50. Long-term incentive for executives

METRO AG has been implementing long-term incentive programmes since 1999 to enable senior executives to participate in the company’s value development and to provide rewards for their contribution to the sustained success of METRO GROUP that are comparable with its competitors. The members of the Management Board and senior executives of METRO AG as well as managing directors and senior executives of the other operating METRO GROUP companies are eligible.

Long-term incentive METRO Cash & Carry (MCC LTI)

A long-term incentive tailored specifically to the New Operating Model was developed for the METRO Cash & Carry sales line. It replaces the sustainable performance plan version 2014 and was issued to high-level executives and the management of METRO Cash & Carry companies for the first time in financial year 2015/16. This is a cyclical plan that is issued once every three years. The respective performance targets focus on value creation in the individual national subsidiaries as well as their sustained development and prospects. The performance period of the MCC LTI extends from 1 April 2016 to 31 March 2019. The individual target amounts are accumulated proportionally during this period. The final target amount that has been accumulated at the end of the performance period is based on the period of eligibility for the MCC LTI as well as the individual’s position.

After the end of the performance period, the payout amount is determined by multiplying the respectively accumulated individual target amount with a total goal achievement factor. This factor comprises 45 per cent for the past performance and future value components, respectively; the remaining 10 per cent is accounted for by the goal achievement rate of the sustainability component. The payout amount is capped and the total goal achievement factor cannot fall below zero. The relevant measure for the past performance and future value components for eligible executives at the national subsidiaries is the performance/value creation of the respective national subsidiary of METRO Cash & Carry. The relevant measure for the other eligible executives is the sales line’s overall performance.

The past performance component rewards the achievement of internal economic targets and is determined on the basis of the internal metric EBITDA after special items generated cumulatively over financial years 2015/16 to 2017/18. Separate target values for a goal achievement factor of 1.0 and 0.0, respectively, have been defined. In the case of intermediate values and values above 1.0, the factor for goal achievement is calculated using linear interpolation to two decimal points. The goal achievement factor for the past performance component cannot fall below zero and is capped.

The future value component mirrors METRO Cash & Carry’s external valuation with respect to the expected future performance of the respective national subsidiary and the sales line as a whole from an analyst’s perspective. For the purpose of target setting, the enterprise value of the METRO Cash & Carry sales line was determined on the basis of analyst valuations before the start of the performance period. It is determined again at the end of the performance period. The enterprise value of the national subsidiary is derived from the respective enterprise value of the sales line. Separate target values for a goal achievement factor of 1.0 and 0.0, respectively, have been defined. In the case of intermediate values and values above 1.0, the factor for goal achievement is calculated using linear interpolation to two decimal points. The goal achievement factor for the future value component cannot fall below zero and is capped.

The performance achievement for the sustainability component is determined on the basis of the average rating which METRO AG (or, once the planned demerger has become effective: the Wholesale & Food Specialist entity spun off from METRO AG) is awarded in an external corporate sustainability assessment during the performance period. In each year of the performance period, METRO AG participates in the Corporate Sustainability Assessment conducted by the independent service provider RobecoSAM AG. RobecoSAM AG uses this assessment to determine METRO AG’s ranking within the industry group Food & Staples Retailing that is defined in accordance with the Global Industry Classification Standard (GICS). RobecoSAM AG will inform METRO AG of any changes in its sector classification. In case of material changes in the composition of companies or the ranking method, RobecoSAM AG can determine adequate comparable values.

The company’s average ranking – rounded to whole numbers – is determined on the basis of the rankings communicated during the performance period. The factor for the sustainability component is determined on the basis of the average during the performance period.

As of 30 September 2016, the target amount for the eligible group of persons was €28.1 million.

The value of the METRO Cash & Carry Long-Term Incentive plan distributed in financial year 2015/16 was €35.9 million at the time of granting. It was calculated by external experts using recognised methods of financial mathematics.

Sustainable performance plan version 2014 (2014/15–2017/18)

After the first tranche of the sustainable performance plan was issued in financial year 2013/14, it was decided to adjust the sustainable performance plan from financial year 2014/15 onwards by adopting the so-called sustainable performance plan version 2014, with a planned duration of four tranches up to financial year 2017/18. A three-year performance period applies to the 2014/15 tranche of the sustainable performance plan version 2014; from the 2015/16 tranche onwards, a four-year performance period will apply.

