31. Share-based payment plans and arrangements

The Group has share-based long-term incentive plans for certain members of management and 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 its equity-settled plans and arrangements using own shares (treasury shares) or, alternatively, using shares issued from its conditional share capital (see note 24). The majority of the Group’s share-based payment plans and arrangements are equity-settled.

Share-based long-term incentive plans for SIG employees

Performance share unit plan

Since 2019, the Group has granted performance share units (“PSUs”) to the members of the Group Executive Board and certain other members of management on an annual basis. The PSU plans have equivalent terms and vesting conditions, including a three-year service vesting condition.

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 volume-weighted average of the closing prices of the SIG share over the last 20 trading days prior to the grant date as per the PSU regulations (for the 2019 to 2021 plans: by the fair value of one PSU at the grant date as per IFRS). The number of PSUs that vest depends on the Group’s long-term performance over the 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 plan 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 plan participants are not entitled until the PSUs vest after three years.

The table below provides an overview of the annual management PSU plans.

The table below provides a reconciliation of the outstanding management PSUs.

A total of 350,814 PSUs under the 2019 PSU plan vested on 31 March 2022, of which 205,482 PSUs relate to current members of the Group Executive Board. Based on the achievement of the targets described above, the participants were entitled to 631,469 shares, of which 369,870 shares relate to current members of the Group Executive Board.

The Group settled its obligation under the 2019 PSU plan by delivering treasury shares (see note 24). The total amount of €4.0 million recognised as a share-based payment expense for the 2019 PSU plan has been recognised as a decrease in equity. The difference between this amount and the sum of the cost of the delivered treasury shares is presented as a reduction of additional paid-in capital.

One member of the Group Executive Board resigned as of 31 December 2022, while another former member of the Group Executive Board announced in October 2021 that he would resign (see note 29). As per the good and bad leaver clauses in the PSU plan regulations, these terminations resulted in forfeitures of a certain number of granted PSUs.

Restricted share unit plan

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

RSUs under the 2019 RSU plan vested on 31 March 2022. The Group settled its obligation by delivering treasury shares. Under the 2022 RSU plan, 6,831 of the granted RSUs relate to a member of the Group Executive Board.

Equity investment plan

In 2020, the Group introduced an annual equity investment plan (“EIP”) for a wider group of management in leadership positions and 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 2022 EIP award was 27 May 2022 (31 May 2021 for the 2021 EIP). Under the 2022 EIP, 69 employees were granted a total of 149,450 options (64 employees were granted a total of 124,680 options under the 2021 EIP). The fair value of one option, calculated using the Black-Scholes model, was CHF 2.74 as of the grant date for the 2022 EIP (CHF 3.63 for the 2021 EIP). A total of 459,272 options under all EIPs were outstanding as of 31 December 2022 (316,382 as of 31 December 2021).

Integration plans

As part of the integration of Scholle IPN and Evergreen Asia into the Group, 41 employees who are key to the integration were granted a total of 302,792 PSUs under two smaller PSU integration plans in August 2022. One of the plans is cash-settled. The number of PSUs that will vest on 31 December 2025 depends on the achievement of certain targets, including targets linked to the performance and integration of the two acquired businesses.

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 term of office (ie. there are four award dates, each relating to work performed during the quarter before the respective award date). 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 39,932 blocked shares to the members of the Board of Directors in the year ended 31 December 2022 (30,583 blocked shares in the year ended 31 December 2021). The fair value of one granted instrument was CHF 23.40 as of the grant date in the year ended 31 December 2022 (CHF 23.10 in the year ended 31 December 2021). The blocked shares have been delivered using treasury shares (see note 24).

In 2019, two members of the Board of Directors received 14,236 RSUs instead of blocked shares. These RSUs vested in the year ended 31 December 2022. The Group settled its obligation by delivering 14,236 treasury shares.

Share-based payment expense

The share-based payment expense recognised as a personnel expense for the year ended 31 December 2022 relating to the PSU, RSU, equity investment and integration plans for SIG employees amounts to €4.8 million, of which €3.1 million relates to members of the Group Executive Board (€3.1 million for the year ended 31 December 2021, of which €2.3 million related to members of the Group Executive Board).

The share-based payment expense recognised as part of general and administrative expenses for the year ended 31 December 2022 relating to the arrangement for the Board of Directors amounts to €0.9 million (€0.7 million for the year ended 31 December 2021).