49. Long-term incentive for executives (wholesale and retail sector)

Permissions for the wholesale business unit (MCC LTI)

The long-term incentive (MCC LTI) developed for the METRO Cash & Carry sales line in the past financial year was tailored specifically to the operating model. It was issued to senior executives and the management bodies of METRO Cash & Carry companies for the first time in financial year 2015/16. This is a cyclical plan that is issued every 3 years. The respective performance targets focus on value creation in the individual national subsidiaries and/or the wholesale segment as a whole, as well as their sustained development and prospects. The performance period of the MCC LTI extends from 1 April 2016 to 31 March 2019. The individual target amounts are accumulated proportionally during this period. The final target amount that has been accumulated at the end of the performance period is based on the period of eligibility for the MCC LTI as well as the individual’s position. According to the plan conditions, executives can be newly admitted to the circle of beneficiaries on a pro rata basis or removed from the plan.

Additionally, the senior executives of METRO AG were entitled to participate in the MCC LTI pro rata temporis in the reporting period. This entitlement replaces tranche 2016/17 of the sustainable performance plan 2.0 and subsequent tranches that can no longer be issued due to the demerger.

Permissions for the retail business unit (Real LTI)

In the reporting period, the Real long-term incentive (Real LTI) was developed for the retail business segment. The authorised executives and senior executives of the retail business segment were eligible. The performance period started on 1 April 2017 and ends on 31 March 2020. It also replaces the other permissions to the Sustainable performance plan 2.0. The operating principles are based on the MCC LTI and are shown in the following.

Operating principles of the MCC and Real LTI

After the end of each performance period, the payout amount is determined by multiplying the respectively accumulated individual target amount with a total goal achievement factor. The goal achievement rate of this factor for the past performance and future value components accounts for 45% each; the remaining 10% is accounted for by the goal achievement rate of the sustainability component. The payout amount is capped and the total goal achievement factor cannot drop below 0. The relevant measure for the past performance and future value components for eligible executives at the national METRO Cash & Carry subsidiaries is the performance/value creation of the respective national subsidiary of METRO Cash & Carry. The relevant measure for the other eligible executives is METRO Cash & Carry’s or Real’s respective sales line’s overall performance.

The past performance component rewards the achievement of internal economic target values and is determined on the basis of the EBITDA after special items generated cumulatively over financial years 2015/16 to 2017/18 for METRO Cash & Carry and 2016/17 to 2018/19 for Real. Separate target values for a goal achievement factor of 1.0 and 0.0, respectively, have been defined. In the case of intermediate values and values above 1.0, the factor for goal achievement is calculated using linear interpolation to 2 decimal points. The goal achievement factor for the past performance component cannot drop below 0 and is capped.

The future value component mirrors METRO Cash & Carry’s and Real’s external valuation with respect to the expected future performance of the respective national subsidiary and each sales line as a whole from an analyst’s perspective. For the purpose of target setting, the enterprise value of the respective sales line was determined on the basis of analyst valuations before the start of the performance period. It is determined again at the end of each performance period. The enterprise value of METRO Cash & Carry national subsidiaries is derived from the enterprise values of the METRO Cash & Carry sales line. Separate target values for a goal achievement factor of 1.0 and 0.0, respectively, have been defined. In the case of intermediate values and values above 1.0, the factor for goal achievement is calculated using linear interpolation to 2 decimal points. The goal achievement factor for the future value component cannot drop below 0 and is capped.

Performance achievement for the sustainability component is determined on the basis of the average rating which METRO AG is awarded in an external corporate sustainability assessment during each performance period. In each year of the performance period, METRO AG participates in the Corporate Sustainability Assessment conducted by the independent service provider RobecoSAM. RobecoSAM AG uses this assessment to determine METRO AG’s ranking within the industry group Food & Staples Retailing that is defined in accordance with the Global Industry Classification Standard (GICS). RobecoSAM AG will inform METRO AG of any changes in its sector classification. In case of material changes in the composition of companies or the ranking method, RobecoSAM AG can determine adequate comparable values.

The company’s average ranking – rounded to whole numbers – is determined on the basis of the rankings communicated during each performance period. The factor for the sustainability component is determined in the following manner on the basis of the average of the performance period:

As of 30 September 2017, the target amount for the eligible group of persons was €34.6 million.

Sustainable performance plan version 2014 (2014/15–2017/18)

After the first tranche of the sustainable performance plan was issued in financial year 2013/14, it was decided to adjust the sustainable performance plan from financial year 2014/15 onwards by adopting the so-called sustainable performance plan version 2014, with a planned duration of 4 tranches up to financial year 2017/18. A 3-year performance period applies to the 2014/15 tranche of the sustainable performance plan version 2014; from the 2015/16 tranche onwards, a 4-year performance period will apply.

