[46] Variable remuneration

The 2020 tranche of the long-term variable remuneration component for the managers in the KION Group (LTI 2020) was granted with effect from January 1, 2020 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 2020 tranche ends on December 31, 2022 (2019 tranche: December 31, 2021). The 2018 tranche expired on December 31, 2020 and will be paid out in the first quarter of 2021.

At the beginning of the performance period on January 1, 2020 (2019 tranche: January 1, 2019; 2018 tranche: January 1, 2018), the managers were allocated a total of 264,191 phantom shares for this tranche (2019 tranche: 274,460 phantom shares; 2018 tranche: 188,531 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 percent 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 used to value the phantom shares on the reporting date were as follows:

Taking account of the remaining term of two years (2020 tranche) and one year (2019 tranche), the historic volatility of KION shares was used to determine the volatility on which the valuation is based. As at December 31, 2020, the fair value of one phantom share was €58.26 for the 2019 tranche (December 31, 2019: €50.27) and €52.86 for the 2020 tranche. On that date, the total fair value was €14.1 million for the 2019 tranche based on 242,262 phantom shares (December 31, 2019: €13.1 million) and €13.2 million for the 2020 tranche based on 249,806 phantom shares. The amount of €3.5 million that is expected to be paid out for the 2018 tranche (2019: €3.7 million for the 2017 tranche) is calculated on the basis of a preliminary total target achievement rate.

In March 2020, a payment from the 2017 tranche was made on the basis of the achievement of the long-term targets that were defined in 2017 at the start of the performance period.

The total carrying amount for liabilities in connection with share-based remuneration was €17.3 million as at December 31, 2020 (December 31, 2019: €12.5 million). Of this amount, €3.5 million related to the 2018 tranche (2019: €4.4 million), €9.4 million to the 2019 tranche (2019: €4.4 million), and €4.4 million to the 2020 tranche. In 2019, there had also been an amount of €3.7 million relating to the 2017 tranche. In 2020, income of €0.9 million in respect of the 2018 tranche (2019: expense of €3.0 million) and a pro-rata expense for twelve months of €5.0 million (2019: €4.4 million) for the 2019 tranche and of €4.4 million for the 2020 tranche were recognized under the relevant functional costs. Furthermore, an expense of €1.3 million for the 2017 tranche had been recognized under the relevant functional costs in 2019.

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 2020 tranche ends on December 31, 2022 (2019 tranche: December 31, 2021).

At the beginning of the performance period on January 1, 2020 (2019 tranche: January 1, 2019; 2018 tranche: January 1, 2018), the Executive Board members were allocated a total of 76,656 phantom shares for this tranche (2019 tranche: 111,544 phantom shares; 2018 tranche: 72,170 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 percent. The maximum amount payable is limited to 200.0 percent 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 used to value the phantom shares on the reporting date are shown in the > table ‘Significant measurement parameters of the KION Performance Share Plans’.

Taking account of the remaining term of two years (2020 tranche) and one year (2019 tranche), the historic volatility of KION shares was used to determine the volatility on which the valuation is based. As at December 31, 2020, the fair value of one phantom share was €58.26 for the 2019 tranche (December 31, 2019: €50.27) and €52.86 for the 2020 tranche. On that date, the total fair value was €5.3 million for the 2019 tranche based on 91,002 phantom shares (December 31, 2019: €5.6 million) and €4.1 million for the 2020 tranche based on 76,656 phantom shares.

In March 2020, a payment from the 2017 tranche was made on the basis of the achievement of the long-term targets that were defined in 2017 at the start of the performance period.

In connection with the arrangement of a liquidity line with a syndicate of banks led by Kreditanstalt für Wiederaufbau (KfW, Germany’s state-owned development bank), the Executive Board has foregone its variable remuneration for 2020 (2018 tranche).

The total carrying amount for liabilities in connection with share-based remuneration was €5.2 million as at December 31, 2020 (December 31, 2019: €5.8 million). Of this amount, €0.0 million related to the 2018 tranche (2019: €2.0 million), €3.8 million to the 2019 tranche (2019: €2.0 million), and €1.4 million to the 2020 tranche. In 2019, there had also been an amount of €1.8 million relating to the 2017 tranche. In 2020, income of €2.0 million in respect of the 2018 tranche (2019: expense of €1.4 million) and a pro-rata expense for twelve months of €1.8 million (2019: €2.0 million) for the 2019 tranche and of €1.4 million for the 2019 tranche were recognized under the relevant functional costs. Furthermore, an expense of €0.7 million for the 2017 tranche had been recognized under the relevant functional costs in 2019.

The total carrying amount for liabilities in connection with share-based remuneration was €22.5 million as at December 31, 2020 (December 31, 2019: €18.3 million). In 2020, a total expense of €10.6 million for twelve months was recognized for share-based remuneration (2019: €13.7 million).