21.3 Share-Based Compensation
FINANCIAL STATEMENTS
Delhaize Group offers share-based incentives to certain members of its senior management: stock option and performance stock
unit plans for employees of its non-U.S. operating companies; warrant, restricted and performance stock unit plans for
employees of its U.S. based companies.
Under a warrant plan the exercise by the employee of warrants results in the issuance of new shares, while stock options,
restricted and performance stock units are based on existing shares. Due to the sizeable administrative requirements that
Belgian law imposes on capital increases, a certain amount of time passes between the moment warrants have been
exercised and the capital increase is formally performed. In case when the capital increase occurs after year-end for
warrants exercised before year-end, which usually relates to a limited number of warrants, Delhaize Group accounts for the
actual exercise of the warrants at the date of the following capital increase. Consequently, no movement occurs in equity
due to warrants exercised pending a subsequent capital increase, until such a capital increase takes place. If assessed to be
dilutive, such exercised warrants pending a subsequent capital increase are included in the diluted earnings per share
calculation.
Restricted and performance stock unit awards represent the right to receive the number of shares or American Depositary
Shares ("ADS") set forth in the award at the vesting date at no cost to plan participants and free of any restrictions.
During 2014, the ratio of Delhaize Group ADS to Delhaize Group ordinary shares changed from one ADS for every one ordinary
share to four ADS for every one ordinary share. Information on all compensation plans provided in this note is in number of
(underlying) Delhaize Group ordinary shares.
The remuneration policy of Delhaize Group can be found as Exhibit F to the Delhaize Group's Corporate Governance Charter
available on the Group's website (www.delhaizegroup.com).
The share-based compensation plans operated by Delhaize Group are equity-settled share-based payment transactions, do not
contain cash settlement alternatives and the Group has no past practice of cash settlement. The cost of such transactions with
employees is measured by reference to the fair value of the equity instruments at grant date and is expensed over the applicable
vesting period. All share-based compensation plans contain service conditions. In addition, the performance stock unit plans also
contain performance conditions, whereby the (cliff-)vesting is linked to the achievement of non-market financial performance
conditions, such as the cumulative shareholder value creation over the service period. Neither service conditions nor non-market
performance condition are reflected in the grant-date fair value, but result in a true-up for changes in the number of equity
instruments that are expected to vest. The period of achieving the performance targets does not extend beyond the end of the
service period and does not start substantially before the commencement of the service period.
The grant date fair value of restricted and performance stock unit is determined based on the share price at the grant date. To
estimate the fair value of warrants and options underlying the share-based compensation, Delhaize Group uses the Black-
Scholes-Merton valuation model. This requires the selection of certain assumptions, including the expected life of the optionthe
expected volatility, the risk-free rate and the expected dividend yield:
The expected life of the option is based on management's best estimate and based on historical option activity.
The expected volatility is determined by calculating the historical volatility of the Group's share price over the expected
option term.
The risk-free rate is determined using a generic price of government bonds with corresponding maturity terms.
The expected dividend yield is determined by calculating a historical average of dividend payments made by the Group.
The exercise price associated with stock options is dependent on the rules applicable to the relevant stock option plan. The
exercise price is either the Delhaize Group ADR price on the date of the grant (U.S. plans) or the Delhaize Group share price on
the working day preceding the offering of the option (non-U.S. plans).
The usage of historical data over a period similar to the life of the options assumes that the past is indicative of future trends, and
- as with all assumptions - may not necessarily be the actual outcome. The assumptions used for estimating fair values for
various share-based payment plans are given further below.
Total share-based compensation expenses recorded - primarily in selling, general and administrative expenses - were
€12 million in 2014, €16 million in 2013 and €13 million in 2012.
