Share-based compensation
Dec. 31, 2025
Accounting policies
Philips’ share-based compensation is an equity-settled plan made of restricted and performance shares. The
restricted shares are subject to a three-year service condition and the performance shares include both market
and non-market-based performance conditions, in addition to a three-year service condition. These shares are
awarded to the Executive Committee and senior management.
The grant date fair value of market-based performance shares is determined through a Monte Carlo valuation
model. The grant date fair value of non-market-based performance shares and restricted shares is determined
as the share price at the grant date as participants receive notional dividends throughout the vesting period.
The costs of share-based compensation plans are revised for expected performance (non-market-based
performance shares) and forfeiture and are spread evenly over the service period.
Share-based compensation is recognized over the service period as personnel expense in the consolidated
statement of income, with a corresponding increase to equity.
Accounting estimates and judgments
The use of a valuation model to determine market-based performance share fair value requires estimates for
the expected volatility of the Philips share price and correlation among input variables.
At each reporting date, Philips calculates the expected realization of the non-market-based performance
targets and revises the expected share-based compensation expense. The cumulative effect is recorded in the
consolidated statement of income with a corresponding adjustment in equity.
No expense is recognized for awards that do not ultimately vest because non-market performance and/or
service conditions have not been met.
The purpose of the share-based compensation plans is to align the interests of management with those of
shareholders by providing incentives to improve the company’s performance on a long-term basis, thereby
increasing shareholder value.
The company has the following plans:
•performance shares: rights to receive common shares in the future based on performance and service
conditions
•restricted shares: rights to receive common shares in the future based on a service condition
•options on its common shares
Since 2013 the Board of Management and other members of the Executive Committee are only granted
performance shares*. Performance shares as well as restricted shares can be granted to executives, certain
selected employees and new employees.
Under the terms of employee stock purchase plans established by the company in various countries,
employees are eligible to purchase a limited number of Philips shares at discounted prices through payroll
withholdings.
Share-based compensation costs were EUR 148 million (2024: EUR 104 million; 2023: EUR 97 million). This
includes the employee stock purchase plan of EUR 6 million, which is not a share-based compensation that
affects equity. In the Consolidated statements of changes in equity EUR 141 million is recognized in 2025 and
represents the costs of the share-based compensation plans. The amount recognized as an expense is adjusted
for forfeitures. USD-denominated performance shares, restricted shares and options are being granted only to
employees whose home country is the US.
Performance shares
The performance is measured over a three-year performance period. The performance shares have three
performance conditions: relative Total Shareholders’ Return (TSR) compared to a peer group of 20 companies
including Philips (2024: 20 companies; 2023: 20 companies); adjusted Earnings Per Share growth** (EPS); and a
sustainability criterion. The criterion is based on three Sustainable Development Goals (SDG) as defined by the
United Nations that are included in Philips’ strategy on sustainability. The performance conditions are
weighted as follows: TSR 50%, EPS 40% and SDG 10% (applicable for 2021, 2022 and 2023 plans). As of 2024
the performance conditions are weighted as follows: TSR 40%, EPS 40% and SDG 20%.
The performance shares vest three years after the grant date. The number of performance shares that will
vest is dependent on achieving the performance conditions provided that the grantee is still employed with
the company.
The amount recognized as an expense is adjusted for actual performance of adjusted EPS growth** and the
actual realization of the SDGs, since these are non-market performance conditions. It is not adjusted for non-
vesting or extra vesting of performance shares due to a relative TSR performance that differs from the
performance anticipated at the grant date, since this is a market-based performance condition.
The fair value of the performance shares is measured based on Monte Carlo simulation, which takes into
account dividend payments between the grant date and the vesting date by including reinvested dividends as
well as the market conditions expected to impact relative total shareholders’ return performance in relation
to selected peers. The following weighted-average assumptions were used for the 2025 grants:
•risk-free rate: 1.82%
•expected share price volatility: 38%
The assumptions were used for these calculations only and do not necessarily represent an indication of
management’s expectation of future developments for other purposes. The company has based its volatility
assumptions on historical experience measured over a 10-year period.
