24. Share-based compensation

The following share-based compensation plans relating to managers of Group companies and the Chief Executive Officer of Fiat S.p.A. were in place.

Stock option plans linked to Fiat S.p.A. and CNH Industrial N.V. ordinary shares

On 26 July 2004, the Board of Directors granted the Chief Executive Officer, as a part of his variable compensation in that position, options to purchase 10,670,000 Fiat S.p.A. ordinary shares at a price of €6.583 per share. Options are vested and exercisable at any time until 1 January 2016. Following the demerger of Fiat Industrial S.p.A. (now CNH Industrial N.V.), the beneficiary now has the right to receive one ordinary Fiat S.p.A. share and one ordinary CNH Industrial N.V. share for each original option, with the option exercise price remaining unchanged.

At 31 December 2013, the features of the stock option plan are as follows:

PlanBeneficiary

Date of
amendment

Expiry date

Strike price
(€)

N° of options grantedVesting dateVested portion

Stock Options
July 2004 (modified)

Chief Executive Officer 27 March 2009 1 January 2016 6.583 10,670,000 31 December 2010 100%

On 3 November 2006, the Fiat S.p.A. Board of Directors approved (subject to the subsequent approval of Shareholders in general meeting, which was given on 5 April 2007) an eight year stock option plan, which granted certain managers of the Group and the Chief Executive Officer of Fiat S.p.A. the right to purchase a specific number of Fiat S.p.A. ordinary shares at a fixed price of €13.37 each. More specifically, the 10,000,000 options granted to employees and the 5,000,000 options granted to the Chief Executive Officer had a vesting period of four years, with an equal number vesting each year, were subject to achieving certain predetermined profitability targets (Non-Market Conditions or “NMC”) in the reference period and are exercisable from the date on which the 2010 Financial statements were approved. The additional 5,000,000 options granted to the Chief Executive Officer of Fiat S.p.A. also had a vesting period of four years with an equal number vesting each year and are exercisable from November 2010. The ability to exercise the options is additionally subject to specific restrictions regarding the duration of the employment relationship or the continuation of the position held. Following the demerger of Fiat Industrial S.p.A. (now CNH Industrial N.V.), the beneficiary now has the right to receive one ordinary Fiat S.p.A. share and one ordinary CNH Industrial N.V. share for each original option, with the option exercise price remaining unchanged.

The contractual terms of the plan are as follows:

PlanBeneficiaryExpiry date

Strike price
(€)

N° of options grantedVesting dateVesting portion

Stock Option
November 2006

Chief Executive Officer 3 November 2014 13.37 5,000,000

November 2007

November 2008

November 2009

November 2010

25%

25%

25%

25%

Stock Option

November 2006

Chief Executive Officer 3 November 2014 13.37 5,000,000

1st Quarter 2008 (*)

1st Quarter 2009 (*)

1st Quarter 2010 (*)

1st Quarter 2011 (*)

25%xNMC

25%xNMC

25%xNMC

25%xNMC

Stock Option
November 2006

Managers 3 November 2014 13.37 10,000,000

1st Quarter 2008 (*)

1st Quarter 2009 (*)

1st Quarter 2010 (*)

1st Quarter 2011 (*)

25%xNMC

25%xNMC

25%xNMC

25%xNMC

(*) On approval of the prior year’s Consolidated financial statements; subject to continuation of the professional relationship.

With specific reference to the options under the November 2006 Stock Option Plan, for which vesting was subject to the achievement of pre-established profitability targets, only the first tranche of those rights had vested as the profitability targets originally established for the 3-year period 2008-2010 were not met.

A summary of the terms of the stock option plans outstanding at 31 December 2013 is as follows: 

 Rights granted to managers

Rights granted to  
the Chief Executive Officer

Exercise price (€)

Options
outstanding at
31 December 2013

Options
outstanding at
31 December 2012

Average remaining contractual life
(years)

Options
outstanding at
31 December 2013

Options
outstanding at
31 December 2012

Average remaining contractual life
(years)

6.583 - - - 10,670,000 10,670,000 2.0
13.370 1,240,000 1,576,875 0.8 6,250,000 6,250,000 0.8
Total 1,240,000 1,576,875   16,920,000 16,920,000  

Changes during the year 2013 were as follows:

 Rights granted to managers

Rights granted to  
the Chief Executive Officer

 Number of options

Average
exercise price
(€)

Number of options

Average
exercise price
(€)

Outstanding at the beginning of the year 1,576,875 13.37 16,920,000 9.09
Granted - - - -
Forfeited - - - -
Exercised (285,000) 13.37 - -
Expired (51,875) 13.37 - -
Outstanding at 31 December 2013 1,240,000 13.37 16,920,000 9.09
Exercisable at 31 December 2013 1,240,000 13.37 16,920,000 9.09
Exercisable at 31 December 2012 1,576,875 13.37 16,920,000 9.09

As they were already fully vested at 31 December 2010, the above stock option plans did not lead to any nominal cost for 2013 and 2012.

Stock Grant plans linked to Fiat S.p.A.

