Share-based payments in fiscal year 2012 totaled EUR 3,135 thousand (previous year: EUR 7,417 thousand). EUR 64 thousand of this amount (previous year: EUR 52 thousand) was attributable to equity-settled share-based payment transactions (see section 7.1). The carrying amount of liabilities arising from share-based payment transactions amounted to EUR 8,529 thousand as of December 31, 2012 (previous year: EUR 11,755 thousand).
Performance Share Plan
Effective July 1, 2006, GEA Group Aktiengesellschaft launched a long-term remuneration program entitled “GEA Performance Share Plan”, a cash-settled share-based payment plan for all first- and second- level managers below the Executive Board. Third-level managers were also eligible to participate starting with the third tranche of the program as of July 1, 2008. The seventh tranche was issued on July 1, 2012. The goal of the GEA Performance Share Plan is to link managers’ remuneration with the long-term success of the Company and to align their interests with those of the shareholders.
Under the plan, participants are granted a defined number of Performance Shares at the beginning of the performance period. The number of Performance Shares allotted is determined by the participants’ management level. To participate in the plan, managers must invest 20 percent of the amount of the allotted Performance Shares in shares of GEA Group Aktiengesellschaft. The personal investment must then be held for three years (performance period).
The performance of GEA Group Aktiengesellschaft’s shares relative to the MDAX companies over the three-year performance period is measured on the basis of their total shareholder return (TSR). TSR is a suitable indicator for investors to compare the performance and appeal of different companies. It measures the total percentage return that an investor earns from a share over a certain period. In addition to share price performance, dividends and adjustments such as share splits are included in the calculation of TSR. This method of comparison eliminates share price performance that is due to general market volatility and enables the effects of different profit retention strategies to be compared. The relative performance of GEA Group Aktiengesellschaft’s shares determines the number of Performance Shares finally paid out (between 0 percent and 300 percent).
The Performance Shares are paid out once the three-year performance period has expired. At that time, performance of GEA Group Aktiengesellschaft’s shares relative to the MDAX determines how many Performance Shares are paid out: If the performance of the Company’s shares equals the median in the TSR comparison, 50 percent of the Performance Shares are issued; if it reaches the third quartile, 100 percent of the Performance Shares are paid out. If GEA Group Aktiengesellschaft’s shares outperform the MDAX companies, 300 percent of the Performance Shares are issued. Other performance figures are interpolated between these values. The total amount paid out corresponds to the number of Performance Shares allotted to a participant multiplied by the average share price over the last quarter of the three-year performance period. Once the performance period has expired, participants may freely dispose of their personal investment in GEA Group Aktiengesellschaft shares.
The fourth tranche expired on June 30, 2012. The TSR comparison over the three-year performance period resulted in a payout ratio of 87.95 percent. In the previous year, the TSR, at 5.96 percent, had been below the median, so there was no payout for the third tranche. The payout amounted to EUR 6,387,336 thousand (previous year: EUR 0 thousand).
The number of Performance Shares changed as follows in fiscal year 2012:
(Number of shares) 12/31/2011 Additions Expired Paid Out consolidated GroupChanges in 12/31/2012
2009 tranche 321,300 – – 321,300 – –
2010 tranche 237,390 – 7,660 – -24,250 205,480
2011 tranche 184,798 – 594 – -18,547 165,657
2012 tranche – 162,150 – – – 162,150
Total 743,488 162,150 8,254 321,300 -42,797 533,287
The total expense for fiscal year 2012 amounts to EUR 2,351 thousand (previous year: EUR 5,549 thousand), taking into account the fair value as of December 31, 2012, of EUR 16.45 (previous year: EUR 20.65) for the fifth tranche, EUR 13.37 (previous year: EUR 17.08) for the sixth tranche, EUR 12.11 for the seventh tranche, and EUR 19.71 (previous year: EUR 0) for the fourth tranche (previous year: third tranche) at the payment date.
The fair value of the Performance Shares is determined using a Monte Carlo simulation. The following valuation assumptions are applied:
2012 2011
Tranche 2010 2011 2012 2009 2010 2011
Share price (EUR) 25.76 25.35 24.47 22.59 22.20 21.85
Dividend yield (%) 2.800 2.800 2.800 1.615 1.615 1.615
Risk-free interest rate (%) 0.017 -0.055 -0.009 0.101 0.055 0.248 Volatility GEA shares (%) 27.44 27.44 27.44 44.38 44.38 44.38
As the payout ratio of GEA Group Aktiengesellschaft’s Performance Shares is linked to the MDAX, the volatilities of all MDAX shares and their correlations to GEA Group Aktiengesellschaft shares are also calculated. The calculation of volatilities and correlations is based on historical market data. Risk-free interest rates were determined from German government bond yields.
