2013: €6.2 million) and €5.2 million (2014 tranche). Because the performance period for the 2013 tranche has been set at 30 months, a pro-rata expense of €3.1 million for twelve months was recognised in 2014 (2013: €1.2 million). The total carrying amount for liabilities in connection with share-based remuneration was €4.4 million (2013 tranche; 31 December 2013: €1.2 million). A liability of €1.7 million in respect of the 2014 tranche was recognised as a pro-rata expense for twelve months in 2014.