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31 Share-based payment plans and arrangements

The Group has share-based long-term incentive plans for certain members of management, other key employees and talents. The members of the Board of Directors receive a part of their total compensation under share-based payment arrangements. These plans and arrangements have an insignificant impact on the Group’s result. The Group expects to settle its obligations under these plans and arrangements by using own shares (treasury shares) or, alternatively, by using shares issued out of its conditional share capital (see note 24).

Share-based long-term incentive plans for SIG employees

Performance share unit plan

Since 2019, the Group grants performance share units (“PSUs”) annually to the members of the Group Executive Board and certain other members of management. The PSU plans have equivalent terms and vesting conditions.

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. The exact number of PSUs that vests depends on the long-term performance of SIG during a three-year vesting period. The plans include the following vesting conditions:

  • Service condition: Continuous employment through to 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 2000 “Industrials” Total Return 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 relative 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 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 the grant date 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 below table provides an overview of the annual PSU plans.

 

 

Overview of PSU plans

 

 

2021

 

2020

 

2019

Grant date

 

1 April 2021

 

1 April 2020

 

1 April 2019

Vesting date

 

31 March 2024

 

31 March 2023

 

31 March 2022

Fair value of one PSU at grant date (in CHF)

 

22.31

 

15.05

 

9.49

Number of employees granted PSUs

 

9

 

8

 

9

Granted number of PSUs

 

201,707

 

342,198

 

537,414

thereof to members of the Group Executive Board

 

187,139

 

325,586

 

495,263

The below table provides a reconciliation of the outstanding PSUs.

 

 

Outstanding PSUs

 

 

2021

 

2020

 

2019

As of 1 January

 

538,198

 

537,414

 

Granted PSUs

 

201,707

 

342,198

 

537,414

Forfeited PSUs

 

(47,786)

 

(341,414)

 

As of 31 December

 

692,119

 

538,198

 

537,414

thereof held by members of the Group Executive Board

 

522,059

 

454,713

 

495,263

One member of the Group Executive Board announced in October 2021 that he would leave the Company in 2022, while three members of the Group Executive Board left in the year ended 31 December 2020 (see note 29). As per the good and bad leaver clauses in the PSU plan regulations, this resulted in forfeitures of a certain number of the granted PSUs.

Restricted share unit plan

Since 2019, the Group annually grants a small number of restricted share units (“RSUs”) to a limited number of employees. One RSU represents the contingent right to receive one SIG share, subject to the fulfilment of a three-year service vesting condition.

Equity investment plan

In 2020, the Group introduced an equity investment plan (“EIP”) for a wider group of management in leadership positions, other key employees and talents under which the participants may choose to invest in SIG shares at market value. The shares are blocked for three years. For each purchased share, the Group grants the participants two matching options to purchase another two shares at a pre-defined exercise price at the end of a three-year vesting period.

The grant date for the 2021 EIP award was 31 May 2021 (31 May 2020 for the 2020 EIP). Under the 2021 EIP, 64 employees were granted in total 124,680 options (66 employees were granted in total 220,588 options under the 2020 EIP). The fair value of one option, calculated using the Black-Scholes model, was CHF 3.63 as of grant date for the 2021 EIP (CHF 2.82 for the 2020 EIP). A total of 316,382 options under all EIPs were outstanding as of 31 December 2021 (214,588 as of 31 December 2020).

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

The members of the Board of Directors receive 40% of their total compensation in SIG shares that are blocked for three years. The grant date is the date of the Annual General Meeting (normally held in April), when the total compensation package for the next term of office is approved. The compensation is paid out four times during the one-year long term of office (i.e. there are four award dates, each relating to work performed during the quarter before the respective award date). The number of blocked shares 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 first ten trading days of the third month of the quarter for which the blocked shares are granted. The fair value of one blocked share is calculated based on the closing share price of one SIG share on the grant date.

The Group granted 30,583 blocked shares to the members of the Board of Directors in the year ended 31 December 2021 (39,884 blocked shares in the year ended 31 December 2020). The fair value of one granted instrument was CHF 23.10 as of grant date in year ended 31 December 2021 (CHF 14.93 in the year ended 31 December 2020). The blocked shares have been delivered by using treasury shares (see note 24).

Share-based payment expense

The share-based payment expense recognised as a personnel expense in the year ended 31 December 2021 relating to the PSU, RSU and equity investment plans for SIG employees amounts to €3.1 million, of which €2.3 million relates to members of the Group Executive Board (€2.6 million for the year ended 31 December 2020, of which €2.1 million related to members of the Group Executive Board).

The share-based payment expense recognised as part of general and administrative expenses in the year ended 31 December 2021 relating to the arrangement for the Board of Directors amounts to €0.7 million (€0.6 million for the year ended 31 December 2020).

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.