Phantom shares
A long-term incentive component was added to the bonus arrangements for Executive Board members in fiscal years 2010 and 2011. Half of this was payable with the regular salary payment and the other half was converted into phantom shares of the Company. It was calculated as the arithmetic mean of the daily closing prices of GEA Group shares in Xetra trading operated by the Frankfurt Stock Exchange on the market days in the three-month period that ended one month before the date of the Supervisory Board meeting convened in the fiscal year to adopt the financial statements.
The payout value of the phantom shares is calculated following the expiration of a lock-up period of three years following the conversion into phantom shares. The amount of the payout is calculated as the arithmetic mean of the daily closing prices of GEA Group Aktiengesellschaft shares in Xetra trading operated by the Frankfurt Stock Exchange on the market days in the three-month period that ends one month before the date of the relevant Supervisory Board meeting convened to adopt the financial statements in the fiscal year in which the lock-up period expires. The dividends payable per share during the lock-up period are added to the value calculated in this way. The amount to be paid out under these arrangements is limited to 300 percent of the annual basic bonus. In the event of termination of the Executive Board member’s contract of service, the three-year vesting period is reduced to one year as from the date of termination.
Because the exercise price is zero and the incentive program does not feature a vesting period, the fair value of the phantom shares corresponds to their intrinsic value and thus to the quoted market price of GEA Group Aktiengesellschaft shares at the reporting date. The fair value of the liability is calculated by multiplying the number of phantom shares by the relevant closing price, plus dividends paid during the lock-up period.
The number of phantom shares changed as follows in fiscal year 2012:
(Number of shares) 12/31/2011 Additions Expired Paid Out 12/31/2012
2010 tranche 57,887 57,887
2011 tranche 81,460 81,460
2012 tranche
Total 139,347 – – – 139,347
The relevant price for the phantom shares issued in fiscal year 2010 was EUR 25.42 (previous year: EUR 22.25), and EUR 25.02 for phantom shares issued in fiscal year 2011 (previous year: EUR 21.85). In fiscal year 2012, expenses of EUR 442 thousand (previous year: EUR 1,816 thousand) were recognized
in respect of phantom shares. The liability as of December 31, 2012, amounted to EUR 3,510 thousand (previous year: EUR 3,068 thousand). This amount is reported in non-current employee benefit obligations under bonuses.
Long-term share price component
The long-term share price component was introduced as part of the revision of the variable remuneration system for Executive Board members in fiscal year 2012. The payout from the long-term share price component is measured over a three-year performance period that includes the relevant fiscal year and the two subsequent years.
Performance is measured by comparing the performance of the GEA share price, adjusted for dividends,
with the performance of the STOXX® Europe TMI Industrial Engineering (TMI IE) index over a three-
year performance period. The starting value for the comparison calculation is the arithmetic mean of the closing prices of the last 20 trading days before the commencement of the three-year performance period. The target is achieved 100 percent if the performance of the arithmetic mean of the GEA share daily closing prices equates 100 percent to the corresponding TMI performance over the three-year performance period. In the event of outperformance of more than 100 percent, the bonus increases up to a maximum of 300 percent of the target amount. If the increase in GEA’s share price over the three- year comparison period is less than 100 percent of the growth in the TMI IE, the bonus is reduced up to a performance of 75 percent: For each percentage point over or under 100 percent performance, the degree of target achievement increases or decreases by 4 percent. The total degree of target achievement and thus the payout level for the long-term share price component is limited to 300 percent of this target amount (cap).
Starting from a target amount of EUR 573 thousand (previous year: EUR 0 thousand), the fair value of claims arising from the long-term share price component amounted to EUR 278 thousand (previous year: EUR 0 thousand) as of the reporting date.
The fair value of the claims arising from the long-term share price component is determined using a Monte Carlo simulation. The following valuation assumptions are applied:
2012 2011
Share price (arithmetic mean) (EUR) 23.90 –
STOXX TMI IE (arithmetic mean) (index points) 281.73 –
Risk-free interest (percent) -0.044 –
Volatility GEA share (percent) 27.44 –
Volatility STOXX TMI IE (percent) 20.42 –
Correlation between GEA share and STOXX TMI IE (percent) 80.32 –
The calculation of volatilities and correlation is based on historical market data. Risk-free interest rates were determined from German government bond yields.