ABB Annual Report 2012 PDF - ABB Group Annual Report 2012

Annual base salaryThe base salary for members of the EC is set with referenceto positions of equivalent responsibility outside ABB, asdetermined using the Hay methodology described above. Itis reviewed annually principally on the basis of Hay’s annualTop Executive Compensation in Europe survey. When consideringchanges in base salary, the executive’s performanceduring the preceding year against individual objectives istaken into account. Under its mandate with ABB, Hay alsoconducts job evaluations.BenefitsMembers of the EC receive pension benefits, payable into theSwiss ABB Pension Fund and ABB Supplementary InsurancePlan (the regulations are available at www.abbvorsorge.ch).The current level of pension benefits was set in 2006 on thebasis of results from a survey of pension conditions for Swissbasedexecutives at Adecco, Ciba, Dow, Nestlé, Novartis,Roche, Serono, Syngenta and Sulzer that ABB commissionedfrom Towers Watson, a consultant. The survey was repeatedin 2010 and a new benchmarking exercise will be conductedin 2013. Towers Watson also provides actuarial services toABB, and pension advisory services in connection with mergersand acquisitions transactions.The compensation of EC members also includes socialsecurity contributions and other benefits, as outlined in thetable in section 2.4 of this Remuneration report. The Boardhas decided to provide tax equalization for EC membersresident outside Switzerland to the extent that they are notable to claim a tax credit in their country of residence forincome taxes they have paid in Switzerland.Short-term variable compensationPayment of the short-term variable component is conditionalon the fulfillment of predefined annual objectives that arespecific, quantifiable and challenging. Short-term variablecompensation for members of the EC and most other seniormanagers throughout the company is based on Groupperformance objectives. For some managers with regional orcountry-level responsibilities, short-term variable compensationis based on related objectives adapted to ABB’s goalsin these markets. The CEO recommends the Group performanceobjectives to the GNCC, which may make or requestamendments before it submits a proposal to the Board.The Board takes the final decision.The 2012 objectives, shown in the table below, wereGroup-wide metrics that were aligned with the Group’s 2015strategic targets that have been communicated to shareholders.Objective (1)WeightingOrders received 12.5%Revenues 12.5%Operational EBITDA (2) 25%Ratio of operating cash flow to operational EBIT (3) 25%Net Promoter Score (NPS) (4) 10%Cost savings 15%The financial objectives exclude the impact of currency fluctuations.See definition in Note 23 to ABB’s Consolidated Financial Statements.Operating cash flow is defined as net cash provided by operating activities, reversingthe impact of interest and taxes. Operational EBIT is defined as Operational EBITDAbefore excluding depreciation and amortization.NPS is a metric based on dividing customers into three categories: Promoters, Passives,and Detractors. This is achieved by asking customers in a one-question survey whetherthey would recommend ABB to a colleague. In 2012, ABB had a target to increase thenumber of countries that have improved their NPS score.(1)(2)(3)(4)The payout for fully achieving the predefined annual objectivesis equivalent to 150 percent of the base salary forthe CEO and 100 percent of the base salary for other membersof the EC. Underperformance results in a lower payout,or none at all if performance is below a certain threshold.If the objectives are exceeded, the Board has the discretionto approve a payout that is up to 50 percent higher (representingup to 225 percent of the base salary for the CEOand 150 percent of the base salary for other members of theEC). For 2012, the Board exercised its discretion and awardeda 10 percent higher payout, reflecting the company’s performanceagainst the objectives.34 Remuneration report | ABB Annual Report 2012