Note 6: Employee benefits

Salaries, wages and other employee benefits in operating income

In € millions

2018

2019

Salaries and wages

(1,497)

(1,461)

Post-retirement cost

(201)

(137)

Other social charges

(278)

(277)

Total

(1,976)

(1,875)

Average number of employees

Average number during the year

2018

2019

Decorative Paints

14,100

13,800

Performance Coatings

19,200

18,100

Corporate and other

1,600

2,300

Total

34,900

34,200

Employees

At year-end

2018

2019

Decorative Paints

14,300

13,300

Performance Coatings

18,600

18,000

Corporate and other

1,600

2,500

Total

34,500

33,800

The average number of employees working outside the Netherlands was 31,900 (2018: 32,500).

In 2019, the number of employees decreased by 2% to 33,800 people (year-end 2018: 34,500 people). Acquisitions of 2019 added around 150 people.

Share-based compensation

Share-based compensation relates to the equity-settled performance-related share plan and the restricted share plan, as well as the share-matching plan. Charges recognized in the 2019 statement of income for share-based compensation amounted to €16 million and are included in salaries and wages (2018: €19 million).

Performance-related and restricted share plan

Under the performance-related share plan and the restricted share plan, a number of conditional shares are granted to the members of the Board of Management, members of the Executive Committee and executives each year. The number of participants of the performance-related share plan and the restricted share plan at year-end 2019 was 294 (2018: 326). The shares of the performance-related share plan series 2016-2018 have vested and were delivered to the participants in 2019.

The original performance targets for the 2017 conditional grant of performance shares have become not relevant or applicable anymore after the sale of the Specialty Chemicals business. Therefore, the Supervisory Board decided to instead apply the average historic performance of 85% for the 2017-2019 series. This plan modification was accounted for in 2018.

As from 2018, the plan of the members of the Board of Management and the Executive Committee has been adjusted such that the conditional grant of shares is linked for 50% to the relative performance of the company compared with the peer group and for 50% to the performance of the company, after which a two-year holding restriction will apply.

As from 2018, the plan for the executives is a restricted share plan without any performance conditions, whereby the conditional grant of shares will only vest when the executives remain in service with the company during the three-year vesting period, after which a one-year holding restriction will apply.

The conditional shares of the 2017-2019 series for the AkzoNobel participants vested for 85% (series 2016-2018: 85%), including extraordinary dividend shares of 11.37% (series 2016-2018: 5.48%), the final vesting percentage amounted to 94.66% (series 2016-2018: 89.66%).

The share price of a common AkzoNobel share at year-end 2019 amounted to €90.64 (2018: €70.40).

Fair value of restricted and performance-related shares

The fair value of the restricted shares of the 2019-2021 grant, amounting to €63.48, is based on the share price on January 2, 2019, of €69.60 and the expected dividend yield of 3.02%. The fair value of the performance-related shares of the 2019-2021 grant is for 50% based on a market condition (TSR) and for 50% based on non-market-based performance condition (ROI). The original fair value of the performance-related shares of the 2017-2019 grant was for 35% based on a market condition (TSR) and for 65% based on nonmarket based performance conditions (ROI and RobecoSAM). The fair value of the 2017-2019 plans was not amended for the abovementioned plan modification as this change was not beneficial.

The TSR part of the award is valued applying a Monte Carlo simulation model and the other part is valued based on the share price at grant date.

The parameters applied for the fair value calculations are: share price at grant date (opening of first trading date from grant date), expected volatility (based on the share price development over the past three years of AkzoNobel), and risk-free interest rate (based on a Dutch zero-coupon government bond).

Share-matching plan

The members of the Board of Management and the members of the Executive Committee are eligible to participate in the share-matching plan. However, they will not be eligible for matching shares for the years 2019, 2020 and 2021. Under certain conditions, members who invest part of their short-term incentive in AkzoNobel shares may have such shares matched by the company. The investment in Akzo Nobel N.V. shares in 2019 resulted in no granted potential matching shares. During 2019, 1,786 potential matching shares were matched and 862 were forfeited due to the share consolidation, leading to a total of 5,081 potential matching shares on December 31, 2019. For an overview of the matching shares outstanding for the members of the Board of Management per December 31, 2019, we refer to the Remuneration report.

TSR (total shareholder return)

Compares the performance of different companies’ stocks and shares over time. Combines share price appreciation and dividends paid to show the total return to shareholders. The relative TSR position reflects the market perception of overall performance relative to a reference group.

ROI (return on investment)

This is a key profitability measure and is calculated as adjusted operating income as a percentage of 12 months average invested capital.