Share option plans
KPN has granted stock options on its shares to members of the Board of Management, senior management and employees in the Netherlands with a collective labor agreement. As all remaining share option plans vested in 2010, no cost is recorded in 2014 and 2013.
All options are granted with an exercise price equal to market share price at grant date, are equity-settled and are forfeited when employees leave KPN for reasons other than retirement, disability or death (except for some personnel plans). The other main features of the option plans are:
Exercise price
(in EUR) Maximum term
Exercisable (years after
grant date) Vesting period
Profits in escrow if exercised
within 3 years1 Performance related2
2005 Management 6.73-7.18 8 years 3 years 3 years – yes
Management 6.73 8 years 3 years 3 years – no
Management Belgium 6.73 8 years 3.7 years 3 years – no
1) If options are exercisable immediately, the profits from any exercise prior to the third anniversary of the date of issue will be held in escrow until the third anniversary of the issue, at which time such profits will be released to the relevant option holder, provided that the option holder remains employed by KPN.
2) The number of options that vested after the three-year vesting period and were performance-related depended on KPN’s Total Shareholder Return (stock appreciation plus dividend pay-out; TSR) relative to a peer group of European telecommunication companies.
In 2013, the remaining outstanding 405,282 options expired with a weighted average exercise price per option of EUR 6.75.
The average KPN stock price in 2014 was EUR 2.56 (2013: EUR 2.02).
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Share plans
Since 2006, KPN has granted shares (equity-settled) and share-based awards (cash-settled) on its shares to members of the Board of
Management and senior management: the Performance Share Plan (PSP). The conditionally granted PSP award will vest after three years if the employee is still employed with KPN. The number of share-based awards which vest partly depends on KPN’s Total Shareholder Return (TSR) position ranking relative to its peer group of European telecommunications companies. Since 2011, vesting is based for 75% on relative TSR and for 25% on non-financial performance measures i.e. energy reduction targets and a reputation dashboard.
Since 2014, vesting is based on individual vesting for 25% on relative TSR versus peer group, for 25% on Free Cash Flow, for 25% on Earnings Per Share, for 12.5% on sustainability/environmental targets and for 12.5% on stakeholder/customer targets. Vesting of non-financial targets will be subject to achieving a cumulative net profit during the vesting period of three years (i.e. a qualifier for vesting).
The list of companies included in the peer group and the vesting schedule can be found under ‘Long-term incentives’ in the
‘Remuneration Report’ section.
In May 2012 and May 2013, an additional equity settled plan was granted to senior management: the KPN Restricted Share Plan. Shares under this plan will vest on January 1, 2015 (2012 grant) and on January 1, 2016 (2013 grant) if the employee is still employed with KPN.
For this plan, no other performance measures are applicable.
The share plan rules provide the possibility to adjust granted rights under the incentive plans to maintain its economic value if, subsequent to the date of grant, an issue of shares occurs. This approach is exclusively aimed at reflecting the increased number of shares following the rights issue and is in line with market practice. In 2013, therefore, the granted shares were adjusted based on a mathematically calculated adjustment factor, i.e. the cum-rights price divided by the TERP (Theoretical Ex-Rights Price) which, in case of the KPN rights issue, set the adjustment factor at 1.6494. This adjustment factor was be applicable for the existing (not yet vested) LTI plans, i.e. 2011, 2012 and 2013.
The main features of the awards granted under the PSP and Restricted Share Plan to KPN management are summarized below:
Maximum term Settlement type1Vesting period Holding period after vesting of/until
2008 Board of Management 5 years Equity 3 years 2 years
Senior Management 3 years Cash 3 years –
2009 Board of Management 5 years Equity2 3 years 2 years
Senior Management 3 years Cash 3 years –
2010 Board of Management 5 years Equity 3 years 2 years
Senior Management 3 years Cash 3 years –
2011 Board of Management 5 years Equity2 3 years 2 years
Senior Management 3 years Cash 3 years –
2012 Board of Management and Senior Management 5 years Equity2 3 years 2 years
Senior Management 3 years Cash 3 years –
Senior Management Restricted Share Plan 2.7 years Equity 2.7 years –
2013 Board of Management and Senior Management 5 years Equity2 3 years 2 years
Senior Management 3 years Cash 3 years –
Senior Management Restricted Share Plan 2.7 years Equity 2.7 years –
2014 Board of Management and Senior Management 5 years Equity2 3 years 2 years
Senior Management 3 years Cash 3 years –
1) The cash-settled share awards will be settled in cash and no holding restrictions apply. An exception to the holding period for equity-settled plans is made with respect to shares that were sold upon vesting to cover the tax obligation on the vested shares. After vesting, the holder is able to sell a number of unconditional granted shares only up to the amount necessary to settle the wage taxes liability relating to the profit made on the stock compensation plan.
