Accounting policy

Solvay has set up compensation plans, including equity-settled and cash-settled share-based compensation plans.

In its equity-settled plans, the Group receives services as consideration for its own equity instruments (namely through the issuance of share options). The fair value of services rendered by employees in consideration of the granting of equity instruments represents an expense. This expense is recognized on a straight-line basis in the consolidated income statement over the vesting periods relating to these equity instruments with the recognition of a corresponding adjustment in equity. The fair value of services rendered is measured based on the fair value of the equity instruments on the grant date. It is not subsequently remeasured. At each reporting date, the Group re-estimates the number of share options likely to vest. The impact of the revised estimates is recognized in profit or loss against a corresponding adjustment in equity.

In its cash-settled plans, the Group acquires services by incurring a liability to transfer to its employees rendering those services amounts that are based on the price (or value) of equity instruments (including shares or share options) of the Group (namely through the issuance of performance share units). The fair value of services rendered by employees in consideration of the granting of share-based payments represents an expense. This expense is recognized on a straight-line basis in the consolidated income statement over the vesting periods relating to these share-based payments with the recognition of a corresponding adjustment in liabilities. At each reporting date, the Group re-estimates the number of options likely to vest, with the impact of the revised estimates recognized in profit or loss. The Group measures the services acquired and the liability incurred at the fair value of the liability. Until the liability is settled, the Group remeasures the fair value of the liability at the end of each reporting period and at the date of settlement, with any changes in fair value recognized in profit or loss for the period.

Stock Option Plan

As every year since 1999, in 2018 the Board of Directors renewed the share option plan offered to executive staff (52 beneficiaries) with a view to involving them more closely in the long-term development of the Group. The plan is an equity-settled share-based plan. The majority of the managers involved subscribed to the options offered to them in 2018 with an exercise price of € 113.11 for the first plan and € 108.38 for the second plan, representing the average stock market price of the share for the 30 days prior to the offer.

At the end of December 2018, the Group held 2,722,761 treasury shares, which have been deducted from consolidated shareholders’ equity.

Share options

 

2018–2

 

2018–1

 

2017

 

2016

 

2015

 

2014

Number of share options granted and still outstanding at December 31, 2017

 

 

 

 

 

316,935

 

759,023

 

346,617

 

378,506

Granted share options

 

72,078

 

400,704

 

 

 

 

 

 

 

 

Forfeitures of rights and expiries

 

 

 

 

 

 

 

 

 

 

 

 

Share options exercised

 

 

 

 

 

 

 

 

 

 

 

(18,152)

Number of share options at December 31, 2018

 

72,078

 

400,704

 

316,935

 

759,023

 

346,617

 

360,354

Share options exercisable at December 31, 2018

 

 

 

 

 

 

 

 

 

346,617

 

360,354

Exercise price (in €)

 

108.38

 

113.11

 

111.27

 

75.98

 

114.51

 

101.14

Fair value of options at measurement date (in €)

 

20.81

 

19.10

 

23.57

 

17.07

 

24.52

 

22.79

Share options

 

2013

 

2012

 

2011

 

2010

 

2007

 

2006

 

2005

Number of share options granted and still outstanding at December 31, 2017

 

371,161

 

456,349

 

91,164

 

83,490

 

69,122

 

67,423

 

47,061

Granted share options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeitures of rights and expiries

 

 

 

 

 

 

 

(2,130)

 

 

 

 

 

(32,238)

Share options exercised

 

(3,990)

 

(51,390)

 

(28,683)

 

(81,360)

 

(1,064)

 

(2,702)

 

(14,823)

Number of share options at December 31, 2018

 

367,171

 

404,959

 

62,481

 

0

 

68,058

 

64,721

 

0

Share options exercisable at December 31, 2018

 

367,171

 

404,959

 

62,481

 

0

 

68,058

 

64,721

 

0

Exercise price (in €)

 

104.33

 

83.37

 

61.76

 

71.89

 

90.97

 

102.53

 

91.45

Fair value of options at measurement date (in €)

 

20.04

 

21.17

 

12.73

 

14.64

 

17.56

 

19.92

 

10.77

 

 

2018

 

2017

 

Number of share options

 

Weighted average exercise price

 

Number of share options

 

Weighted average exercise price

At January 1

 

2,986,850

 

97.90

 

3,312,784

 

93.30

Granted during the year

 

472,782

 

112.39

 

316,935

 

111.27

Forfeitures of rights and expiries during the year

 

(34,368)

 

90.24

 

(7,292)

 

67.99

Exercised during the year

 

(202,164)

 

78.58

 

(635,577)

 

80.97

At December 31

 

3,223,101

 

101.32

 

2,986,850

 

97.90

Exercisable at December 31

 

1,674,361

 

 

 

1,563,211

 

 

In 2018, the share options resulted in an expense of € 9 million, which was calculated by third parties according to the Black-Scholes model, and recognized in the consolidated income statement as part of administrative costs.