A target value in euros is set for the eligible managers. The payout amount is calculated by multiplying the target value by the factor of overall goal achievement. This, in turn, is calculated by determining the goal achievement factors, each of which is rounded to two decimal points, for each of the three performance targets. The arithmetic mean of the factors, also rounded to two decimal points, gives the overall goal achievement factor. The payout amount is limited to a maximum of 250 per cent of the target value (payout cap). In case of employment termination, separate rules for the payout of the tranches have been agreed upon.

The sustainable performance plan version 2014 is based on the following three performance targets:

The TSR component is measured according to the development of the total shareholder return of the METRO ordinary share in the performance period compared to a defined benchmark index. To calculate the goal achievement factor of the TSR component, the Xetra closing prices of the METRO ordinary share are determined over a period of 40 consecutive trading days immediately following the Annual General Meeting of METRO AG in the grant year. This is used to calculate the arithmetic mean, which is known as the starting share price. The performance period for the respective tranche will begin on the 41st trading day following the Annual General Meeting. Once again, the Xetra closing prices of the METRO ordinary share are determined over a period of 40 consecutive trading days immediately following the Annual General Meeting three years, or, from financial year 2015/16 onwards, four years after calculating the starting share price and issuing the applicable tranche. This is used again to calculate the arithmetic mean, which is known as the ending share price. The TSR percentage value will be determined on the basis of the change in the METRO share price and the total amount of hypothetically reinvested dividends throughout the performance period in relation to the starting and ending share prices.

The METRO TSR calculated in this manner will be compared with the TSR of the STOXX Europe 600 Retail index (index TSR) during the performance period, and the factor for computing the TSR component will be determined in this way:

  • If METRO’s TSR is identical to the index TSR, the factor for the TSR component is 1.0;
  • if METRO’s TSR is 30 percentage points or more below the index TSR, the factor for the TSR component is 0.0;
  • if METRO’s TSR is 30 percentage points above the index TSR, the factor for the TSR component is 2.0.
  • In the case of goal achievement with intermediate values and more than 30 percentage points, the TSR factor for the sustainable performance plan version 2014 is calculated using linear interpolation to two decimal points.

To determine the goal achievement factor of the sustainability component, METRO AG takes part in the Corporate Sustainability Assessment conducted by the external independent agency RobecoSAM AG during each year of the three- or four-year performance period of the sustainable performance plan version 2014. RobecoSAM AG uses this assessment to determine the ranking of METRO AG within the industry group Food and Staples Retailing that is defined in accordance with the Global Industry Classification Standard (GICS). S&P Dow Jones Indices uses this ranking as the basis for decisions regarding a company’s inclusion in the Dow Jones Sustainability Indices (DJSI). METRO AG is informed each year by RobecoSAM AG about its new ranking. The company’s average ranking – rounded to whole numbers – is determined on the basis of the three, or, from financial year 2015/16 onwards, four rankings per tranche communicated by RobecoSAM AG during the performance period. The factor for the sustainability component is determined on the basis of the average ranking during the performance period.

The goal achievement factor for the EPS component, which was introduced for the first time in the sustainable performance plan version 2014, is calculated as follows: Generally, an EPS target value (before special items) for the third or fourth year of the EPS performance period, a lower threshold/entry barrier as well as an upper threshold for 200 per cent goal achievement are decided at the beginning of the financial year. The EPS value that has actually been achieved during the performance period is compared to the approved values and the factor for calculating the EPS component is determined as follows:

  • If the EPS target value is achieved, the factor for the EPS component is 1.0;
  • if only the lower entry barrier or a value lower than it is achieved, the factor for the EPS component is 0.0;
  • in the event of 200 per cent goal achievement, the factor for the EPS component is 2.0.
  • In the case of goal achievement with intermediate values and more than 200 per cent, the EPS factor for the sustainable performance plan version 2014 is calculated using linear interpolation to two decimal points.

Sustainable performance plan (2013/14)

After the last tranche of the performance share plan was paid in the short financial year 2013, the first tranche of the sustainable performance plan was issued in financial year 2013/14.

A target value in euros was set for the eligible managers. This is 75 per cent dependent on the TSR component and 25 per cent on the sustainability component.