On 4 April 2012, General Shareholders Meeting resolved to approve the adoption of a Long Term Incentive Plan (the “Retention LTI”), in the form of stock grants.

As a result of the Shareholders’ resolution the Group attributed the Chief Executive Officer with 7 million rights, representative of an equal number of Fiat S.p.A. ordinary shares. The rights vest ratably, one third on 22 February 2013, one third on 22 February 2014 and one third on 22 February 2015, subject to the requirement that the Chief Executive Officer remains in office.

The Plan is to be serviced through treasury shares without issuing new shares. The Company has the right to replace, in whole or in part, shares vested under the Plan with a cash payment calculated on the basis of the Official Price of those shares published by Borsa Italiana on the date of vesting fulfillment.

At 31 December 2013, the contractual terms of the Plan are therefore as follows:

PlanBeneficiaryNumber of sharesVesting dateVesting portion
Retention LTI Chief Executive Officer 7,000,000 Fiat S.p.A.

22 February 2013
22 February 2014
22 February 2015

2,333,333
2,333,333
2,333,333

Changes in the Retention LTI were as follows:

   2013  2012
  Number of Fiat S.p.A. shares

Average Fair value at the grant date
 (€)

Number of Fiat S.p.A. shares

Average Fair value at the grant date

 (€)

Outstanding  shares unvested at the beginning of the year 7,000,000 4.205 - -
Granted - - 7,000,000 4.205
Forfeited - - - -
Vested 2,333,333 4.205 - -
Outstanding shares unvested at the end of the year 4,666,667 4.205 7,000,000 4.205

In 2013, a nominal cost of €6 million was recognized in the Income statement for this plan.

Share-Based Compensation Plans Issued by Chrysler

Four share-based compensation plans have been issued by Chrysler: the Chrysler Group LLC Restricted Stock Unit Plan (“RSU Plan”), the Amended and Restated Chrysler Group LLC Directors’ Restricted Stock Unit Plan (“Directors’ RSU Plan”), the Chrysler Group LLC Deferred Phantom Share Plan (“DPS Plan”) and the Chrysler Group LLC 2012 Long-Term Incentive Plan (“2012 LTIP Plan”).

The fair value of each unit issued under the plans is based on the fair value of Chrysler’s membership interests. Each unit represents a “Chrysler Group Unit,” which is equal to 1/600th of the value of a Chrysler Class A Membership Interest.  Since there is no publicly observable trading price for Chrysler’s interests, fair value was determined using a discounted cash flow methodology. This approach, which is based on projected cash flows of Chrysler, is used to estimate the Chrysler enterprise value. The fair value of Chrysler’s outstanding interest bearing debt as of the measurement date is deducted from Chrysler’s enterprise value to arrive at the fair value of equity. This amount is then divided by the total number of Chrysler Group Units, as determined above, to estimate the fair value of a single Chrysler Group Unit.

Restricted Stock Unit Plans issued by Chrysler Group LLC  

During 2009, the U.S. Treasury’s Office of the Special Master for Troubled Asset Relief Program Executive Compensation (the “Special Master”) and the Compensation Committee of Chrysler approved the Chrysler Group LLC Restricted Stock Unit Plan (“RSU Plan”), which authorized the issuance of Restricted Stock Units (“RSUs”) to certain key employees. RSUs represent a contractual right to receive a payment in an amount equal to the fair value of one Chrysler unit, as defined in the RSU plan. Originally, RSUs granted to Chrysler’s employees in 2009 and 2010 vested in two tranches. In September 2012, Chrysler’s Compensation Committee approved a modification to the second tranche of RSUs. The modification removed the performance condition requiring an IPO to occur prior to the award vesting. Prior to this modification, the second tranche of the 2009 and 2010 RSUs were equity-classified awards. In connection with the modification of these awards, Chrysler determined that it was no longer probable that the awards would be settled with Chrysler’s company stock. Chrysler reclassified the second tranche of the 2009 and 2010 RSUs from equity-classified awards to liability-classified awards. As a result of this modification, additional compensation expense of €12 million was recognized during 2012. RSUs granted to employees generally vest if the participant is continuously employed by Chrysler through the third anniversary of the grant date. The settlement of these awards is in cash.

Further, during 2009 Chrysler established the Amended and Restated Chrysler Group LLC Directors’ Restricted Stock Unit Plan ("Directors' RSU Plan"). In April 2012, the Compensation Committee amended and restated the Chrysler Group LLC 2009 Directors’ Restricted Stock Unit Plan to allow grants having a one year vesting term to be granted on an annual basis. Director RSUs are granted to Chrysler non-employee members of our Board of Directors. Prior to the change, Director RSUs were granted at the beginning of a three-year performance period and vested in three equal tranches on the first, second, and third anniversary of the date of grant, subject to the participant remaining a member of the Chrysler Board of Directors on each vesting date. Under the plan, settlement of the awards is made within 60 days of the Director's cessation of service on the Board of Directors and awards are paid in cash; however, upon completion of an IPO, Chrysler has the option to settle the awards in cash or shares. The value of the awards is recorded as compensation expense over the requisite service periods and is measured at fair value.