2) Including deferred dividend.
The total compensation expense associated with the share plans was EUR 6 million in 2014 (2013: EUR 4 million) and the related liability (for cash-settled shares) at December 31, 2014 was EUR 3 million (2013: EUR 1 million). This liability is included under Other payables and deferred income. During 2014, KPN granted 4,932,318 shares and share-based awards (2013: 6,511,905) to members of the Board of Management and senior management. Since no vesting conditions were met in the years 2013 and 2014, the intrinsic value at vesting was zero.
FINANCIAL STATEMENTS — CONSOLIDATED FINANCIAL STATEMENTS
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Financial Position Other Notes
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Notes to the Consolidated Statement of Profit or Loss
The following table presents the number of shares and share-based awards under the share plans for the year ended December 31, 2014.
Management 1,395,215 810,747 – -137,2664 2,068,696 – – -2,068,696 – –
2011 Shares
Management 1,116,558 704,672 – -132,449 1,688,781 – – -135,817 1,552,964 1,552,964
2012 Shares Board of Management/
Senior
Management 438,667 188,317 – -25,311 601,673 – – -95,814 505,859 505,859
2012 Restricted Shares Senior
Management 607,500 375,200 – -42,359 940,341 – – -371,000 569,341 569,341
2013 Share-based awards Senior
Management – 1,776,2931 – – 1,776,293 – – -154,534 1,621,759 1,621,759
2013 Shares Board of Management/
Senior
Management – 634,1131 – – 634,113 – – -101,446 532,667 532,667
2013 Restricted Shares Senior
Management – 1,934,678 – -20,600 1,914,078 – – -494,400 1,419,678 1,419,678
2014 Share-based awards Senior
Management – – – – – 3,274,202 – -21,824 3,252,378 3,252,378
2014 Shares Board of Management/
Senior
Management – – – – – 1,658,116 – -55,952 1,602,164 1,602,164
1) On the basis of a 100% grant. The equity-settled share numbers do not include any deferred dividend during the vesting period. The deferred dividend during the vesting period will be granted in additional shares.
2) At grant date, the fair value is calculated using a Monte Carlo Simulation model except for the restricted shares. At April 10, 2014, the fair value was EUR 2.37 (2013 grant: EUR 1.06) for the 2014 share-based award (cash-settled) and EUR 2.37 (2013 grant: EUR 1.06) for the 2014 equity-settled share grant for members of the Board of Management and Senior Management (excluding deferred dividend). The fair value was EUR 1.58 for the 2013 Restricted share award for Senior Management.
3) At December 31, 2014, the fair value of each cash-settled share-based award was measured, using recent strategic plans, forecasts and a Monte Carlo Simulation model, based on the most recent available share price of KPN and its performance compared with peer companies at the moment of valuation (i.e. closing share prices as at December 31, 2014). At December 31, 2014 the fair value was EUR 0 (2013: EUR 0) for the 2012 share-based award, EUR 0.85 (2013: EUR 1.96) for the 2013 share-based award and EUR 2.42 for the 2014 share-based award.
4) At the end of 2014, KPN held the 13th position with respect to the 2012 share grant and at the end of 2013 KPN held the 14th position with respect to the 2011 share grant. Final TSR measurement for the 2012 share grant was conducted as of February 15, 2015.
5) Granted shares were adjusted based on a mathematically calculated adjustment factor, i.e. the cum-rights price divided by the TERP (Theoretical Ex-Rights Price) which, in case of the KPN rights issue, is set at 1.6494.
The fair value of each award at the grant date is determined using the following assumptions:
2014 PSP 2013 PSP 2013 Restricted Shares Risk-free interest rate based on euro government bonds for remaining
time to maturity of 2.7 years 0.6% 0.6% 0.6%
Expected dividend for KPN (based on one year’s historical daily data
preceding the date of award) 2.0% 0.0% –
Expected volatility (PSP grant based on 2.7 years historical daily data) 38.4% 32.9% –
Share price at date of award (closing at grant date) EUR 2.49 EUR 1.06 EUR 1.58
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