ABB Annual Report 2012 PDF - ABB Group Annual Report 2012

Note 18Share-based paymentarrangements, continuedUnder the retention component of the 2012, 2011 and 2010 LTIP launches, each Eligible Participant was conditionallygranted an individually defined maximum number of shares which fully vest at the end of the respective vesting periods(if the participant remains an Eligible Participant till the end of such period).For the 2012, 2011 and 2010 LTIP launches, under the performance component, an Eligible Participant receives, incash, 100 percent of the value of the shares that have vested. Under the retention component, an Eligible Participantreceives 70 percent of the shares that have vested in the form of shares and 30 percent of the value of the sharesthat have vested in cash, with the possibility to elect to receive the 30 percent portion also in shares rather than cash.Presented below is a summary of activity under the LTIP:(1)(2)(3)Number of sharesEquity & Cash orchoice of 100%Equity Settlement(in thousands) (1)Only CashSettlement(in thousands) (2)Total(in thousands)Weighted-averagegrant-datefair value per share(Swiss francs)Nonvested at January 1, 2012 1,854 497 2,351 13.25Granted 868 516 1,384 15.21Vested (205) – (205) 20.75Expired (3) (885) (20) (905) 7.33Forfeited (9) – (9) 21.57Nonvested at December 31, 2012 1,623 993 2,616 15.72Shares that, subject to vesting, the Eligible Participant can elect to receive 100 percent in the form of shares.Shares that, subject to vesting, the Eligible Participant can only receive in cash.Expired as the criteria for the Company’s performance condition were not satisfied.Equity-settled awards are recorded in the “Capital stock and additional paid-in capital” component of stockholders’equity, with compensation cost recorded in “Selling, general and administrative expenses” over the vesting period (whichis from grant date to the end of the vesting period) based on the grant-date fair value of the shares. Cash-settled awardsare recorded as a liability remeasured at fair value at each reporting date for the percentage vested, with changes in theliability recorded in “Selling, general and administrative expenses”.At December 31, 2012, there was $12 million of total unrecognized compensation cost related to equity-settled awardsunder the LTIP. That cost is expected to be recognized over a weighted-average period of 1.9 years. The compensationcost recorded in 2012, 2011 and 2010, for cash-settled awards was not significant.The aggregate fair value, at the dates of grant, of shares granted in 2012, 2011 and 2010, was approximately $22 million,$16 million and $7 million, respectively. The total grant-date fair value of shares that vested during 2010 was $10 million.The amounts for 2012 and 2011 were not significant. The weighted-average grant-date fair value (per share) of sharesgranted during 2012, 2011 and 2010, was 15.21 Swiss francs, 17.91 Swiss francs and 13.79 Swiss francs, respectively.For the earnings per share performance component of the 2012 LTIP launch, the aggregate fair value of the conditionallygranted shares is based on the market price of the ABB Ltd share at each reporting date and the probable outcome ofthe earnings per share achievement that would result in the vesting of the highest number of shares, as computed usinga Monte Carlo simulation model. The main inputs to this model are revenue growth rates and Operational EBITDA margin(see Note 23 for a definition) targets.The aggregate fair value of the shares relating to the (cash-settled) share-price performance component under the 2011and 2010 LTIP launches is based on the market price of the ABB Ltd share at each reporting date adjusted for theprobability of vesting as computed using a Monte Carlo simulation model at each reporting date. The main inputs to theMonte Carlo simulation model for the December 31, 2012 and 2011, fair values for the Company and each peer companywere as follows:Cash-settled awards at December 31, 2012 2011From To From ToInput ranges for:Option implied volatilities (%) 16.2 48.4 16.6 49.8Risk-free rates (%) 1.0 3.1 1.0 3.7Equity betas 0.85 1.24 0.86 1.26Equity risk premiums (%) 5.0 7.0 5.0 7.0For the retention component under the 2012, 2011 and 2010 LTIP launches, the fair value of granted shares forequity-settled awards is the market price of the ABB Ltd share on grant date and the fair value of granted shares forcash-settled awards is the market price of the ABB Ltd share at each reporting date.Other share-based paymentsThe Company has other minor share-based payment arrangements with certain employees. The compensation costrecorded in “Selling, general and administrative expenses” in 2012, 2011 and 2010, for the cash-settled arrangementswas not significant.ABB Annual Report 2012 | Financial review 125