27 Share-based compensation

The Royal DSM Restricted- and Performance Share Unit Plan provides rules for the grant of Restricted Share Units (RSU) and Performance Share Units (PSU) to eligible employees. The effective date of any grant of share units is the last trading day at the Amsterdam Stock Exchange in March.

The number of 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 average share price in January. 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’). In addition, vesting of PSUs is also subject to the achievement of predefined performance targets at the end of the vesting period. The PSUs granted in 2021 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) reduction

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 executives. Stock options have a term of 8 years and are subject to a vesting period of 3 years. All outstanding stock options are vested.

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

Whereas the grant of PSUs to members of the Managing Board and the Executive Committee is based on the maximum number to vest, the grant to other eligible employees is — as of 2021 – based on the ‘at-target’ grant level (in previous years this was the ‘maximum number’ that could vest). An ‘at-target’ grant level includes RSUs as well as PSUs. In the future this may, upon vesting and depending on the achievement of underlying goals, result in a performance correction, i.e., the forfeiture of outstanding PSUs (if performance goals are not or only partly achieved) or in an additional number of PSUs to vest (if performance goals are overachieved).

The change in plan (the switch to an ‘at-target’ grant) was applied retroactively for the grants made in previous years. As a result of this, the table above includes a one-off correction of outstanding PSUs for grants in previous years. For 2018 the number in the respective column represents the net balance of the correction of the number of outstanding share units resulting from the shift to an ‘at-target’ grant (-59,233 PSUs) and the impact of a performance correction (28,234) as the achievement of the performance goals exceeded target. For 2019 and 2020 the balance only contains the correction following the shift to an ‘at-target’ grant. The shift towards a grant on ‘at-target’ level did not impact the valuation of the outstanding share units nor the share-based compensation in the income statement.

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 share units are measured by reference to the fair value of the DSM share at the date on which the 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 €22 million is included in the costs for wages and salaries for share-based compensation (2020: €29 million). The following table specifies the share-based compensation.