2019Statements

27 Share-based compensation

The DSM Stock Incentive Plan provides rules for the grant of Restricted Share Units (RSU) and Performance Share Units (PSU), which have been granted as of 2017 to executives. The grant date of these management share units is the last trading day at the Amsterdam Stock Exchange in March.

The number of management share units to be granted is based on the face value of the DSM share. The grant value (depending on job level) to eligible employees will be divided by the share price at the beginning of the first performance year. As a result, the number of share units to be granted annually will fluctuate with the share price development. The grant concerns the maximum number of Restricted Share Units (RSUs) and Performance Share Units (PSUs) that may vest.

RSUs and PSUs are subject to a vesting period of 3 years starting at the grant date. Vesting of RSUs is subject to continued employment until the vesting date ('time vesting'); vesting of PSUs is additionally subject to the achievement of predetermined performance goals at the end of the vesting period. The PSUs granted in 2019 are subject to the realization of four equally weighted goals:

• Relative Total Shareholder Return (TSR) performance versus a peer group

• Return on Capital Employed (ROCE) growth

• Energy Efficiency Improvement (EEI)

• Greenhouse Gas Emissions (GHGE) Efficiency Improvement

Non-vested share units will be forfeited. If employment is terminated prior to the vesting date, specific rules regarding vesting and forfeitures apply.

Prior to 2017, stock options were granted to eligible staff. Stock options have a term of 8 years and are subject to a vesting period of 3 years. Like RSUs, non-performance related stock options are subject to 'time vesting', whereas the vesting of performance related stock options depends on the realization of the same predefined performance goals as applicable to PSUs. Vested stock options can be exercised during a period of 5 years starting as per vesting date, subject to the plan rules. Unvested stock options will be forfeited. If employment is terminated prior to the vesting date, specific rules regarding vesting and forfeitures apply.

Share units and stock options are settled by delivery of DSM shares.

DSM granted certain members of senior management share units based on Adjusted EBITDA and ROCE performance measures set for 2018 and 2019. Settlement in shares takes place after this two-year period. If employment is terminated prior to the settlement date, specific rules regarding vesting and forfeitures apply. Under this plan 42,892 shares in total were granted, of which at the end of 2019 39,539 shares were outstanding and 3,539 were forfeited. The fair value of these shares is determined based on the market price at the end of the first quarter of 2019, adjusted for loss of dividend.

Certain employees in the Netherlands are entitled to employee stock options, to be granted on the first day on which the DSM stock is quoted ex-dividend following the Annual General Meeting of Shareholders. The opening price of the DSM stock on that day is the exercise price of such stock options. Employee stock options can immediately be exercised and have a term of five years.

Measurement of fair value

The costs of management share units are measured by reference to the fair value of the DSM share at the date on which the management share units are granted, ex-dividend as the share units do not accumulate dividend during the three-year vesting period.

The costs of option plans are measured by reference to the fair value of the options at the date on which the options are granted. The fair value is determined using the Black-Scholes model, taking into account market conditions linked to the price of the DSM share. Stock-price volatility is determined on the basis of historical volatilities of the DSM share price measured each month over a period equal to the expected option life. The costs of these options are recognized in the income statement (Employee benefit costs).

Assumptions determining fair value

The following assumptions were used to determine the fair value at grant date:

An amount of €34 million is included in the costs for wages and salaries for share-based compensation (2018: €25 million). The following table specifies the share-based compensation: