The Group introduced two share-based long-term incentive plans in 2019 for certain members of management. The members of the Board of Directors receive a part of their total compensation under share-based payment arrangements. The Group expects to settle its obligations under these plans and arrangements by using own shares (treasury shares) – see note 24.

Share-based long-term incentive plans for SIG management

Performance share unit plan

Under its performance share unit (“PSU”) plan, the Group grants PSUs on an annual basis to the members of the Group Executive Board and certain other members of management. One PSU represents the contingent right to receive one SIG share. The number of granted PSUs is determined by dividing each participant’s award under the plan by the fair value of one PSU at the grant date. Vesting of the PSUs occurs three years after the grant date. The exact number of PSUs that vests depends on the long-term performance of SIG during the vesting period.

The plan includes the following vesting conditions:

  • Service condition: Employment at the vesting date.
  • Two non-market performance conditions: Achievement of a cumulative diluted adjusted earnings per share target and a cumulative free cash flow target.
  • One market performance condition: Achievement of a relative total shareholder return target, measured relative to the SPI® ICB Industry Industrials Index (with a vesting factor capped at 1.0 for a negative absolute TSR).

At vesting, the three performance conditions are first assessed individually to determine the level of achievement of the set targets (in a range from 0% to 200%). The achievement percentage of each performance condition is then combined based on a relative weighting of the performance conditions (50% for the total shareholder return target and 25% each for the earnings per share and cash flow targets). The combined vesting multiple determines how many shares the participants are entitled to at the end of the vesting period.

The grant date for the 2019 PSU awards was 1 April 2019. Nine employees were granted in total 537,414 PSUs, of which 495,263 PSUs relate to members of the Group Executive Board. The grant date fair value of one PSU is calculated based on a Monte Carlo simulation model, which reflects the probability of over- or underachieving the market performance condition. The model also takes into account various inputs such as the closing share price of one SIG share on 1 April 2019 and adjusts for expected dividends (discounted at a risk-free interest rate) to which the participants of the plan are not entitled until the PSUs vest after three years. The fair value of one granted PSU was CHF 9.49 as of grant date.

Restricted share unit plan

Under its restricted share unit (“RSU”) plan, the Group will grant RSUs on an annual basis to selected employees. One RSU represents the contingent right to receive one SIG share, subject to the fulfilment of a three year service vesting condition. The number of granted RSUs is determined by dividing each participant’s individual award under the plan by the average closing price of the SIG share of the last ten trading days immediately preceding the grant date. Upon vesting, each eligible plan participant is entitled to receive SIG shares equal to the number of vested RSUs.

The grant date for the 2019 RSU awards was 1 April 2019. Two employees were granted in total 28,038 RSUs. The grant date fair value of one RSU is calculated based on the closing share price of one SIG share on 1 April 2019 and adjusted for expected dividends (discounted at a risk-free interest rate) to which the participants of the plan are not entitled until the RSUs vest after three years. The fair value of one granted RSU was CHF 9.27 as of grant date.

Share-based payment arrangements for members of the Board of Directors

The members of the Board of Directors receive 40% of their total compensation under share-based payment arrangements. The compensation amount is fixed. The larger part of the Board of Directors’ total share-based payment compensation is paid out in blocked SIG shares while a smaller part is paid out in RSUs. The grant date is the date of the Annual General Meeting, when the total compensation package for the next term of office is approved. The compensation is paid out four times per term of office (i.e. there are four award dates, each relating to work performed the quarter before the respective award date). The number of blocked shares/RSUs is determined by dividing each board member’s individual compensation amount for one award cycle by the average closing price of the SIG share of the last ten trading days immediately preceding each award date. A three year blocking/vesting period applies to the shares and RSUs. The RSUs carry the right to dividend equivalents during the vesting period. The grant date fair value of one blocked share and one RSU is calculated based on the closing share price of one SIG share on the date of the Annual General Meeting.

The Group has granted 40,842 blocked shares and 14,236 RSUs to the members of the Board of Directors in the year ended 31 December 2019. The blocked shares have been delivered by using treasury shares (see note 24). The fair value of one granted instrument was CHF 10.02 as of grant date.

Share-based payment expense

The share-based payment expense recognised as a personnel expense in the year ended 31 December 2019 relating to PSUs and RSUs granted under the two SIG management plans amounts to €1.2 million, of which €1.1 million relates to members of the Group Executive Board. The share-based payment expense recognised as part of general and administrative expenses in the same period relating to blocked shares and RSUs granted under the arrangements for the Board of Directors amounts to €0.6 million.

Accounting policy

The Group’s share-based payment plans and arrangements are all equity-settled payment arrangements. The grant date fair value of the awards is recognised as an expense, with a corresponding increase in equity (retained earnings), over the vesting period of the awards. The amount recognised as an expense is adjusted to reflect the number of awarded instruments for which the related service and any non-market performance conditions are expected to be met, such that the amount ultimately recognised is based on the number of awarded instruments that meet the related service and any non-market performance conditions at the vesting date. Any market performance conditions are reflected in the grant date fair valuation of the awarded instruments and there is no true-up during the vesting period or at the vesting date for differences between expected and actual outcomes. If there is no vesting period, the grant date fair value is immediately recognised as an expense.