21.Other Provisions

Changes in the various provision categories in fiscal 2021 were as follows:

Taxes

Provisions for taxes comprise provisions for other types of non-income taxes amounting to €3 million (previous year: €3 million).

Environmental Protection

Provisions for environmental protection mainly relate to the rehabilitation of contaminated land and recultivation of landfills as well as water protection measures at sites in the United States and Spain.

Restructuring

As of December 31, 2021, provisions for restructuring included €7 million (previous year: €2 million) for severance payments.

Personnel Commitments

Personnel-related provisions are mainly those recorded for variable one-time, short-term and long-term incentive payments and other personnel-related provisions.

Long-term Incentive Programs

The long-term incentive programs of the Covestro Group entail commitments offered collectively to different groups of employees. In principle, all obligations from long-term compensation programs are covered by provisions. As of the reporting date, their amount corresponds to the fair value of the entitlement earned of the respective commitments to the employee groups. All resulting valuation adjustments are recognized in profit or loss.

The Board of Management, senior executives and other managerial employees at Covestro are entitled to participate in the Prisma long-term, share-based compensation program. A percentage of the employee’s annual base salary – based on his/her position – is defined as a target for variable payments (Prisma target opportunity). The payout is calculated by multiplying the Prisma target opportunity by the total shareholder return (total of Covestro’s closing share price* and all of the dividends distributed in the respective performance period divided by the opening share price) and the performance of Covestro stock relative to the STOXX Europe 600 Chemicals benchmark index. In 2021, Prisma was expanded to include a sustainability component that covers Covestro’s target for reducing greenhouse gas emissions (CO₂ equivalents, CO₂e).

The payout is capped at 200% of the Prisma target opportunity. If Covestro’s shares were to significantly underperform the STOXX Europe 600 Chemicals index (e.g., if the share price went down while the index increased in value), Prisma target attainment could amount to zero, in which case there would be no payout. The target achievement for the 2017–2020 tranche amounted to 39.9% and was distributed in the amount of €9 million mainly in January 2021.

The net expense for all long-term incentive programs amounted to €17 million (previous year: €23 million), of which €5 million (previous year: €3 million) was attributable to the Covestment share-based participation program, explained in greater detail in the following section.

The fair value for the Prisma share-based incentive program recognized in the provision amounted to €40 million as of December 31, 2021 (previous year: €35 million). The fair value was calculated using the Monte Carlo simulation method on the basis of the following key parameters pertaining to the reporting date:

Share-Based Participation Program (Covestment)

Under the Covestment program, employees of numerous Group companies could invest a fixed amount of their compensation in Covestro shares in fiscal 2021, which Covestro supplemented through an employer subsidy. The discount granted for fiscal 2021 was generally 20%–30% of the subscription amount and is set every year. The total individual investment amount was capped at €3,600, depending on the Group company and the employee’s position. Overall, 99% of Covestro’s global workforce was authorized to participate in Covestment.

Around 282,000 shares were purchased by employees at a weighted average share price of €55.04 under the Covestment program in fiscal 2021. Depending on the Group company, the purchased shares are subject to a vesting period of at least one year from the subscription date.