[45] Variable remuneration

KEEP employee equity programme

On 1 October 2018, the Executive Board of KION GROUP AG decided to launch a further share option programme for employees (KEEP 2018). In addition to the employees in the countries that had been included in the previous year, employees in the United States were permitted to participate for the first time. The period during which eligible employees could take up this offer by making a declaration of acceptance ran from 2 to 19 October 2018. To be eligible to participate in KEEP 2018, 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 19 German (2017: 17) and 62 foreign (2017: 60) subsidiaries are eligible to take part in KEEP. The Company is considering whether to extend the employee share option programme to other countries over the coming years.

KEEP is a share matching plan. Participating employees acquire KION shares for their own investment purposes. Each set of three KION shares represents a share package. Once the three-year holding period has expired, employees are entitled to one free matching share (bonus share) for each share package. 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 packages. Under KEEP 2018, the KION Group will bear the cost of one KION share (free share) in each of the first seven share packages 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 128.

In 2018, 4,225 free shares were issued to employees as part of their starter packages (2017: 2,545 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 129.

For KEEP 2018, the fair value of a bonus share was €42.03 (KEEP 2017: €62.02; KEEP 2016: €52.51).

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. The holding period for KEEP 2015 ended on 1 October 2018 and the bonus shares were issued to the eligible employees at no cost.

In 2018, an expense totalling €1.0 million was recognised under functional costs for free shares and bonus shares in connection with the employee share option programme (2017: €0.9 million). Of this amount, €0.3 million related to KEEP 2018, €0.2 million to KEEP 2017 (2017: €0.2 million), €0.2 million to KEEP 2016 (2017: €0.2 million) and €0.2 million to KEEP 2015 (2017: €0.3 million). In 2017, there had also been an amount of €0.2 million relating to KEEP 2014.

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

KION performance share plan (PSP) for managers

The 2018 tranche of the long-term, variable remuneration component for the managers in the KION Group (LTI 2018) with a defined period (three years) was granted with effect from 1 January 2018. 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 performance of the MDAX 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 2018 tranche ends on 31 December 2020 (2017 tranche: 31 December 2019). The 2016 tranche expired on 31 December 2018 and will be paid out in the first quarter of 2019.

At the beginning of the performance period on 1 January 2018 (2017 tranche: 1 January 2017; 2016 tranche: 1 January 2016), the managers were allocated a total of 188,531 phantom shares for this tranche (2017 tranche: 171,573 phantom shares; 2016 tranche: 180,963 phantom 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 phantom shares is amended depending on the degree to which the relevant targets are achieved. The resulting final number of phantom 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 200.0 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 phantom shares on each valuation date is carried out using Monte Carlo simulation. The measurement parameters shown in > TABLE 130 were used to value the phantom shares on the reporting date.

Taking account of the remaining term of two years (2018 tranche) and one year (2017 tranche), the historic volatility of KION shares was used to determine the volatility on which the valuation is based. As at 31 December 2018, the fair value of one phantom share was €23.76 for the 2017 tranche (31 December 2017: €65.60) and €24.25 for the 2018 tranche. On that date, the total fair value based on 153,909 phantom shares was €3.7 million (2017 tranche; 31 December 2017: €11.6 million) and €4.3 million (2018 tranche based on 176,360 phantom shares). The amount of €3.8 million that is expected to be paid out for the 2016 tranche (2017: €11.4 million for the 2015 tranche) is calculated on the basis of a preliminary total target achievement rate. In March 2018, a payment from the 2015 tranche was made on the basis of the achievement of the long-term targets that were defined in 2015 at the start of the performance period.

The total carrying amount for liabilities in connection with share-based remuneration was €7.7 million as at 31 December 2018 (31 December 2017: €23.0 million). Of this amount, €3.8 million related to the 2016 tranche (31 December 2017: €7.8 million), €2.4 million to the 2017 tranche (31 December 2017: €3.9 million) and €1.4 million to the 2018 tranche. In 2017, there had also been an amount of €11.4 million relating to the 2015 tranche. In 2018, income of €4.0 million in respect of the 2016 tranche (2017: expense of €5.2 million), income of €1.4 million for the 2017 tranche (2017: expense of €3.9 million) and a pro-rata expense for twelve months of €1.4 million for the 2018 tranche were recognised under functional costs. Furthermore, an expense of €4.3 million for the 2015 tranche had been recognised under functional costs in 2017.

KION performance share plan (PSP) for the Executive Board

The members of the Executive Board have been promised a multiple-year variable remuneration component in the form of a performance share plan with a three-year term in each case. 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 performance of the MDAX 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 2018 tranche ends on 31 December 2020 (2017 tranche: 31 December 2019). The 2016 tranche expired on 31 December 2018 and will be paid out in the first quarter of 2019. At the beginning of the performance period on 1 January 2018 (2017 tranche: 1 January 2017; 2016 tranche: 1 January 2016), the Executive Board members were allocated a total of 72,170 phantom shares for this tranche (2017 tranche: 82,265 phantom shares; 2016 tranche: 104,438 phantom shares) on the basis of the starting price of KION shares (60-day average). 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 phantom shares is amended depending on the degree to which the relevant targets are achieved. The resulting final number of phantom 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 multiplier to adjust the final payment at the end of the performance period by + / – 30.0 per cent. The maximum amount payable is limited to 200.0 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 phantom shares on each valuation date is carried out using Monte Carlo simulation. The measurement parameters shown in > TABLE 130 were used to value the phantom shares on the reporting date.

Taking account of the remaining term of two years (2018 tranche) and one year (2017 tranche), the historic volatility of KION shares was used to determine the volatility on which the valuation is based. As at 31 December 2018, the fair value of one phantom share was €23.76 for the 2017 tranche (31 December 2017: €65.60) and €24.25 for the 2018 tranche. On that date, the total fair value based on 63,695 phantom shares was €1.5 million (2017 tranche; 31 December 2017: €4.2 million) and €1.8 million (2018 tranche based on 72,170 phantom shares). The amount of €2.1 million that is expected to be paid out for the 2016 tranche (2017: €9.5 million for the 2015 tranche) is calculated on the basis of a preliminary total target achievement rate. In March 2018, a payment from the 2015 tranche was made on the basis of the achievement of the long-term targets that were defined in 2015 at the start of the performance period.

The total carrying amount for liabilities in connection with share-based remuneration was €3.8 million as at 31 December 2018 (31 December 2017: €15.1 million). Of this amount, €2.1 million related to the 2016 tranche (31 December 2017: €4.0 million), €1.1 million to the 2017 tranche (31 December 2017: €1.6 million) and €0.5 million to the 2018 tranche. In 2017, there had also been an amount of €9.5 million relating to the 2015 tranche. In 2018, income of €1.9 million in respect of the 2016 tranche (2017: expense of €2.3 million), income of €0.4 million for the 2017 tranche (2017: expense of €1.6 million) and a pro-rata expense for twelve months of €0.5 million for the 2018 tranche were recognised under functional costs. Furthermore, an expense of €3.6 million for the 2015 tranche had been recognised under functional costs in 2017.