27 » Share-Based Payment

Equity-settled share-based payment transactions with employees

In 2016, adidas announced the introduction of an open-ended employee stock purchase plan (the ‘plan’). The plan is operated on a quarterly basis, with each calendar quarter referred to as an ‘investment quarter.’

The plan enables employees to purchase adidas AG shares with a 15% discount (‘investment shares’) and to benefit from free matching shares. Currently, eligible employees of adidas AG and 17 other subsidiaries can participate in the plan. Up to two weeks before the start of an investment quarter each eligible employee can enroll for the plan. The company accepts enrollment requests on the first day of the relevant investment quarter. This is the grant date for the investment and matching shares. The fair value at the vesting date is equivalent to the fair value of the granted equity instruments at this date. The employees invest an amount up to 10% of their gross base salary per quarter in the plan. A few days after the end of the investment quarter the shares are purchased on the market at fair market value and transferred to the employees. Thereby the amount invested during the quarter plus the top-up from adidas is used. These shares can be sold at any time by the employee. If the shares are held for a period of one year after the last day of an investment quarter, employees will receive, as a one-off, free matching shares (one matching share for every six adidas AG shares acquired). This plan currently constitutes an equity-settled share-based payment for both elements. For the component of the matching shares relating to the specific period of service an appropriate discount is taken into account. The effects are presented in the following table:

The matching shares in the amount of € 3.0 million are exercised within the fourth investment quarter 2021 to the first investment quarter 2023 (thereof 3,278 own treasury shares are used for matching shares).

The number of forfeited matching shares during the period amounted to 3,557 (2021: 3,681).

As at December 31, 2022, the total expenses recognized relating to investment shares amounted to € 4.3 million (2021: € 3.7 million).

Expenses recognized relating to vesting of matching shares amounted to € 3.3 million in 2022 (2021: € 3.0 million).

As at December 31, 2022, a total amount of € 5 million (2021: € 6 million) was invested by the participants in the stock purchase plan and was not yet transferred into shares by the end of December 2022. Therefore, this amount has been included in ‘Other current financial liabilities.’  SEE NOTE 18

Further information about the purchase of shares for the employee stock purchase plan is provided in these Notes.  SEE NOTE 26

Equity-settled share-based payment transactions with third parties

In 2016, adidas entered into a promotion and advertising contract that includes a share-based payment transaction with third parties. The contract has a general duration of five years until 2021 with an automated renewal option of one year if no termination has taken place. In 2022 the contract has been terminated. The first part of the agreement grants a transfer of basic shares, which correspond to a value of US $ 5 million each year. In 2022 a transfer of bonus shares took place.  SEE NOTE 26

As at January 1, 2022 (grant date), an amount of US $ 5 million was recognized as expenses for basic shares over the vesting period of twelve months.

The second part of the agreement grants bonus shares of US $ 5 million if certain conditions are fulfilled. This option can be granted twice. In 2022, the second option of bonus shares was granted, so that 26,868 shares were transferred. The shares from the tenth tranche of the share buyback program with an average share price of € 273.50 were used for compensation. Due to this utilization, the provision for the second option was used in the fiscal year (2021: € 4 million).

Equity-settled share-based payment for executive board members

In 2018, adidas established a Long-Term Incentive Plan (LTIP) for Executive Board members. In the reporting year, a change in accounting policy was made for this item so that the LTIP is now accounted for as equity-settled share-based payment. In the previous year, the LTIP was recorded as cash-settled share-based payment as an accrual.

In implementation of the ‘Own the Game’ strategy applicable from the 2021 financial year, the LTIP 2021/2025 pursues the goal of aligning the long-term performance-based variable remuneration of the Executive Board with the performance of the company and thus with the interests of the shareholders. Against this background, the LTIP 2021/2025 is share-based. It consists of five annual tranches (2021 to 2025), each with a term of five years. Each of the five annual tranches consists of a performance year and a subsequent four-year holding period. For the 2021/2025 LTIP, the Supervisory Board has set financial and ESG-related performance criteria for each of the five performance years.

The annual LTIP tranche (‘Grant Amount’) is paid to the Executive Board members after approval of the consolidated financial statements and is to be fully invested by the Executive Board members in the acquisition of adidas AG shares. The shares acquired are subject to a holding period, which ends at the end of the fourth financial year following the performance year. Only after the end of the holding period can the Executive Board members dispose of the shares.

As of December 31, 2022, the total number of adidas AG shares acquired since 2018 as part of the variable performance-based compensation and subject to a holding period amounts to 78,698 no-par-value shares (2021: 43,243 no-par-value shares). The number of adidas AG shares acquired by the members of the Executive Board is shown individually below:

Cash-settled share-based payment transactions with employees

In 2017, adidas implemented a Long-Term Incentive Plan (LTIP), which is a share-based remuneration scheme with cash settlement. RSUs (Restricted Stock Units) are granted on the condition that the beneficiary is employed for three or four years by adidas AG or one of its subsidiaries in a position where they are not under notice during that period. This minimum period of employment pertains to the calendar year in which the RSUs are granted and the three subsequent calendar years. As an exception in 2022, RSUs were granted with a minimum term of employment of one and two years, respectively. 

The total value of the cash remuneration payable to senior management is recalculated on each reporting date and on the settlement date, based on the fair value of the RSUs, and recognized through an appropriate increase in the provision as personnel expenses that are spread over the period of service of the beneficiary. Furthermore, social security contributions are considered in the calculation of the fair value, if appropriate for the respective country regulations and the seniority of the participants. All changes to the subsequent measurement of this provision are reported under personnel expenses.

Once a year, one tranche with a three-year term and another with a four-year term are issued. The number of RSUs granted depends on the seniority of the beneficiaries. In addition, for the four-year plan, the number of RSUs also depends on the achievement of a financial and ESG-related target. In 2022, the option to issue two new tranches with a two-year and a one-year maturity was exercised.

The value of one RSU is the average price of the adidas AG share as quoted for the first 20 stock exchange trading days in January of the respective financial year. The effects are presented in the following table:

The fair value is based on the closing price of the adidas AG share on December 31, 2022, adjusted for future dividend payments.

In 2022, this resulted in an expense of € 36 million (2021: € 53 million). The corresponding provision amounted to € 57 million (2021: € 162 million).