ABB Annual Report 2012 PDF - ABB Group Annual Report 2012

1.3 Board compensation in 2012Compensation for Board members is outlined in the tablebelow and has been unchanged since the 2007/2008 term ofoffice. Consistent with past practice, no loans or guaranteeswere granted to Board members in 2012.FunctionBoard term2012/2013CHF2011/2012CHFChairman of the Board 1,200,000 1,200,000Member of theBoard and Committee chairman 400,000 400,000Member of the Board 300,000 300,0002. Executive Committeeremuneration2.1 Governance and principlesThe Board and GNCC have direct oversight of compensationpolicy at ABB. The GNCC is responsible for developing thegeneral remuneration principles and practices of the ABBGroup and for recommending them to the full Board, whichtakes the final decisions.The Board and GNCC are actively involved in the continuousdevelopment of ABB’s executive remuneration systemto reflect a remuneration philosophy that is based on thefollowing principles:– Market orientation – ABB conducts regular benchmarkingreviews to ensure compensation is at a level that will attractand retain top talent.– Performance – ABB ensures that performance drives allcompensation elements. Performance metrics includefinancial objectives, individual performance and behavior,as well as the share price performance.– Shareholder value – ABB’s compensation elements focuson rewarding the delivery of outstanding and sustainableresults without inappropriate risk taking.– Retention – ABB grants a portion of its compensationthrough long-term oriented elements to attract andretain the key talent that ABB needs to drive its successglobally.The GNCC acts on behalf of the Board in regularly reviewingthe remuneration philosophy and structure, and in reviewingand approving specific proposals on executive compensationto ensure that they are consistent with the Group’scompensation principles. In 2012, the GNCC hired Hostettler,Kramarsch & Partner (hkp), an independent consultantspecializing in performance management and compensation,to provide advice on remuneration. At the GNCC’s request,the firm helped to redesign the Long-Term Incentive Plan describedin section 2.2 of this Remuneration report. Hkp hasno other mandate with ABB.All senior positions in ABB have been evaluated using aconsistent methodology developed by the Hay Group, whosejob evaluation system is used by more than 10,000 companiesaround the world. The Hay methodology goes beyond jobtitles and company size in assessing positions. It considersthe know-how required to do the job, the problem-solving com -plexities involved, as well as the accountability for results andthe freedom to act to achieve results. This approach providesa meaningful, transparent and consistent basis for comparingremuneration levels at ABB with those of equivalent jobsat other companies that have been evaluated using the samecriteria. The Board primarily uses Hay’s data from the Europeanmarket to set EC compensation, which is targeted to beabove the median values for the market.Every year, the Board reviews the CEO’s performance anddecides on any change in compensation. The CEO reviewsthe performance of other members of the EC and makes recommendationsto the GNCC on their individual remuneration.The full Board takes the final decisions on compensationfor all EC members, none of whom participates in the deliberationson their remuneration.Information on the meetings held by the GNCC in 2012 canbe found in section 5.4 of the Corporate governance report.2.2 Components of EC compensationCompensation elements and performanceconsiderationsThe compensation of EC members currently consists of thefollowing elements: a base salary and benefits, a shorttermvariable component dependent on annual Group performanceobjectives, and a long-term variable componentdesigned to reward the creation of shareholder value andan executive’s commitment to the company.32 Remuneration report | ABB Annual Report 2012