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32Share participation plans

Share-based payments charged to personnel expenses

millions of CHF

 

2022

 

2021

Restricted share unit plan

 

1.6

 

1.3

Performance share plan continuing operations

 

13.8

 

19.5

Performance share plan discontinued operations

 

-

 

1.1

Total charged to personnel expenses

 

15.4

 

21.9

Restricted share unit plan settled in Sulzer shares

This long-term incentive plan covers the Board of Directors. Restricted share units (RSU) are granted annually. Awards to members of the Board of Directors automatically vest with the departure from the Board. The plan features graded vesting over a three-year period. One RSU award is settled with one Sulzer share at the end of the vesting period. The fair value of the RSU granted is measured at the grant date closing share price of Sulzer Ltd, and discounted over the vesting period using a discount rate that is based on the yield of Swiss government bonds for the duration of the vesting period. Participants are not entitled to dividends declared during the vesting period. Consequently, the grant date fair value of the RSU is reduced by the present value of the dividends expected to be paid during the vesting period.

Given the spin-off of the Applicator Systems division in 2021, the group neutralized the consequences from the demerger for the restricted share plans. The number of originally granted RSU was recalculated to neutralize the effect of the spin-off on the share price, resulting in the same fair value before and after the spin-off and did not impact the share-based payments expense.

Restricted share units

Grant year

 

2022

 

2021

 

2020

 

2019

 

2018

 

Total

Outstanding as of January 1, 2021

 

 

 

17’715

 

7’034

 

2’761

 

27’510

Granted

 

 

10’866

 

 

 

 

10’866

APS division spin-off

 

 

5’766

 

4’910

 

1’415

 

 

12’091

Exercised

 

 

 

–8’461

 

–4’371

 

–2’761

 

–15’593

Outstanding as of December 31, 2021

 

 

16’632

 

14’164

 

4’078

 

 

34’874

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding as of January 1, 2022

 

 

16’632

 

14’164

 

4’078

 

 

34’874

Granted

 

11’637

 

 

 

 

 

11’637

Exercised

 

 

–10’344

 

–10’994

 

–4’078

 

 

–25’416

Outstanding as of December 31, 2022

 

11’637

 

6’288

 

3’170

 

 

 

21’095

 

 

 

 

 

 

 

 

 

 

 

 

 

Average fair value at grant date in CHF

 

77.82

 

106.32

 

65.22

 

97.76

 

118.20

 

 

Performance share plan settled in Sulzer shares

This long-term incentive plan covers the members of the Executive Committee and the members of the Sulzer Management Group. Performance share units (PSU) are granted annually, depending on the organizational position of the employee.

Vesting of the PSUs is subject to continuous employment and to the achievement of performance conditions over the performance period. Participants are not entitled to dividends declared during the vesting period. Vesting of the performance share plans (PSP) is based on three performance conditions: operational income before restructuring, amortization, impairments and non-operational items (operational profit) in the last year of the performance period (weighted 25%), average operational return on capital employed (operational ROCEA) (weighted 25%), and Sulzer’s total return to shareholders (TSR), compared to a selected group of peer companies (weighted 50%).

TSR is measured with a starting value of the volume-weighted average share price (VWAP) over the last three months prior to the first year, and an ending value of the VWAP over the last three months of the vesting period. The rank of Sulzer’s TSR at the end of the performance period determines the effective number of total shares. The exercise price of the PSUs is zero.

Given the spin-off of the Applicator Systems division, the group neutralized the consequences from the demerger for the PSP. The number of originally granted PSUs was recalculated to neutralize the effect of the spin-off on share price, resulting in the same fair value before and after the spin-off. The target values of the Applicator Systems business for the PSP 2019, PSP 2020 and PSP 2021, as derived from their respective three-year financial plans, are deducted for the Sulzer group. As a result, the target values for the group comprise only what remain as continuing businesses within the group. Furthermore, for each non-market performance condition (i.e., operational profit and operational ROCEA) of PSP 2019, PSP 2020 and PSP 2021, the performance curve depicting the gradient formed from the threshold and cap performance level remains unchanged.

The following inputs were used to determine the fair value of the PSUs at grant date using a Monte Carlo simulation:

Grant year

 

2022

 

2021

 

2020

 

2019

 

2018

Fair value at grant date

 

84.69

 

124.95

 

78.18

 

115.95

 

143.62

Share price at grant date

 

76.35

 

101.12

 

76.05

 

92.46

 

120.60

Expected volatility

 

35.59%

 

34.68%

 

37.45%

 

29.64%

 

29.12%

Risk-free interest rate

 

0.39%

 

–0.58%

 

–0.64%

 

–0.57%

 

–0.42%

The expected volatility of the Sulzer share and the peer group companies is determined by the historical volatility. The zero-yield curves of those countries in which the companies and indices are listed were used as the relevant risk-free rates. Historical data was used to arrive at an estimate for the correlation between Sulzer and the peer companies. For the TSR calculation, all dividends paid during the vesting period are added to the closing share price.

Performance share units – terms of awards

Grant year

 

2022

 

2021

 

2020

 

2019

 

2018

Number of awards granted

 

97’930

 

90’527

 

151’422

 

112’857

 

74’467

Grant date

 

April 1, 2022

 

April 1, 2021

 

June 1, 2020

 

April 1, 2019

 

July 1, 2018

Performance period for cumulative operational profit

 

01/22–12/24

 

01/21–12/23

 

01/20–12/22

 

01/19–12/21

 

01/18–12/20

Performance period for TSR

 

01/22–12/24

 

01/21–12/23

 

01/20–12/22

 

01/19–12/21

 

01/18–12/20

Fair value at grant date in CHF

 

84.69

 

124.95

 

78.18

 

115.95

 

143.62

Performance share units

Grant year

 

2022

 

2021

 

2020

 

2019

 

2018

 

Total

Outstanding as of January 1, 2021

 

 

 

146’859

 

101’764

 

63’257

 

311’880

Granted

 

 

90’527

 

 

 

 

90’527

APS division spin-off

 

 

44’801

 

74’680

 

53’141

 

 

172’622

Exercised

 

 

–553

 

–3’829

 

–2’088

 

–63’257

 

–69’727

Forfeited

 

 

–7’284

 

–7’516

 

–1’008

 

 

–15’808

Outstanding as of December 31, 2021

 

 

127’491

 

210’194

 

151’809

 

 

489’494

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding as of January 1, 2022

 

 

127’491

 

210’194

 

151’809

 

 

489’494

Granted

 

97’930

 

 

 

 

 

97’930

Exercised

 

–998

 

–3’788

 

–6’202

 

–151’809

 

 

–162’797

Forfeited

 

–2’746

 

–6’634

 

–4’828

 

 

 

–14’208

Outstanding as of December 31, 2022

 

94’186

 

117’069

 

199’164

 

 

 

410’419