Compensation of the Executive Committee in 2017

Exhibit 13: Total compensation of EC members (in CHF million)

 

2017

2016

For an overview of compensation by individual and component, please refer to Exhibit 23 and Exhibit 24.

Base salaries

10.0

10.2

Pension benefits

4.7

4.1

Other benefits

5.1

5.2

Total fixed compensation

19.8

19.5

Short-term variable compensation

10.4

11.4

Long-term variable compensation

13.8

13.3

Replacement share grant

2.6

Total variable compensation

26.8

24.7

Total compensation

46.6

44.2

Overall positioning of compensation

The ratio of fixed to variable components in any given year depends on the performance of the individuals and of the company against predefined performance objectives.

In 2017, as shown in Exhibit 14, the variable compensation represented 65 percent of the CEO’s compensation (previous year: 67 percent) and an average of 55 percent for the other EC members (previous year: 53 percent). This again illustrates the significant emphasis placed on performance-related compensation.

Exhibit 14: Ratios of fixed and variable compensation components of EC members in 2017
Ratios of fixed and variable compensation components of EC members in 2017 (graphic)

EC members received total compensation of CHF 46.6 million in 2017 compared with CHF 44.2 million in 2016, as presented in Exhibits 23 and 24.

The change in total compensation in 2017 is principally due to the one-time replacement share grant for the CFO, representing compensation for foregone benefits from his previous employer.

At the 2016 AGM, the shareholders approved a maximum aggregate compensation amount of CHF 50.0 million for the EC for the year 2017. The EC compensation for 2017 amounted to CHF 46.6 million and, despite having changes to the EC composition, is still within the approved amount.

Exhibit 15: Compensation components under various scenarios
Compensation components under various scenarios (graphic)

2017 short-term variable compensation

2017 has been a steady year for ABB. Revenues, with a weight of 20 percent, were on target with good contributions from both the Electrification Products and Robotics and Motion divisions. The payout of this parameter amounted to 99.8 percent.

Operational EBITA margin, with a weighting of 15 percent, and operational net income with a weighting of 10 percent, were below the targets with both measures reflecting significant operational charges recorded in the EPC businesses. The payout of the Operational EBITA margin parameter was 85.4 percent and the payout of the operational net income parameter was 86.0 percent.

Operating cash flow with a weighting of 30 percent, although broadly stable when compared with 2016, was slightly behind the target set for 2017. The payout of this parameter was 88.1 percent.

The Group delivered strong operational cost savings, almost on target, while service orders, despite growing compared with 2016, did not reach the 2017 target. The costs savings parameter, weighted at 15 percent, achieved a 99.5 percent payout, while the service orders parameter, weighted at 10 percent, achieved a 92.3 percent payout.

The effects of major business portfolio changes, including the newly acquired B&R business, are excluded from the above performance assessment. The combined achievement of these performance measures resulted in a 91.9 percent achievement level for the group scorecard in 2017.

With respect to individual/team objectives for each EC member, the achievement ranges between 75 percent and 122 percent, reflecting the financial results of their respective areas of responsibility as well as their achievements on operational performance, strategic initiatives and leadership performance. This resulted in an overall payout of the short-term incentives for the entire EC at 96 percent with a range of 81 percent (lowest achievement) and 107 percent (highest achievement).

2017 long-term variable compensation

In 2017, the estimated value of the share-based grants to EC members under the LTIP was CHF 13.8 million compared with CHF 13.3 million in 2016.

2014 LTIP outcome

The payout for the performance component of the 2014 LTIP that vested in 2017 was 37 percent (previous year: 43 percent for the 2013 LTIP). The payout was based on the cumulative weighted EPS achieved during the plan’s three-year vesting period. The retention component vested fully, conditional on continued employment (see Exhibit 16).

The 2014 LTIP was the final LTIP that comprised a retention component and a performance component. LTIPs launched from 2015 onwards comprised P1 and P2 components. The Board also recognized the need for increased performance orientation and transparency and has conducted a comprehensive review of the LTIP for implementation starting from the 2018 grant.

Exhibit 16: LTIP 2014 objectives and actual vesting percentages

Objective

Performance

 

Below threshold

Threshold to target

Target

Target to maximum

Performance component

 

37%

 

 

Retention component

N/A

N/A

100%

N/A