27 Share-based compensation

The Royal DSM Restricted- and Performance Share Unit Plan provides rules for the grant of Restricted Share Units (RSU) and/or Performance Share Units (PSU) to eligible employees. Considering the plan rules that allow multiple grant dates, best practice is to effectuate the grant of share units on the last trading day at the Amsterdam Stock Exchange in March.

The number of share units to be granted is based on job level and the face value of the DSM share. As a result, the number of share units to be granted annually will fluctuate with the share price development.

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 performance period. In view of the intended merger of equals between DSM and Firmenich, it is decided (as included in the Offering Circular) that the PSUs granted under the Long-Term Incentive plan in 2021 and 2022, respectively, shall vest against the average of the vesting result achieved over the vesting that occurred in 2020, 2021 and 2022.

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.

In September 2022, a group of senior key employees (excluding the Co-CEOs) received an RSU grant, subject to completion of the merger between DSM and Firmenich. The respective grant will be settled in cash.

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 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 correction of outstanding PSUs for grants in previous years (i.e. 2019 and 2020). 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 €35 million is included in the costs for wages and salaries for share-based compensation (2021: €22 million). The following table specifies the share-based compensation.