A summary of the status of the company’s performance share plans as of December 31, 2025, and changes
during the year are presented in the accompanying table:
Philips Group
Performance shares
2025 | 2024 | |||
Number of shares | Weighted average grant- date fair value | Number of shares | Weighted average grant- date fair value | |
EUR-denominated | ||||
Outstanding as of January 1 | 6,466,838 | 24.41 | 5,392,035 | 27.22 |
Granted | 1,994,246 | 21.94 | 2,265,462 | 28.94 |
Notional dividends ¹ | 269,210 | 24.63 | 218,782 | 24.35 |
Vested/Issued | (333,321) | 20.73 | (169,524) | 50.30 |
Forfeited | (336,681) | 24.93 | (451,052) | 25.07 |
Adjusted quantity ² | (1,801,626) | 20.52 | (788,865) | 50.65 |
Outstanding as of December 31 | 6,258,667 | 24.92 | 6,466,838 | 24.41 |
USD-denominated | ||||
Outstanding as of January 1 | 4,190,628 | 26.89 | 3,261,048 | 29.73 |
Granted | 1,522,255 | 24.81 | 1,733,891 | 31.07 |
Notional dividends ¹ | 187,657 | 27.25 | 142,892 | 26.85 |
Vested/Issued | (166,326) | 21.98 | (80,151) | 61.37 |
Forfeited | (525,643) | 27.08 | (489,195) | 28.35 |
Adjusted quantity ² | (942,807) | 21.98 | (377,857) | 61.37 |
Outstanding as of December 31 | 4,265,764 | 27.42 | 4,190,628 | 26.89 |
1Dividend declared in 2025 on outstanding shares.
2Adjusted quantity includes the adjustments made to Performance shares outstanding due to updates on the actual TSR, EPS,
and SDG.
As of December 31, 2025, a total of EUR 116 million of unrecognized compensation costs relate to non-vested
performance shares (as of December 31, 2024, EUR 128 million; as of December 31, 2023, EUR 102 million).
These costs are expected to be recognized over a weighted-average period of 1.8 years.
Restricted shares
The fair value of restricted shares is equal to the share price at grant date. The company issues restricted
shares that, in general, have a three-year cliff-vesting period provided that the grantee is still employed with
the company.
A summary of the status of the company’s restricted shares as of December 31, 2025, and changes during the
year are presented in the accompanying table.
Philips Group
Restricted shares
2025 | 2024 | |||
Number of shares | Weighted average grant- date fair value | Number of shares | Weighted average grant- date fair value | |
EUR-denominated | ||||
Outstanding as of January 1 | 3,523,906 | 21.17 | 2,995,252 | 23.39 |
Granted | 1,146,201 | 19.38 | 1,367,380 | 22.64 |
Notional dividends ¹ | 145,617 | 21.43 | 52,481 | 22.57 |
Vested/Issued | (1,147,752) | 21.70 | (627,855) | 35.10 |
Forfeited | (244,654) | 20.65 | (263,352) | 21.06 |
Outstanding as of December 31 | 3,423,318 | 20.44 | 3,523,906 | 21.17 |
USD-denominated | ||||
Outstanding as of January 1 | 3,327,230 | 23.04 | 2,654,193 | 26.04 |
Granted | 1,118,263 | 22.18 | 1,460,620 | 24.59 |
Notional dividends ¹ | 136,697 | 22.66 | 48,774 | 24.33 |
Vested/Issued | (1,070,835) | 23.24 | (582,404) | 40.51 |
Forfeited | (341,996) | 22.97 | (253,953) | 23.43 |
Outstanding as of December 31 | 3,169,359 | 22.66 | 3,327,230 | 23.04 |
1Dividend declared in 2025 on outstanding shares.
As of December 31, 2025, a total of EUR 67 million of unrecognized compensation costs relate to non-vested
restricted shares (as of December 31, 2024, EUR 73 million; as of December 31, 2023, EUR 63 million). These
costs are expected to be recognized over a weighted-average period of 1.8 years.