The valuation of the first stock option plan of 2018 is based on:

  • the price of the underlying asset (Solvay share): € 116.15 at February 27, 2018;
  • the time outstanding until the option maturity: exercisable from January 1, 2022 until February 27, 2026, taking into account the fact that some of them will be exercised before the option maturity;
  • the option exercise price: € 113.11;
  • the risk-free return: 0.76% (on average);
  • the volatility of the underlying yield, estimated based on the option price: 21.00%; and
  • a dividend yield of 2.85%.

The valuation of the second stock option plan of 2018 is based on:

  • the price of the underlying asset (Solvay share): € 112.65 at July 30, 2018;
  • the time outstanding until the option maturity: exercisable from January 1, 2022 until July 30, 2026, taking into account the fact that some of them will be exercised before the option maturity;
  • the option exercise price: € 108.38;
  • the risk-free return: 0.63% (on average);
  • the volatility of the underlying yield, estimated based on the option price: 20.80%; and
  • a dividend yield of 2.91%.

Weighted average remaining contractual life:

In years

 

2018

 

2017

Share option plan 2005

 

0.0

 

1.0

Share option plan 2006

 

1.0

 

2.0

Share option plan 2007

 

2.0

 

3.0

Share option plan 2010

 

0.0

 

1.0

Share option plan 2011

 

1.0

 

1.9

Share option plan 2012

 

1.1

 

2.1

Share option plan 2013

 

2.2

 

3.2

Share option plan 2014

 

3.2

 

4.2

Share option plan 2015

 

4.2

 

5.2

Share option plan 2016

 

5.2

 

6.2

Share option plan 2017

 

6.2

 

7.2

Share option plan 2018 – 1

 

7.2

 

Share option plan 2018 – 2

 

7.6

 

Performance Share Units Plan (PSU)

Since 2013, the Board of Directors renewed a yearly Performance Share Unit Plan, offered to executive staff with the objective of involving them more closely in the development of the Group, making this part of the long-term incentive policy. All the managers involved subscribed the PSU offered to them in 2018 at a grant price of € 113.11. The Performance Share Units is a cash-settled share-based plan through which beneficiaries will obtain a cash benefit based on the Solvay share price, as well as performance conditions and accrued dividends.

Each plan has a three-year vesting period, after which a cash settlement will take place, if vesting conditions have been met.

Performance share units

 

Plan 2018

 

Plan 2017

Number of PSU

 

215,567

 

222,746

Grant date

 

27/02/2018

 

23/02/2017

Acquisition date

 

01/01/2021

 

01/01/2020

Vesting period

 

31/03/2018 to 31/12/2020

 

31/03/2017 to 31/12/2019

Performance conditions

 

40% of the initial granted PSUs are subject to the Underlying EBITDA YoY growth % over 3 years (2018, 2019, 2020)

 

40% of the initial granted PSUs are subject to the Underlying EBITDA YoY growth % over 3 years (2017, 2018, 2019)

 

40% of the initial granted PSUs are subject to the CFROI YoY % variation over 3 years (2018, 2019, 2020)

 

40% of the initial granted PSUs are subject to the CFROI YoY % variation over 3 years (2017, 2018, 2019)

 

20% of the initial granted PSUs are subject to the GHG Intensity reduction target at the end of the accounting period ending December 31, 2020

 

20% of the initial granted PSUs are subject to the GHG Intensity reduction target at the end of the accounting period ending December 31, 2019

Validation of performance conditions

 

By the Board of Directors

 

By the Board of Directors

In 2018 the impact on the consolidated income statement regarding PSU (net of hedging) amounts to € 15 million, as against € 21 million in 2017. The carrying amount of the PSU liability at the end of 2018 amounts to € 44 million, as against € 58 million at the end of 2017.