The calculation of the TSR component follows the method described for the sustainable performance plan version 2014; however, the factor for the TSR component is a maximum of 3.0 (cap). Furthermore, the following additional condition applies if the TSR factor is positive: a payment of 75 per cent of the target amount multiplied by the TSR factor will be made only if the calculated ending price of the METRO share does not fall below the starting share price. Should this condition not be met, the calculated amount will not initially be paid. In this case, an entitlement to payment will exist only if the Xetra closing price of the METRO ordinary share is higher than or equivalent to the starting share price for 40 consecutive trading days within a three-year period after the completion of the performance period. Should this condition not be met within the three years after the performance period ends, no payment of the TSR component of the tranche will be made.

Similarly, the method described for the sustainable performance plan version 2014 also applies to the calculation of the factor for the sustainability component, while the factor for the sustainability component depends on the average ranking during the performance period.

The following additional condition will also apply: a payment of 25 per cent of the target amount multiplied by the sustainability factor will only be made if the ranking of METRO AG does not fall by more than two places below the last announced ranking before the issuance of the tranche in any year of the performance period. Otherwise, the factor for the sustainability component will be zero. The payment cap for the sustainability component amounts to three times the target amount.

The value of the tranches granted in financial year 2015/16 as part of the sustainable performance plan version 2014 amounted to €24 million at the time of granting (previous year sustainable performance plan: €41 million) and was calculated by external experts using recognised methods of financial mathematics.

Sustainable performance plan / sustainable performance plan version 2014

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Tranche

End of the performance period

Starting price for the TSR component

Target amount as of 30/9/2016

2013/14

41st trading day following the Annual General Meeting three years after the issuance of the tranche

€29.73

€7,572,593

2014/15

41st trading day following the Annual General Meeting three years after the issuance of the tranche

€31.69

€26,915,001

2015/16

41st trading day following the Annual General Meeting four years after the issuance of the tranche

€25.53

€14,570,000

Performance share plan (2009–2013)

In 2009, METRO AG introduced a performance share plan for a period of five years for which the last tranche was issued in the short financial year 2013. Under this scheme, eligible managers were given an individual target amount for the performance share plan (target value) in accordance with the significance of their responsibilities. The target number of performance shares was calculated by dividing this target value by the share price on the grant date, based on the average price of the METRO share during the three months up to the grant date. The key metric in this calculation was the three-month average price of the METRO share before the grant date. A performance share entitles its holder to a cash payment in euros matching the price of the METRO share on the payment date. The key metric in this calculation is also the three-month average price of the METRO share before the payment date.

Based on the relative performance of the METRO share compared with the median of the DAX 30 and EURO STOXX Retail indices – total return – the final number of payable performance shares is determined after the end of a performance period of at least three and at most 4.25 years. It corresponds to the target number of shares when an equal performance with said stock indices is achieved. Up to an outperformance of 60 per cent, the number increases linearly to a maximum of 200 per cent of the target amount. Up to an underperformance of 30 per cent, the number is accordingly reduced to a minimum of 50 per cent. In the case of an underperformance of more than 30 per cent, the number is reduced to zero.

Payment can be made at six possible dates that are set in advance. The earliest payment date is three years after granting of the performance shares. From this time, payment can be made every three months. The eligible managers can choose the date upon which they want to exercise performance shares. A distribution over several payment dates is not permitted. The payment cap amounts to five times the target value.

METRO GROUP introduced so-called share ownership guidelines along with its performance share plan: as a precondition for payments of performance shares, eligible executives are obliged to undertake a continuous self-financed investment in METRO shares up to the end of the three-year vesting period. This ensures that, as shareholders, they will directly participate in share price gains as well as potential losses of the METRO share. The required investment volume generally amounts to approximately 50 per cent of the individual target value.

Performance share plan

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Tranche

End of vesting period

Three-month average price before grant

Number of performance shares as of 30/9/2016

2009

August 2012

€36.67

Expired

2010

August 2013

€42.91

Expired

2011

August 2014

€41.73

Expired

2012

April 2015

€29.18

Expired

2013

April 2016

€22.84

162,216

The vesting period of the 2013 tranche ended in April 2016. It was exercised by 192 persons with 507,436 performance shares in financial year 2015/16.

The current tranches of share-based payment programmes resulted in expenses of €28 million (2014/15: €7 million).

The related provisions as of 30 September 2016 amount to €40 million (30/9/2015: €21 million). The 2013 tranche accounts for €4 million (30/9/2015: €11 million), the 2013/14 tranche for €7 million (30/9/2015: €4 million), the 2014/15 tranche for €21 million (30/9/2015: €6 million) and the 2015/16 tranche for €8 million.