Siemens 2012 Annual Report Download - page 298

1 A. To our Shareholders 49 C. Combined Management Report 21 B. Corporate Governance
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  Share-based payment
Share-based payment awards at Siemens, including Bonus
Awards, Stock Awards, Stock Options, the Share Matching Pro-
gram and its underlying plans as well as the Jubilee Share Pro-
gram are predominately designed as equity-settled plans and
to a limited extent as cash-settled plans. If participating
Siemens companies cease to be part of the Siemens Group,
they are no longer eligible to participate in future share-based
payment awards at Siemens. In such cases the participating
Siemens companies have the right to settle the share-based
payment awards prematurely. Total pretax expense for share-
based payment recognized in line item Income from continu-
ing operations amounted to € million and € million for
the years ended September ,  and , respectively,
and refers primarily to equity-settled awards, including the
Company ’s Base Share Program.
 
The Company grants stock awards as a means for providing
share-based compensation to members of the Managing
Board, members of the senior management of Siemens AG and
its domestic and foreign subsidiaries and other eligible em-
ployees. Stock awards are subject to a restriction period of
about four years and entitle the beneficiary to Siemens shares
without payment of consideration following the restriction pe-
riod. Stock awards granted in fiscal  to  were general-
ly subject to a restriction period of three years. Stock awards
forfeit if the beneficiary ’s employment with the Company ter-
minates prior to the expiration of the restriction period. Dur-
ing the restriction period, beneficiaries are not entitled to divi-
dends. Stock awards may not be transferred, sold, pledged or
otherwise encumbered. Settlement of stock awards may occur
in newly issued shares of common stock of Siemens AG, trea-
sury stock or in cash. The settlement method will be deter-
mined by the Managing Board and the Supervisory Board.
Each fiscal year, the Company decides whether or not to grant
stock awards. The Supervisory Board decides about the num-
ber of stock awards to the Managing Board and the Managing
Board decides about the number of stock awards to members
of the senior management and other eligible employees.
In fiscal , the allocation of stock awards as a share-based
payment has been increasingly tied to corporate performance
criteria. The target attainment for the performance criteria
ranges between % and %.
Half of the annual target amount for stock awards is based on
the average of earnings per share (EPS, basic) of the past three
fiscal years. The target attainment determines the number of
stock awards upon allocation. Settlement of these stock
awards is in shares following the four-year restriction period.
The other half of the annual target amount for stock awards is
based on the share price performance of Siemens shares rela-
tive to the share price performance of five important Siemens
competitors (ABB, General Electric, Philips, Rockwell, Schneider)
during the four-year restriction period. The target attainment is
determined during the four-year restriction period for the stock
awards and accordingly, determines the number of Siemens
shares ultimately transferred following the restriction period. If
the target attainment is up to %, settlement is in shares. If
the target attainment exceeds % (up to %) an additional
cash payment corresponding to the outperformance results.
Additionally one portion of the variable compensation compo-
nent (bonus) for members of the Managing Board is granted in
the form of non-forfeitable awards of Siemens stock (Bonus
Awards).
Commitments to members
of the Managing Board:
In fiscal  and , agreements were entered into which
entitle members of the Managing Board to stock awards con-
tingent upon attainment of an EPS-based target. The fair value
of these entitlements amounting to € million and € million
was determined by calculating the present value of the target
amount. In fiscal  and , agreements were entered into
which entitle members of the Managing Board to stock awards
contingent upon attainment of a performance-based target of
Siemens stock relative to five competitors. The fair value of
these entitlements amounting to € million and € million was
calculated by applying a local volatility model. Inputs to that
model include an expected weighted volatility of Siemens
shares of % in  and % and %, respectively, in 
and a market price of €. in fiscal  and €. and
€., respectively in fiscal  per Siemens share. Expected
volatility was determined by reference to implied volatilities.
The model applies a risk-free interest rate of up to .% in fiscal
 and up to .% and up to .%, respectively, in fiscal 
and an expected dividend yield of .% in fiscal  and %
and .%, respectively, in fiscal . Compensation expense
related to stock awards is generally recognized over five years
until they vest, including a restriction period of four years.
In fiscal  and , agreements were entered into which
entitle members of the Managing Board to Bonus Awards con-
tingent upon the target attainment. The fair value of these en-
titlements amounting to € million and € million was deter-
mined by calculating the present value of the target amount.