A target value in euros is set for the eligible managers. The payout amount is calculated by multiplying the target value by the factor of overall goal achievement. This, in turn, is calculated by determining the goal achievement factors, each of which is rounded to 2 decimal points, for each of the 3 performance targets. The arithmetic mean of the factors, also rounded to 2 decimal points, gives the overall goal achievement factor. The payout amount is limited to a maximum of 250% of the target value (payout cap). In case that the employment relationship comes to an end, separate rules for the payout of the tranches have been agreed upon.

The sustainable performance plan version 2014 is based on the following 3 performance targets:

• total shareholder return (TSR),
• sustainability and
• earnings per share (EPS).

The TSR component is measured according to the development of the total shareholder return of the METRO ordinary share in the performance period compared to a defined benchmark index. To calculate the goal achievement factor of the TSR component, the Xetra closing prices of the METRO ordinary share are determined over a period of 40 consecutive trading days immediately following the Annual General Meeting of METRO AG in the year of the awarding. This is used to calculate the arithmetic mean, which is known as the starting share price. The performance period for the respective tranche will begin on the 41st trading day following the Annual General Meeting. Once again, the Xetra closing prices of the METRO ordinary share are determined over a period of 40 consecutive trading days immediately following the Annual General Meeting 3 years, or, from financial year 2015/16 onwards, 4 years after calculating the starting share price and issuing the applicable tranche. This is used again to calculate the arithmetic mean, which is known as the ending share price. The TSR percentage value will be determined on the basis of the change in the METRO share price and the total amount of hypothetically reinvested dividends throughout the performance period in relation to the starting and ending share prices.

The METRO TSR calculated in this manner will be compared with the TSR of the STOXX Europe 600 Retail index (index TSR) during the performance period and the factor for computing the TSR component will be determined as follows:

• If METRO’s TSR is identical to the index TSR, the factor for the TSR component is 1.0;
• if METRO’s TSR is 30% points or more below the index TSR, the factor for the TSR component is 0.0;
• if METRO’s TSR is 30% points above the index TSR, the factor for the TSR component is 2.0.
• In the case of goal achievement with intermediate values and more than 30% points, the TSR factor for the sustainable performance plan version 2014 is calculated using linear interpolation to 2 decimal points.

To determine the goal achievement factor of the sustainability component, METRO AG takes part in the Corporate Sustainability Assessment conducted by the external independent agency RobecoSAM during each year of the 3- or 4-year performance period of the sustainable performance plan version 2014. RobecoSAM AG uses this assessment to determine the ranking of METRO AG within the industry group Food and Staples Retailing that is defined in accordance with the Global Industry Classification Standard (GICS). S&P Dow Jones Indices uses this ranking as the basis for decisions regarding a company’s inclusion in the Dow Jones Sustainability Indices (DJSI). METRO AG is informed each year by RobecoSAM AG about its new ranking. The company’s average ranking – rounded to whole numbers – is determined on the basis of the 3, or, from financial year 2015/16 onwards, 4 rankings per tranche communicated by RobecoSAM AG during the performance period. The factor for the sustainability component is determined on the basis of the average ranking during the performance period.

The goal achievement factor for the EPS component, which was introduced in the sustainable performance plan version 2014, is calculated as follows: generally, an EPS target value (before special items) for the third or fourth year of the EPS performance period, a lower threshold/entry barrier as well as an upper threshold for 200% goal achievement are decided at the beginning of the financial year. The EPS value that has actually been achieved during the performance period is compared to the approved values and the factor for calculating the EPS component is determined as follows:

• If the EPS target value is achieved, the factor for the EPS component is 1.0
• If only the lower entry barrier or a value lower than it is achieved, the factor for the EPS component is 0.0
• In the event of 200% goal achievement, the factor for the EPS component is 2.0.
• In the case of goal achievement with intermediate values and more than 200%, the EPS factor for the sustainable performance plan version 2014 is calculated using linear interpolation to 2 decimal points.

Due to the demerger on 12 July 2017, the final performance measurement of the tranches from the sustainable performance plan 2.0 based on the preset success targets is no longer possible. An external appraiser determined the present value of the respective tranches on the day of the demerger according to a recognised financial mathematical procedure and paid them out to the beneficiaries accordingly. The portion of the respective target value, which has not yet been earned on a pro rata basis, was transferred to a so-called roll-over LTI. A RoCE performance target was set for the 2014/15 tranche, which will be payable at the end of the original performance period in April 2019. An EPS performance target became effective for the tranche 2015/16. The payment will be due for payment in April 2019 after the end of the performance period, which was reduced by 1 year.

