Note 4: Employee benefits

The average number of employees working outside the Netherlands was 40,900 (2015: 41,200).

At year-end 2016, the number of employees increased by 1 percent to 46,000 people (year-end 2015: 45,600 people), mainly due to acquisition of BASF’s Industrial Coatings business. With the introduction of our GBS organization as of January 1, 2016, some employees are now reported at corporate level instead of within the Business Areas.

Share-based compensation

Share-based compensation relates to the equity-settled performance-related share plan, as well as the share-matching plan. Charges recognized in the 2016 statement of income for share-based compensation amounted to €23 million and are included in salaries and wages (2015: €33 million).

Performance-related share plan

Under the performance-related 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 at year-end 2016 was 579 (2015: 593).

The shares of the series 2013-2015 have vested and were delivered to the participants in 2016.

The 2014 conditional grant of shares is linked for 35 percent to the relative TSR performance of the company compared with the peer group, 35 percent to the return on investment (ROI) performance of the company and the remaining 30 percent to the ranking of the company in the RobecoSAM benchmark.

The conditional shares of the 2014-2016 series vested as follows:

• Our TSR performance over the period 2014-2016 resulted in a ninth position within the ranking of the peer group companies. This did not result in vesting of conditional shares
• Our ROI performance at the end of 2016 resulted in a vesting of 104.3 percent for this part of the long-term incentive
• The average position in the RobecoSAM benchmark resulted in a vesting of 100 percent for this part of the long-term incentive

As a result, the conditional shares of the 2014-2016 series vested for 66.49 percent (series 2013-2015: 90.29 percent), including dividend shares of 7.63 percent, the final vesting percentage amounted to 71.56 percent (series 2013-2015: 97.48 percent).

The fair value of the performance-related share plan at grant date is amortized as a charge against income over the three-year vesting period.

The share price of a common AkzoNobel share at year-end amounted to €59.39 (2015: €61.68). For further details on our performance-related share plan, refer to the Remuneration report.

Fair value of performance-related shares

The fair value of the performance-related shares was €53.69 (2015: €54.11) and was for 35 percent based on a market condition (TSR: €40.20) and for 65 percent based on non-market based performance conditions (€60.96).

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 date of grant (opening of January 4, 2016): €60.96, expected volatility: 23.82 percent, and risk-free interest rate: negative 0.09 percent.

Expected volatility was determined based on the share price development of the past three years of AkzoNobel. The risk-free interest rate was 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. 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 AkzoNobel shares in 2016 resulted in a total of 6,734 granted potential matching shares. During 2016, 14,402 potential matching shares were matched, leading to a total of potential matching shares at December 31, 2016 of 16,468 shares.

The fair value of the potential matching shares at the date of the share investment is amortized as a charge against income over the vesting period.

Fair value of matching shares

The fair value of the matching shares (€59.43) was based on the share price on the investment date, discounted for expected dividends over the holding period (2015: €67.81).

The parameters applied for the fair value calculations are: share price at purchase date of voluntary investment (April 19, 2016): €63.49, expected dividend yield: 2.18 percent.

For an overview of the matching shares outstanding for the members of the Board of Management as of December 31, 2016, we refer to Note 22.