23.Other Provisions

Changes in the various provision categories in fiscal 2020 were as follows:

Taxes

Provisions for taxes comprise provisions for other types of taxes amounting to €3 million (previous year: €9 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, 2020, provisions for restructuring included €2 million (previous year: €17 million) for severance payments. The utilizations related primarily to the completion of the “Perspective” efficiency program, which aimed to improve the cost structures in the medium term and expired at the end of the reporting year.

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.

Senior executives and other managerial employees at Covestro are entitled to participate in the stock-based compensation program Prisma. 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. 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 price of the stock 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 first tranche 2016–2019 amounted to 179.1% and was distributed in the amount of €39 million in January 2020.

The net expense for all long-term incentive programs amounted to €23 million (previous year: €16 million), of which €3 million (previous year: €5 million) was attributable to the stock participation program Covestment, explained in greater detail in the following section.

The fair value for the stock-based incentive program Prisma recognized in the provision amounted to €35 million as of December 31, 2020 (previous year: €53 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:

Stock 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 2020, which Covestro supplemented through an employer subsidy. The discount granted for fiscal 2020 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, around 98% of Covestro’s global workforce was authorized to participate in Covestment.

Around 239,000 shares were purchased by employees at a weighted average share price of €40.87 under the Covestment program in fiscal 2020. Depending on the Group company, the purchased shares are subject to a vesting period of at least one year from the subscription date.