[45] Variable remuneration

The 2019 tranche of the long-term, variable remuneration component for the managers in the KION Group (LTI 2019) was granted with effect from 1 January 2019 and has a term of three years. 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 2019 tranche ends on 31 December 2021 (2018 tranche: 31 December 2020). The 2017 tranche expired on 31 December 2019 and will be paid out in the first quarter of 2020.

At the beginning of the performance period on 1 January 2019 (2018 tranche: 1 January 2018; 2017 tranche: 1 January 2017), the managers were allocated a total of 274,460 phantom shares for this tranche (2018 tranche: 188,531 phantom shares; 2017 tranche: 171,573 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 122 were used to value the phantom shares on the reporting date.

Taking account of the remaining term of two years (2019 tranche) and one year (2018 tranche), the historic volatility of KION shares was used to determine the volatility on which the valuation is based. As at 31 December 2019, the fair value of one phantom share was €40.99 for the 2018 tranche (2018: €24.25) and €50.27 for the 2019 tranche. On that date, the total fair value was €6.6 million for the 2018 tranche based on 161,350 phantom shares (2018: €4.3 million) and €13.1 million for the 2019 tranche based on 261,476 phantom shares. The amount of €3.7 million that is expected to be paid out for the 2017 tranche (2018: €3.8 million for the 2016 tranche) is calculated on the basis of a preliminary total target achievement rate. In March 2019, a payment from the 2016 tranche was made on the basis of the achievement of the long-term targets that were defined in 2016 at the start of the performance period.

The total carrying amount for liabilities in connection with share-based remuneration was €12.5 million as at 31 December 2019 (2018: €7.7 million). Of this amount, €3.7 million related to the 2017 tranche (2018: €2.4 million), €4.4 million to the 2018 tranche (2018: €1.4 million) and €4.4 million to the 2019 tranche. In 2018, there had also been an amount of €3.8 million relating to the 2016 tranche. In 2019, a pro-rata expense for twelve months of €1.3 million for the 2017 tranche (2018: income of €1.4 million), a pro-rata expense for twelve months of €3.0 million for the 2018 tranche (2018: €1.4 million) and a pro-rata expense for twelve months of €4.4 million for the 2019 tranche were recognised under the relevant functional costs. Furthermore, income of €4.0 million for the 2016 tranche had been recognised under the relevant functional costs in 2018.

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 2019 tranche ends on 31 December 2021 (2018 tranche: 31 December 2020). The 2017 tranche expired on 31 December 2019 and will be paid out in the first quarter of 2020. At the beginning of the performance period on 1 January 2019 (2018 tranche: 1 January 2018; 2017 tranche: 1 January 2017), the Executive Board members were allocated a total of 111,544 phantom shares for this tranche (2018 tranche: 72,170 phantom shares; 2017 tranche: 63,695 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 122 were used to value the phantom shares on the reporting date.

Taking account of the remaining term of two years (2019 tranche) and one year (2018 tranche), the historic volatility of KION shares was used to determine the volatility on which the valuation is based. As at 31 December 2019, the fair value of one phantom share was €40.99 for the 2018 tranche (2018: €24.25) and €50.27 for the 2019 tranche. On that date, the total fair value was €3.0 million for the 2018 tranche based on 72,170 phantom shares (2018: €1.8 million) and €5.6 million for the 2019 tranche based on 111,544 phantom shares. The amount of €1.8 million that is expected to be paid out for the 2017 tranche (2018: €2.1 million for the 2016 tranche) is calculated on the basis of a preliminary total target achievement rate. In March 2019, a payment from the 2016 tranche was made on the basis of the achievement of the long-term targets that were defined in 2016 at the start of the performance period.

The total carrying amount for liabilities in connection with share-based remuneration was €5.8 million as at 31 December 2019 (2018: €3.8 million). Of this amount, €1.8 million related to the 2017 tranche (2018: €1.1 million), €2.0 million to the 2018 tranche (2018: €0.5 million) and €2.0 million to the 2019 tranche. In 2018, there had also been an amount of €2.1 million relating to the 2016 tranche. In 2019, a pro-rata expense for twelve months of €0.7 million for the 2017 tranche (2018: income of €0.4 million), a pro-rata expense for twelve months of €1.4 million for the 2018 tranche (2018: €0.5 million) and a pro-rata expense for twelve months of €2.0 million for the 2019 tranche were recognised under the relevant functional costs. Furthermore, income of €1.9 million for the 2016 tranche had been recognised under the relevant functional costs in 2018.

The total carrying amount for liabilities in connection with share-based remuneration was €18.3 million as at 31 December 2019 (2018: €11.4 million). In 2019, a total expense of €13.7 million for twelve months was recognised for share-based remuneration (2018: total income of €4.8 million).