The issuance of tranches 2016/17 and 2017/18 will be replaced by the issuance of the MCC or Real LTI.

Sustainable performance plan (2013/14)

After the last tranche of the performance share plan was paid in the short financial year 2013, the sustainable performance plan was issued in financial year 2013/14.

A target value in euros was set for the eligible managers. This is 75% dependent on the TSR component and 25% on the sustainability component.

The calculation of the TSR component follows the method described for the sustainable performance plan version 2014; however, the factor for the TSR component is a maximum of 3.0 (cap). Furthermore, the following additional condition applies if the TSR factor is positive: a payment of 75% of the target amount multiplied by the TSR factor will be made only if the calculated ending price of the METRO share does not fall below the starting share price. Should this condition not be met, the calculated amount will not initially be paid. In this case, an entitlement to payment will exist only if the Xetra closing price of the METRO ordinary share is higher than or equivalent to the starting share price for 40 consecutive trading days within a 3-year period after the completion of the performance period. Should this condition not be met within the 3 years after the performance period ends, no payment of the TSR component of the tranche will be made.

Similarly, the method described for the sustainable performance plan version 2014 also applies to the calculation of the factor for the sustainability component, while the factor for the sustainability component depends on the average ranking during the performance period.

The following additional condition will also apply: a payment of 25% of the target amount multiplied by the sustainability factor will only be made if the ranking of METRO AG does not fall by more than 2 places below the last announced ranking before the issuance of the tranche in any year of the performance period. Otherwise, the factor for the sustainability component will be 0. The payment cap for the sustainability component amounts to 3 times the target amount.

The sustainability component was paid to the beneficiaries on 3 April 2017, according to the plan conditions after the end of the performance period. Since the additional payout condition for the TSR component was not met, this part was initially not due for payment. Due to the demerger on 12 July 2017, however, the final performance measurement of the TSR component based on the set criteria is no longer possible. The cash value of the TSR component on the demerger day was determined by an external appraiser according to a recognised financial-mathematical procedure and paid out to the beneficiaries accordingly.

Performance share plan (2009–2013)

In 2009, METRO AG introduced a performance share plan for a period of 5 years for which the last tranche was issued in the short financial year 2013. Under this scheme, eligible managers were given an individual target amount for the performance share plan (target value) in accordance with the significance of their responsibilities. The target number of performance shares was calculated by dividing this target value by the share price upon issuance, based on the average price of the METRO share during the 3 months up to the issuance date. The key metric in this calculation was the 3-month average price of the METRO share before the issuance date. A performance share entitles its holder to a cash payment in euros matching the price of the METRO share on the payment date. The key metric in this calculation is also the 3-month average price of the METRO share before the payment date.

Based on the relative performance of the METRO share compared with the median of the DAX 30 and EURO STOXX Retail indices – total return – the final number of payable performance shares is determined after the end of a performance period of at least 3 and at most 4.25 years. This corresponds to the target number of shares when an equal performance with said stock indices is achieved. Up to an outperformance of 60%, the number increases linearly to a maximum of 200% of the target amount. Up to an underperformance of 30%, the number is accordingly reduced to a minimum of 50%. In the case of an underperformance of more than 30%, the number is reduced to 0.

Payment can be made at 6 possible times that are set in advance. The earliest payment date is 3 years after issuing the performance shares. From this time, payment can be made every 3 months. The eligible managers can choose the date upon which they want to exercise performance shares. A distribution over several payment dates is not permitted. The payment cap amounts to 5 times the target value.

METRO introduced so-called share ownership guidelines along with its performance share plan: as a precondition for payments of performance shares, eligible executives are obliged to undertake and maintain a continuous self-financed investment in METRO shares up to the end of the 3-year vesting period. This ensures that, as shareholders, they will directly participate in share price gains as well as potential losses of the METRO share. The required investment volume generally amounts to approximately 50% of the individual target value.

The vesting period of the 2013 tranche ended in July 2017. It was exercised by 21 persons with 42,688 performance shares in financial year 2016/17. The performance share plan ended on 1 July 2017 and there are no other claims from the plan.

The mentioned tranches of share-based payment programmes resulted in total expenses of €25 million (2015/16: €26 million).

The programme-related provisions as of 30 September 2017 amount to €19 million (30/9/2016: €34 million).