The liability from the vast majority of these awards is measured and adjusted to fair value at reporting date. The expense recognized in total for both of the RSU Plans for the year ended 31 December 2013 and 2012 approximated €14 million and €28 million, respectively.

Changes during 2013 were as follows:

   2013  2012
 

Restricted Stock
Units

Weighted average Fair value at the grant date
 (€)

Restricted
Stock
Units

Weighted average Fair value at the grant date
 (€)

Outstanding  shares unvested at the beginning of the year 4,735,442 4.34 5,952,331 2.51
Granted 161,290 7.46 1,466,523 5.87
Vested (977,573) 2.61 (2,586,060) 0.95
Forfeited (225,403) 5.25 (97,352) 4.76
Outstanding shares unvested at the end of the year 3,693,756 4.72 4,735,442 4.34

Deferred Phantom Shares issued by Chrysler Group LLC

During 2009 the Special Master approved the Chrysler Group LLC Deferred Phantom Share Plan ("DPS Plan") which authorized the issuance of phantom shares of the Company ("Phantom Shares"). Under the DPS Plan, Phantom Shares were granted to certain key employees as well as to the Chief Executive Officer in connection with his role as a member of the Chrysler Group Board of Directors.  The Phantom Shares vested immediately on the grant date and will be settled in cash. The Phantom Shares are redeemable in three equal annual installments.

Changes during 2013 were as follows:

   2013  2012
  Phantom Shares

Weighted average
Fair value at the
grant date
(€) 

Phantom Shares

Weighted average
Fair value at the
grant date
(€)

Outdstanding shares at the beginning of the year 1,508,785 2,68 4,944,476 1.83
Granted and Vested - - - -
Settled (1,190,054) 2,13 (3,435,691) 1.43
Outstanding shares at the end of the year 318,731 4.53 1,508,785 2.68

The expense recognized in connection with this plan in 2013 and 2012 approximated €2 million and €2 million, respectively.

2012 Long-Term Incentive Plan of Chrysler Group LLC

In February 2012, the Compensation Committee of Chrysler adopted the 2012 Long-Term Incentive Plan (the “2012 LTIP”). The 2012 LTIP covers senior Chrysler executives (other than the Chief Executive Officer). It is designed to retain talented professionals and reward their performance through grants of phantom equity in the form of restricted share units (“LTIP RSUs”) and performance share units (“LTIP PSUs”). LTIP RSUs may be granted annually, while LTIP PSUs are generally granted at the beginning of a three-year performance period. The Compensation Committee also has authority to grant additional LTIP PSUs awards during the three-year performance period. The LTIP RSUs will vest over three years in one-third increments on the anniversary of their grant date, while the LTIP PSUs will vest at the end of the three-year performance period only if Chrysler meets or exceeds certain three-year cumulative financial performance targets. Concurrent with the adoption of the 2012 LTIP Plan, the Compensation Committee established financial performance targets based on Chrysler Group’s consolidated financial results for the three-year performance period, ending 31 December 2014. If Chrysler does not fully achieve these targets, the LTIP PSUs will be deemed forfeited. LTIP RSUs and LTIP PSUs represent a contractual right to receive a payment in an amount equal to the fair value of one Chrysler unit, as defined in the LTIP Plan. Once vested, LTIP RSUs and LTIP PSUs will be settled in cash or, in the event Chrysler conducts an IPO, in cash or shares of publicly traded stock, at the Compensation Committee’s discretion. Settlement will be made as soon as practicable after vesting, but in any case no later than 15 March of the year following. Vesting of the LTIP RSUs and LTIP PSUs may be accelerated in certain circumstances, including upon the participant’s death, disability or in the event of a change of control.

Changes during 2013 were as follows:

   2013  2012
  LTIP RSUs

Weighted average Fair value at the grant date
 (€)

LTIP RSUs

Weighted average Fair value at the grant date
 (€)

Outstanding  shares unvested at the beginning of the year 1,805,123 5.78 - -
Granted 1,628,822 6.89 1,835,833 5.73
Vested (615,315) 5.77 (20,123) 5.91
Forfeited (120,423) 6.20 (10,587) 5.91
Outstanding shares unvested at the end of the year 2,698,207 6.13 1,805,123 5.78

    2013   2012
  LTIP PSUs

Weighted average Fair value at the grant date
(€)

LTIP PSUs

Weighted average Fair value at the grant date
 (€)

Outstanding  shares unvested at the beginning of the year 8,419,684 5.78 - -
Granted 587,091 7.15 8,450,275 5.73
Vested - - - -
Forfeited (589,264) 5.77 (30,591) 5.91
Outstanding shares unvested at the end of the year 8,417,511 5.64 8,419,684 5.78

The expense recognized in connection with these plans in 2013 was €36 million (€24 million in 2012). Total unrecognized compensation expenses at 31 December 2013 was approximately €32 million. These expenses will be recognized over the remaining service periods based upon the assessment of the performance conditions being achieved.