METRO LTI for managers
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 is the focus of measuring success in the METRO LTI.
METRO LTI performance periods run from 1 April 2019 to 31 March 2022. Therefore, this plan was due in the past financial year and was largely paid out.
METRO LTI operating principles
The payout amount is determined by multiplying the respectively accumulated individual target amount with a total target achievement factor. This factor can be broken down as follows:
- 60% country performance,
- 30% METRO performance,
- 10% sustainability component.
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%). 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.
Group incentive plan for managers
The Group Incentive Plan (GIP) is a remuneration system set up over several years that ensures management is involved in the sustainable and long-term company development of METRO, by satisfying the needs of shareholders, other groups associated with the company (for example employees, customers) and the environment.
To support the future alignment of METRO, the GIP is allocated annually in separate tranches at a fixed time. Every tranche has a term of 3 years. The GIP was granted for the first time on 1 April 2021 (financial year 2020/21 tranche). Following the cyclical plan structure, the 2nd tranche (financial year 2021/22 tranche) of the GIP was issued to managers on 1 April 2022.
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).
The overall target achievement is expressed via the following 3 performance targets:
- 40% earnings per share (EPS),
- 50% METRO total shareholder return (METRO TSR),
- 10% sustainability component.
The earnings per share performance target (EPS) is generally calculated by comparing the achieved EPS with a target value set out at the start of the term. Positive and negative currency effects as well as separately reported special items/transformation costs compared to the objective are neutralised in the EPS. 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. If the lower barrier of entry or less is achieved, the EPS component is 0.0. If the target value for 100% is achieved, the EPS component is 1.0; above that, the maximum achievable factor for the EPS component 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.
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 structure of this ratio has not changed for the 2 tranches issued so far.
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, which is based on the Dow Jones Sustainability Index. This assessment is used 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). The company’s average ranking, rounded to whole numbers, is determined on the basis of the rankings communicated during each performance period.
Performance share plan for the Management Board
The annual performance share plan tranches granted to the member of the Management Board for the financial years from 2016/17 to 2019/20 apply a multi-year performance period, which is usually 3 years. The long-term incentive for the Management Board sets incentives for a sustainable, long-term increase in the value of the company. It also considers the internal and external value development over a period of several years as well as the interests of the shareholders. The performance period of the 2018/19 tranche ended in financial year 2021/22. It did not result in a payout.
Performance share plan operating principles
Each member of the Management Board is initially allocated conditional performance shares. The share quantity is calculated from the individual target amount and the arithmetic mean of the Xetra closing prices of the METRO ordinary share in a defined period at the time of allocation. The final number of performance shares is calculated by multiplying the conditionally allocated performance shares by the total target achievement factor, which is composed as follows:
The target achievement factors for the 2 components are each capped at 3.0.
The TSR component is based on the relative total shareholder return (TSR) of the METRO ordinary share compared to the MDAX and a defined peer group over the 3-year TSR performance period. If the lower barrier of entry or less is reached, the target achievement of the TSR component is 0.0; if it is outperformed by 5 percentage points, the factor is 1.0. The target achievement factor for intermediate values and up to 300% is calculated using linear interpolation or extrapolation.
The target achievement of the EPS component is determined by comparing the EPS achieved at the end of the 3-year EPS performance period with a target value defined before the start of the term. If the lower barrier of entry or less is reached, the target achievement of the EPS component is 0; if the defined 100% value is reached, the factor is 1.0. The target achievement factor for intermediate values and up to 300% is calculated using linear interpolation or extrapolation.
The final number of performance shares is multiplied by the arithmetic mean of the Xetra closing prices of the METRO ordinary share over a defined period including the dividends paid for the METRO ordinary share during the performance period. The resulting payout amount is capped at 250% of the individual target amount.
Performance cash plan for the Management Board
The annual performance cash plan tranches granted to the member of the Management Board since financial year 2020/21 have a 4-year term.
Performance cash plan operating principles
The performance cash plan is based on the achievement of 2 performance targets:
- 60% total shareholder return (TSR),
- 40% earnings per share (EPS).
The target achievement factors for the 2 components are each capped at 3.0.
The TSR component is based on the relative total shareholder return (TSR) of the METRO ordinary share compared to the MDAX and a defined peer group over the 3-year TSR performance period. If the lower barrier of entry or less is reached, the target achievement of the TSR component is 0.0; if it is outperformed by 5 percentage points, the factor is 1.0. The target achievement factor for intermediate values and up to 300% is calculated using linear interpolation or extrapolation.
The target achievement of the EPS component is determined by comparing the EPS achieved at the end of the 3-year EPS performance period with a target value defined before the start of the term. If the lower barrier of entry or less is reached, the target achievement of the EPS component is 0; if the defined 100% value is reached, the factor is 1.0. The target achievement factor for intermediate values and up to 300% is calculated using linear interpolation or extrapolation.
The resulting payout amount is capped at 250% of the individual target amount.
The expenses and income of the individual plans for managers and the Management Board for financial year 2021/22 are as follows:
Total expenses of €5 million (2020/21: expenses amounting to €11 million) have been incurred under the METRO LTI plan. Total expenses of €7 million (2020/21: €3 million) were incurred from the 2021 tranche of the GIP. A total expense of €2 million will be incurred in connection with the GIP issued in the past financial year.
Provisions of €3 million were released for the performance share plan (2020/21: expense of €3 million). A total expense of €4 million were incurred for the performance share plan (2020/21: €2 million).
Total provisions for the plans described above amount to €21 million in financial year 2021/22 (2020/21: €33 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.