Functionality – how does the LTIP work?
Our Fresenius Performance Plan is designed to reward you for your contribution to our joint success.
It provides a fair, transparent, and performance-based opportunity to participate in the company's long-term and sustainable success.
We succeed together.
Target Overview
There are three performance targets that determine how many of your granted stock awards will actually vest, each with a specific weighting:
- The relative total shareholder return (TSR) = 50% weighting
- The return on invested capital (ROIC) = 25% weighting
- CO2 reduction = 25% weighting
We chose these targets to reflect our business strategy of long-term success and sustainability within the Fresenius Group. The relative TSR compares our success to our competitors. The ROIC is our internal performance measurement and measures our long-term financial capacity and value creation. The reduction in CO2 measures our sustainability as a company and aligns with our objective to become climate-neutral by 2040.
All three targets will be measured over a four-year performance period. It will start with the calendar year in which you receive your grant and will end with the calendar year before vesting.
The annual target achievement is measured and locked in at the end of each year of the four-year performance period, giving a more accurate representation of our performance. Every successful year counts!
Target 1
Relative TSR
To compare our success to our competitors, we take a look at our relative total shareholder return (TSR) and the relative TSR within the STOXX Europe 600 Health Care index, looking at companies with Health Care as a primary revenue source. The TSR combines Fresenius' share price development and dividends paid and shows the total return to our shareholders.
Target achievement overview
The Relative TSR is determined in each fiscal year as the difference in percentage points between the TSR of the Fresenius Share and the TSR of the STOXX® Europe 600 Health Care Index. If our performance is equal to the TSR of the index, the target achievement is 100%.
If we outperform by 50% or more, the target achievement is 250%.
Our threshold is not to drop below -50%. In this case, the target achievement is 0%.
In between target achievement will be calculated by linear interpolation.
Target 2
ROIC
The ROIC measures the return on our invested capital and is calculated using the consolidated financial statements of the Company – using EBIT (earnings before interest and taxes) less taxes divided by invested capital.
The Plan ROIC is set at the beginning of the performance period. The Plan ROIC for years 1 – 3 is based on the three-year mid-term planning (MTP) for the fiscal year (year 1). The Plan ROIC for the fourth year will be taken from the mid-term planning for the following year (year 2).
Please note that the ROIC targets are defined for each tranche based on the mid-term planning. This means that the actual ROIC results for a given year may result in different target achievements in different tranches.
TARGET ACHIEVEMENT OVERVIEW
Our target is that the ROIC actually achieved meets the Plan ROIC. This will result in a target achievement of 100%.
If we outperform by 2% or more, the target achievement is 250%.
If ROIC actually achieved is below the Plan ROIC by -2%, the target achievement is 50%.
Our threshold is not to drop below -2%. In this case, the target achievement is 0%.
In between target achievement will be calculated by linear interpolation.
As an additional condition, ROIC is set to exceed our weighted average cost of capital (WACC), otherwise the target achievement for this fiscal year is 0%.
Target 3
CO2 Reduction
We measure our CO2 reduction through the greenhouse gas (GHG) emissions (t CO2 equivalents) of the Fresenius Group. The fiscal year 2020 is our base year in which we measure our reduction against. The annual planned CO2 reduction is 4.2% percent of the CO2 emissions in the fiscal year 2020. With this average reduction each year, we will achieve our goal to reduce GHG emissions by 50% by 2030 and to be climate-neutral in 2040.
To calculate the annual target achievement for each year, we measure CO2 reduction compared to the previous year.
TARGET ACHIEVEMENT OVERVIEW
Our target is for the actual CO2 reduction to equal the planned CO2 reduction. This will result in a target achievement of 100%.
If it’s equal to 6% of the CO2 reduction for 2020, the target achievement is 250%.
If it‘s equal to 3%, the target achievement is 50%.
Our threshold is not to drop below 3% of the CO2 reduction for 2020. In this case, the target achievement is 0%.
In between will be calculated by linear interpolation.
We expect to achieve the CO2 reduction not only by a steady, ongoing reduction over the performance period but also by reaching significant milestones. This allows for the possibility to even out fluctuating target achievements:
If the target achievement is 0% in one year, we can calculate an average target achievement over the performance period and use the average instead of the 0% result. In this case, an outperformance through a significant milestone may compensate for the period in which we worked on reaching the milestone.
Calculation Overall Target Achievement
At the end of each of the four years, the annual achievement for each of the three performance targets (relative TSR, ROIC and CO2 reduction) is calculated (and fixed).
The target achievement of the individual performance targets is calculated at the end of the four-year performance period by taking the average of the four annual target achievements - each year having an equal weighting.
The total Overall Target Achievement (all of three targets combined) can lie between 0% and 250% and is determined based on the weighting of each target, as follows:
Target achievement for relative TSR x 50%
+
Target achievement for ROIC x 25%
+
Target achievement for CO2 reduction x 25%
=
Overall Target Achievement
Calculation Payout
The payout you could receive will depend on your grant value, the Overall Target Achievement at the end of the four-year performance period, and the performance of the Fresenius share price incl. dividends equivalents.
At the end of the performance period, the number of stock awards granted to you in year 1 is multiplied by the Overall Target Achievement to get your final number of stock awards.
Your final number of stock awards is multiplied by the share price incl. dividends at the date of vesting and converted into your cash payout in Euro. This can be up to 250% of your original grant value.
You will receive an individual statement outlining your final number of stock awards and payout value (gross).
For possible payout results based on certain simulations and assumptions about Fresenius’ future success, try out our Calculator.
Vesting Conditions
Your final number of stock awards will vest, provided that:
- You are actively employed with the Company without interruption from the grant date until the vesting date.
- You have not violated any laws or regulations, such as internal guidelines of the Fresenius Group relating to your employment with the Company.
In the event of retirement or death before vesting, the stock awards will not be reduced pro rata temporis. They vest regularly on the relevant vesting date according to plan. For "good leavers" under the definitions of the LTIP 2023 stock awards will vest pro rata.