32 – Share based payments

Long Term Incentive (LTI) plans

LTI plans with similar conditions are granted annually to the Executive Board and selected senior managers in the Group. At vesting date, shares will be granted to the participants. The number of shares is determined depending on the achievement of defined performance criteria. The defined performance criteria may not be amended during the performance period of the LTI plans. However – in order to maintain the incentivizing character of the program – the Remuneration Committee will have discretion (until LTI Plan 2020 for the Executive Board) to adjust the threshold/ target/ maximum levels of the free cash flow, in case of material changes in external factors such as oil and gas prices. The adjustment is possible in both directions and will be determined by the Remuneration Committee. The Executive Board has the discretion to adjust the thresholds/ targets/ maximum levels of the free cash flow for Senior Managers accordingly. Disbursement is made in cash or in shares. From 2022 onwards OMV Petrom LTIP payment is made in shares only. Executive Board members and senior managers as active participants of the plans are required to build up an appropriate volume of shares and to hold those shares until retirement or departure from the company. For senior managers, if the LTIP eligibility lapses, but they are still in an active employment with the company, the shareholding requirement expires when the last LTIP is paid out. The shareholding requirement is defined as a percentage of the annual gross base salary, for the Executive Board, and as a percentage of the respective Target Long Term Incentive for the senior managers. Executive Board members have to fulfill the shareholding requirement within five years after the initial respective appointment. Until fulfillment of the shareholding requirement, the disbursement is in form of shares whilst thereafter the plan participants can decide between cash or share settlement. As long as the shareholding requirements are not fulfilled the granted shares after deduction of taxes are transferred to a trustee deposit, managed by the Company.

For share-based payments the grant date fair values are spread as expenses over the three years performance period with a corresponding increase in shareholders’ equity. In case of assumed cash-settlements a provision is made for the expected future costs of the LTI plans at statement of financial position date based on fair values.

In 2021 Borealis introduced a LTI plan, which is harmonized with the above described LTI Plan. The shareholding requirement is only applicable to the Executive Board members of Borealis and not to senior managers.

Equity Deferral

The Equity Deferral serves as a long-term compensation instrument for the members of the Executive Board, that promotes retention and shareholder alignment in OMV, combining the interests of management and shareholders via a long-term investment in restricted shares. The holding period of the Equity Deferral is three years from vesting. The plan also seeks to prevent inadequate risk-taking.

The Annual Bonus is capped at 180% of the target Annual Bonus. A minimum of one third of the Annual Bonus is granted in shares. The determined bonus achievement is settled per March 31 following the period end whereby at the statement of financial position date the target achievements and the share price is estimated (the latter on basis of market quotes).

Given the volatility of commodity prices and market conditions inherent to the industry, the variable remuneration plans give the Remuneration Committee the authority (in line with general practices in the Oil and Gas industry) to adjust the threshold, target, and maximum levels based on actual oil/gas prices and EUR/USD exchange rates compared with assumptions at the time the targets were set. Adjustments are applied in both directions. They are determined by the Remuneration Committee and published in the Remuneration Report. The granted shares after deduction of taxes are transferred to a trustee deposit, managed by the Company, to be held for three years.

In 2022 expenses amounting to EUR 3 mn were recorded with a corresponding increase in equity (2021: EUR 3 mn).

Total Expense

In 2021 Borealis implemented a transitional LTI plan for 2021 and 2022 in order to bridge the cash gaps, that arise from migrating to the new three year plan, mentioned in the section ‘Long Term Incentive (LTI) plans’. Transitional LTIP allowances for 2021 and 2022 are measuring similar KPI’s as the three year plan for that specific year only and are settled in cash.

Expenses related to all share based payment transactions are summarized in the below table.