Group Incentive Plan for executives
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 tranche 2020/21). Following the cyclical plan structure, an additional tranche of the GIP has been issued to managers each year on 1 April. Since financial year 2022/23, the remuneration systems set up over several years have no longer been share-based.
A target amount is set out in euros 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 for each of the 3 performance targets. The weighted arithmetic mean of the factors 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 for the tranche for financial year 2020/21 as well as the tranche for financial year 2021/22 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.
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 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, among other factors.
Performance share plan for the Management Board
The annual performance share plan tranches granted to the members of the Management Board for the financial years from 2016/17 to 2019/20 applied a multi-year performance period, which was usually 3 years. The performance period of the tranche 2019/20 ended in financial year 2022/23.
The share quantity was 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 was calculated by multiplying the conditionally allocated performance shares by the total target achievement factor, which was composed as follows:
- 50% total shareholder return (TSR),
- 50% earnings per share (EPS).
No payout was made from this tranche.
The TSR component was 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 was reached, the target achievement of the TSR component was 0.0; if it was outperformed by 5 percentage points, the factor was 1.0. The target achievement factor for intermediate values and up to 300% was calculated using linear interpolation or extrapolation.
The target achievement of the EPS component was 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 was reached, the target achievement of the EPS component was 0; if the defined 100% value was reached, the factor was 1.0. The target achievement factor for intermediate values and up to 300% was calculated using linear interpolation or extrapolation.
The final number of performance shares was 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 was capped at 250% of the individual target amount.
Performance cash plan for the Management Board
The annual performance cash plan tranches granted to the members of the Management Board in financial years 2020/21 and 2021/22 have a 4-year term.
The performance cash plan is based on the achievement of 2 performance targets:
- 60% total shareholder return (TSR),
- 40% earnings per share (EPS).
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 2022/23 are as follows:
Total income of €1 million (2021/22: expenses amounting to €5 million) has been incurred under the METRO LTI plan which came due in financial year 2021/22 and has largely been paid out. Total expenses of €6 million (2021/22: €7 million) were incurred from the 2021 tranche of the GIP. Total expenses of €3 million (2021/22: €2 million) were incurred from the 2022 tranche of the GIP.
Provisions of €1 million were released for the performance share plan (2021/22: income of €3 million). A total expense of €1 million was incurred for the performance share plan (2021/22: €4 million).
Total provisions for the plans described above amount to €26 million in financial year 2022/23 (2021/22: €21 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.