[44] Variable remuneration

KEEP employee share option programme

Following the introduction of the employee share option programme in Germany in 2014 (KEEP 2014), the Executive Board decided to launch a further share option programme for employees in Germany, China, the United Kingdom, France and Italy on 1 October 2015 (KEEP 2015). The period during which eligible employees could take up this offer by making a declaration of acceptance ran from 2 to 31 October 2015. To be eligible to participate in KEEP 2015, employees needed, at the start of the offer phase, to 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 and 34 foreign subsidiaries are taking part in KEEP. The Company is considering whether to extend the employee share option programme to other countries 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 offers a special incentive in the form of starter blocks. Under KEEP 2015, the KION Group will bear the cost of one KION share (free share) in each of the first nine 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 119.

In 2015, 8,740 free shares were issued to employees as part of their starter blocks (2014: 20,856 free shares).

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 120.

For the 2015 programme, the fair value of a bonus share was €38.57 (2014 programme: €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 2015, an expense totalling €0.6 million was recognised under functional costs for free shares and bonus shares in connection with the employee share option programme (2014: €0.7 million). Of this amount, €0.2 million was attributable to KEEP 2014.

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 March 2015, the 2015 tranche of the long-term, variable remuneration component (the KION Long-Term Incentive Plan for Top Management 2015) with a defined period (three years) was introduced retrospectively from 1 January 2015 for the managers in the KION Group. 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 2015 tranche ends on 31 December 2017 (2014 tranche: 31 December 2016). At the beginning of the performance period, the managers were allocated a total of 0.2 million virtual shares for this tranche (2014 tranche: 0.2 million virtual shares). The allocation was based on a particular percentage of each manager’s 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 121 were used to value the virtual shares on the reporting date.

Taking account of the remaining term of two years (2015 tranche) and one year (2014 tranche), the historic volatility of KION shares was used to determine the volatility on which the valuation is based. As at 31 December 2015, the fair value of one virtual share was €45.41 for the 2014 tranche (31 December 2014: €27.23) and €39.80 for the 2015 tranche. On that date, the total fair value based on 0.2 million virtual shares was €8.6 million (2014 tranche; 31 December 2014: €4.9 million) and €8.2 million (2015 tranche).

The total carrying amount for liabilities in connection with share-based remuneration was €8.5 million as at 31 December 2015 (31 December 2014: €1.6 million). Of this amount, €5.7 million related to the 2014 tranche (31 December 2014: €1.6 million) and €2.7 million to the 2015 tranche. In 2015, a pro-rata expense of €4.1 million in respect of the 2014 tranche (2014: €1.6 million) and a pro-rata expense of €2.7 million for the 2015 tranche were recognised for twelve months under functional costs.

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 2015 tranche ends on 31 December 2017 (2014 tranche: 31 December 2016). The 2013 tranche expired on 31 December 2015 and will be paid out in the first quarter of 2016. At the beginning of the performance period on 1 January 2015 (2014 tranche: 1 January 2014; 2013 tranche: 29 June 2013), the Executive Board members were allocated a total of 0.2 million virtual shares for this tranche (2014 tranche: 0.2 million virtual shares; 2013 tranche: 0.3 million virtual shares) with a specific fair value. The shares were allocated on the basis of 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 122 were used to value the virtual shares on the reporting date.

Taking account of the remaining term of two years (2015 tranche) and one year (2014 tranche), the historic volatility of KION shares was used to determine the volatility on which the valuation is based. As at 31 December 2015, the fair value of one virtual share was €43.58 for the 2014 tranche (31 December 2014: €26.79) and €39.25 for the 2015 tranche. On that date, the total fair value based on 0.2 million virtual shares was €6.6 million (2014 tranche; 31 December 2014: €7.3 million) and €6.0 million (2015 tranche). The amount that is expected to be paid of €10.3 million for the 2013 tranche is calculated on the basis of a preliminary total target achievement rate and is subject to the performance-based adjustment (+/– 20 per cent) made by the Supervisory Board for individual Executive Board members.

The total carrying amount for liabilities in connection with share-based remuneration was €17.8 million as at 31 December 2015 (31 December 2014: €6.1 million). Of this amount, €10.3 million related to the 2013 tranche (31 December 2014: €4.4 million), €5.3 million to the 2014 tranche (31 December 2014: €1.7 million) and €2.2 million to the 2015 tranche. In 2015, a pro-rata expense of €5.7 million in respect of the 2013 tranche (2014: €3.1 million), a pro-rata expense of €3.4 million for the 2014 tranche (31 December 2014: €1.7 million) and a pro-rata expense of €2.0 million for the 2015 tranche were recognised for twelve months under functional costs.