Option plans
Retention option plan
In April 2023, the company granted non-recurring retention options that expire after 10 years. These options
vest after two years, provided that the grantee is still employed with the company.
The fair value of the options under this plan is measured based on Black-Scholes-Merton option pricing
model. The expected life of the options is calculated as the average between vesting period (two years) and
the total contractual life (10 years).
The accompanying tables summarize information about the company’s options as of December 31, 2025, and
changes during the year.
Philips Group
Options on EUR-denominated listed share
2025 | 2024 | |||
Number of options | Weighted average exercise price | Number of options | Weighted average exercise price | |
Outstanding as of January 1 | 3,396,539 | 22.16 | 3,660,000 | 22.16 |
Exercised | (378,515) | 22.16 | (3,793) | 22.16 |
Forfeited | (11,548) | 22.16 | (259,668) | 22.16 |
Expired | (39,983) | 22.16 | - | - |
Outstanding as of December 31 | 2,966,493 | 22.16 | 3,396,539 | 22.16 |
The total intrinsic value of EUR-denominated options exercised during 2025 was EUR 0.8 million (2024: EUR 15
thousand). Cash received during 2025 from exercises under the company’s options plans amounted to EUR 8.4
million (2024: EUR 84 thousand). As of December 31, 2025, there were 2,966,493 options outstanding and
exercisable (as of December 31, 2024, 3,396,539 options outstanding and 39,983 exercisable) with a weighted
average remaining contractual term of 6.7 years (as of December 31, 2024, 8.1 years for outstanding options
and 0.4 years for exercisable options) and total intrinsic value of EUR 3.2 million (as of December 31, 2024 EUR
7.6 million for outstanding options and EUR 90 thousand for exercisable options).
Philips Group
Options on USD-denominated listed share
2025 | 2024 | |||
Number of options | Weighted average exercise price | Number of options | Weighted average exercise price | |
Outstanding as of January 1 | 1,637,764 | 24.42 | 1,929,000 | 24.42 |
Exercised | (201,873) | 24.42 | - | - |
Forfeited | (54,248) | 24.42 | (291,236) | 24.42 |
Outstanding as of December 31 | 1,381,643 | 24.42 | 1,637,764 | 24.42 |
The total intrinsic value of USD-denominated options exercised during 2025 was USD 0.5 million (2024: USD
nil). Cash received during 2025 from exercises under the company’s options plans amounted to EUR 4.4 million
(2024: EUR nil). The actual tax deductions realized as a result of USD option exercises totaled approximately
EUR 1.0 million in 2025 (2024: nil). As of December 31, 2025, there were 1,381,643 options outstanding and
exercisable (as of December 31, 2024, 1,637,764 options outstanding and nil exercisable) with a weighted
average remaining contractual term of 5.8 years (as of December 31, 2024, 8.0 years for outstanding options
and 0 years for exercisable options) and total intrinsic value of USD 3.7 million (as of December 31, 2024, USD
1.5 million for outstanding options and USD nil for exercisable options).
Philips Group
Outstanding options in millions of EUR unless otherwise stated
2025 | 2024 | |||||
Number of options | Intrinsic value | Weighted average remaining contractual term in years | Number of options | Intrinsic value | Weighted average remaining contractual term in years | |
EUR-denominated | ||||||
20-25 | 2,966,493 | 3 | 6.7 | 3,396,539 | 8 | 8.1 |
Outstanding options | 2,966,493 | 3 | 6.7 | 3,396,539 | 8 | 8.1 |
USD-denominated | ||||||
20-25 | 1,381,643 | 4 | 5.8 | 1,637,764 | 1 | 8.0 |
Outstanding options | 1,381,643 | 4 | 5.8 | 1,637,764 | 1 | 8.0 |
*Executive Committee members can receive restricted share rights as a sign-on LTI awards upon hiring.
**The definition of this non-IFRS measure and a reconciliation to the IFRS measure is included in Equity.