5.1.1.2 OTHER EMPLOYEE BENEFITS
Other employee benefits, for an amount of 150 million euro as of August 31, 2020 (159 million euro as of August 31, 2019), mainly comprise a liability related to a deferred compensation program in the United States and obligations relating to long-service awards.
The total expense recognized with respect to these benefits in Fiscal 2020 was 16 million euro (9 million euro in Fiscal 2019), of which 2 million euro (unchanged like in Fiscal 2019) related to a deferred compensation program in the United States and was reported in financial expenses.
5.2 Share-based payment
ACCOUNTING PRINCIPLES AND POLICIES
Some Group employees receive compensation in the form of share-based payments, for which payment is made in equity instruments.
The services compensated by these plans are recognized as an expense, with the off set recognized in shareholders’ equity, over the vesting period. The amount of expense recognized in each period is determined by reference to the fair value of the equity instruments granted, as of the grant date.
The fair value of free shares is estimated at the date of grant based on the share price at that date after deductions for dividends on the shares that will not be paid to beneficiaries during the vesting period and, where applicable, a lock-up discount. The lock-up discount is determined based on the cost for the employee of a two-step strategy consisting of selling the shares forward for delivery at the end of the lock-up period and purchasing the same number of shares for immediate delivery, with the purchase financed by a loan, taking into account market inputs. The fair value of free shares subject to a performance condition based on Total Shareholder Return is estimated using a binomial model that takes into account the vesting conditions.
Each year, Sodexo reassesses the number of potentially exercisable stock options that are expected to vest as well as the number of shares that is likely to be delivered to beneficiaries of free shares based on the applicable vesting conditions. The impact of any change in estimates is recognized in the income statement, with the off set recognized in shareholders’ equity.
5.2.1 Free share plans
PRINCIPLE FEATURES OF FREE SHARE PLANS
Rules governing free share plans are as follows:
- free shares vest only if the beneficiary is still working for the Group on the vesting date; in addition, some free share grants are subject to a performance condition;
- for the free shares awarded in 2015, for beneficiaries who are French tax residents the vesting period is two or three years for shares not subject to any performance condition and three years for performance shares, provided in both cases that the beneficiary is still working for the Group on the vesting date. For non-French tax residents, the vesting period is four years. Free shares awarded to French tax residents are also subject to a two-year lock-up period as from the vesting date;
- for the free shares awarded since 2016, the vesting period for all beneficiaries is four years, with no subsequent lock-up period. In addition, beneficiaries must still be working for the Group on the vesting date in order for the shares to vest;
- until 2018, the proportion of shares subject to a performance condition ranges from 0% to 80% (depending on the total number of shares awarded), except for the shares granted to the Group Chief Executive Officer which consist solely of performance shares;
- since 2019, all shares granted to the members of the Group Executive Committee consist of performance shares.
The performance conditions other than those related to stock market performance (“non-market performance conditions”) were as follows:
- for the free shares awarded in 2015, the non-market performance condition is based on annual growth in Group net income over a three-year period;
- for the free shares awarded since 2016, the non-market performance condition is based on annual growth in consolidated underlying operating profit (before exceptional items and excluding currency eff ects) over a four-year period. For the 2018 plan, a portion of the shares is also subject to the achievement of Corporate Responsibility objectives. In 2019, a condition based on organic growth has been added.
Since the 2015 plan, a portion of the free shares awarded has also been subject to a stock market performance condition as follows:
- for the 2015 plan, a portion of the shares awarded to members of the Group Executive Committee is subject to a Total Shareholder Return (TSR) target. TSR is a measure of the performance of a company’s shares over time. It combines share price appreciation and dividends paid to show the total return to the shareholder. For the free shares awarded in 2015, the TSR must have increased by at least 20% between August 31, 2014 and the Annual Shareholders’ Meeting called to approve the Fiscal 2018 financial statements, in January 2018;
- for the 2016 and 2017 plans, a portion of the shares awarded to the members of the Group Executive Committee and to beneficiaries of more than 1,000 shares under the 2017 plan, are subject to a TSR performance condition. For the shares subject to this condition to vest, Sodexo’s TSR must be positive and outperform the CAC 40 GR (Gross Total Return) index, published by Euronext, between (i) January 27, 2016 and the date of the Annual Shareholders’ Meeting called to approve the Fiscal 2019 financial statements for the 2016 plan, and (ii) January 25, 2017 and the date of the Annual Shareholders’ Meeting called to approve the Fiscal 2020 financial statements for the 2017 plan;
- for the 2018 plan, a portion of the shares awarded to the members of the Group Executive Committee and to beneficiaries of more than 250 shares, Sodexo’s TSR will be compared to that of two peer groups. The first peer group is made up of 12 companies selected based on their size, the similarity of their operations to those of Sodexo and the fact that they all operate in the outsourcing and shared services industry. The second peer group comprises CAC 40 companies. In both cases, the number of shares that will vest will depend on Sodexo’s ranking within the peer group, with no shares vesting if Sodexo’s ranking is below the third quartile. The starting share price used will be the average of the share prices quoted over the thirty (30) calendar days preceding the plan grant date. The end share price used to measure the overall stock market performance will be the average of the share prices quoted over the thirty (30) calendar days preceding the performance assessment date (March 27, 2022);
- for the 2019 plan, Sodexo’s TSR will be compared to that of the peer group made up of 12 companies selected based on their size, the similarity of their operations to those of Sodexo and the fact that they all operate in the outsourcing and shared services industry. This condition is only applicable to the shares awarded to the Group Chief Executive Officer and to the members of the Group Executive Committee.
