51. Long-term incentive for executives
The METRO long-term incentive (METRO LTI) plan developed in financial year 2018/19 is a plan set out for a period of 3 years. Alongside the performance targets that focus on the commercial success of METRO, value creation by individual national subsidiaries are the focus of measuring success in the METRO LTI.
The METRO LTI performance periods run from 1 April 2019 to 31 March 2022. Individual target amounts for the beneficiaries are built up on a proportionate basis. The final target amount at the end of the performance period is based on the length of the eligibility period in the METRO LTI as well as on the position held by the individual.
There was also what is known as a mid-term incentive (METRO MTI) running alongside this long-term incentive in financial year 2018/19.The METRO MTI aimed to support the transformation of METRO over a 2-year period. This plan was due in the past financial year and was largely paid out. A total income of €0.1 million was incurred in this context. The provisions related to METRO MTI as of 30 September 2021 amount to €1 million (30/9/2020: €11 million).
METRO LTI operating principles
After the end of each performance period, the payout amount is determined by multiplying the respectively accumulated individual target amount with a total target achievement factor. This factor consists of the achievement of the country performance component (60%), the achievement of the METRO performance component (30%) and the achievement of the sustainability component (10%). The payout amount is capped and the total target achievement factor cannot decrease below 0. For the country performance component, the success of the respective national subsidiary is decisive for the beneficiaries of the METRO Wholesale national subsidiaries, while the overall success of all national subsidiaries is taken as the basis for the other beneficiaries. The overall success of METRO is determined for the METRO performance and sustainability components.
The country performance component rewards the achievement of internal economic targets and is measured on the basis of a cash proxy achieved cumulatively for the METRO subsidiaries in financial years 2018/19 to 2020/21. In each case, a value for the factor 0.0 and a target value for the target achievement factor 1.0 were defined. Between both values and beyond that, the factor for target achievement is calculated using linear interpolation to 2 decimal points. The target achievement factor for the country performance component cannot decrease below 0 and is capped.
The METRO performance component is based on the success of METRO, expressed as the relative total shareholder return (TSR) compared to a comparison group. This group consists of the MDAX (50%) and the selected competitors (50%).
The comparison group of competitors consists of the following companies:
- Bidcorp (ISIN ZAE000216537)
- Bizim Toptan (ISIN TREBZMT00017)
- Marr (ISIN IT0003428445)
- Eurocash Group (ISIN PLEURCH00011)
- Performance Food Group (ISIN US71377A1034)
- US Foods (ISIN US9120081099)
- Sysco (ISIN US8718291078)
- Sligro (ISIN NL0000817179)
If the total shareholder returns of METRO AG and the comparison group run in parallel, the performance target is 100% met; for an underperformance of −20%, the performance target is met by one third; for anything below that, the target achievement is 0. Between these 2 points and beyond, linear interpolation or extrapolation is used to determine target achievement. The achievement of targets 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. Each year during 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 significant 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:
Average rating (rounded) |
Sustainability factor |
|---|---|
1 |
3.00 |
2 |
2.00 |
3 |
1.50 |
4 |
1.00 |
5 |
0.75 |
6 |
0.50 |
7 |
0.25 |
Below rank 7 |
0.00 |
Total expenses of €11 million (2019/20: €7 million) have been incurred under the METRO LTI plan. The provisions related to this programme as of 30 September 2021 amount to €23 million (30/9/2020: €13 million).
The provisions correspond to the fair value of the plans calculated pro rata temporis. This fair value is determined by an external expert using recognised financial mathematical methods. The basis for this is a risk-neutral, arbitrage-free valuation model of the option price theory (in this case using Monte Carlo simulation). The input data for the simulation are measurements and estimates of internal key figures as of the reporting date and the external market values as of the valuation date.
New long-term incentive: Group Incentive Plan (GIP)
In order to support METRO’s future perspectives a new long-term incentive was developed which comes into force from 1 April 2021. The Group Incentive Plan is a remuneration system set up over several years that ensures management is involved in the sustainable and long-term company development of METRO, thereby satisfying the needs of shareholders, other groups associated with the company (for example employees, customers) and the environment. The Group Incentive Plan is a cyclical plan that is distributed annually in separate tranches at a fixed point in time. Every tranche has a term of 3 years.
Group Incentive Plan operating principles
A target amount is set out in euro for the beneficiaries. The payout amount is calculated by multiplying the target value by the factor of overall target achievement. This, in turn, is calculated by determining the target achievements factors, rounded off to 2 decimal places, for each of the 3 performance targets. The weighted arithmetic mean of the factors, also rounded off to 2 decimal places, results in the overall target achievement factor.
The maximum payout amount is the cap for the individual performance targets set out in the plan (payment cap).
Overall target achievement is expressed via the 3 performance targets of
- earnings per share (EPS)
- METRO total shareholder return (TSR) and
- corporate responsibility.
In case of employment termination separate payment regulations have been agreed.
The earnings per share performance target is generally calculated by comparing the achieved EPS with a target value set out at the start of the term. Both positive and negative currency effects and separately reported special items/transformation costs compared to the objective are neutralised in the earnings per share. Accordingly, for the measurement of the achievement of performance targets, the EPS reported in the consolidated financial statements is adjusted for currency effects as well as for special items/transformation costs.
The EPS target achievement factor is determined as follows:
- If the EPS target value is achieved, the factor for the EPS component is 1.0.
- If only the lower hurdle or a value lying below this is achieved, the factor for the EPS component is 0.0.
- If the degree of target achievement is 200%, the factor for the EPS component is 2.0.
- In the case of intermediate values and values over 200%, the EPS factor for the group incentive plan target achievement is calculated using linear interpolation to 2 decimal places. The maximum achievable factor is 5.0.
The METRO TSR performance target reflects the external measurement of METRO on the capital market across the length of the term. It is determined by comparing the relative total shareholder return (TSR) of the METRO ordinary share to the MDAX and a comparison group of selected competitors.
The comparison group of competitors consists of the following companies:
- Bidcorp (ISIN ZAE000216537)
- Marr (ISIN IT0003428445)
- Eurocash Group (ISIN PLEURCH00011)
- Performance Food Group (ISIN US71377A1034)
- US Foods (ISIN US9120081099)
- Sysco (ISIN US8718291078)
- Sligro (ISIN NL0000817179)
If the total shareholder returns of METRO AG and the comparison group run in parallel, the performance target is 100% met; for an underperformance of −20%, the performance target is met by one third; for anything below that, the target achievement is 0. Between these 2 points and beyond, linear interpolation or extrapolation is used to determine target achievement. The achievement of targets has an upper limit of 500%.
The performance achievement for the sustainability component reflects compliance with METRO’s social responsibility and rewards compliance with economic and ecological criteria.
Target achievement is determined via the average rating which METRO AG is awarded in an external corporate sustainability assessment during the performance period. Each year during 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 significant 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:
Average rating (rounded) |
Sustainability factor |
|---|---|
1 |
3.00 |
2 |
2.00 |
3 |
1.50 |
4 |
1.00 |
5 |
0.75 |
6 |
0.50 |
7 |
0.25 |
Below rank 7 |
0.00 |
Total expenses of €3 million were incurred from the above-mentioned tranche of the GIP. The provisions related to this programme were structured in the same amount as of 30 September 2021.
The provisions correspond to the fair value of the plans calculated pro rata temporis. This fair value is determined by an external expert using recognised financial mathematical methods. The basis for this is a risk-neutral, arbitrage-free valuation model of the option price theory (in this case using Monte Carlo simulation). The input data for the simulation are measurements and estimates of internal key figures as of the reporting date and the external market values as of the valuation date.