ABB Annual Report 2012 PDF - ABB Group Annual Report 2012

2.3 Acquisition IntegrationExecution PlanIn the past three years, ABB has invested more than $10 billionin connection with acquisitions as part of its strategy togrow the business profitably and create value for ABB shareholders.The focus has been on companies that fill geographic,end-market or product gaps.Strict financial criteria are applied to the investments, andthe financial objectives are expected to be achieved througha combination of cost and growth synergies. Delivering thesesynergies depends on the successful integration of the newbusinesses with those of ABB.To this end, the Board has established a one-timeAcquisition Integration Execution Plan (AIEP) whose goal is tomaximize the return on the recent acquisitions of Baldor,Thomas & Betts and Ventyx, and to foster the collaborativebehavior required to make the benefits sustainable.The plan has two parts. The first is intended to rewardthe achievement of predefined objectives for 2013 related torevenues, operational EBITDA, and customer and employeeretention and development, at each of the three acquisitions.Each business accounts for one-third of the first part of theplan. The second part is intended to accelerate collaborationbetween ABB’s business, technical, functional and localexperts, a step which the Board considers vital not only tointegrating the acquisitions but also to providing customerswith the kind of service and experience that will enable thecompany to meet the ambitious goals of its 2015 strategy.The plan was launched in the fourth quarter of 2012 formembers of the EC who are expected to be in their positionsthroughout 2013, excluding the CEO who will participate inthe assessment of participants. In addition, Michel Demaré,whose departure from ABB was announced in October 2012,and Eric Elzvik, who joined the EC in February 2013, are notparticipants in the plan.The plan consists of conditionally granted shares (cappedat a maximum of 768,286 shares). The payout, if any, willoccur in 2014 and will be made in shares (70 percent) andcash (30 percent), although participants can elect to receive100 percent in shares.2.4 EC compensation in 2012ABB discloses the compensation elements for each memberof the EC, going beyond the requirements of the Swiss Codeof Obligations.The table in this section provides an overview of the totalcompensation of members of the EC in 2012, comprisingcash compensation and the estimated value of the conditionalgrants awarded under the AIEP and under the three-yearLTIP launched in 2012. Cash compensation includes the basesalary, the short-term variable compensation for 2012 andpension benefits, as well as the amounts paid by the companyto cover other benefits comprising mainly social securitycontributions. The performance components of LTIPs and theAIEP are valued at grant using the ABB share price andMonte Carlo modeling, an accepted simulation method underU.S. GAAP (the accounting standard used by ABB). Thecompensation is shown gross (before deduction of employee’ssocial security and pension contributions).The base salary and benefits are fixed elements of theannual compensation packages, while the other componentsare variable. In 2012, fixed compensation represented27 percent of the CEO’s remuneration and an average of34 percent for the other EC members. The ratio of fixed tovariable components in any given year will depend on theperformance of the individuals and of the company againstpredefined Group performance objectives.The total of base salary and benefits, short-term variablecompensation and LTIP awards was 42.5 million Swiss francsin 2012 compared with 37.8 million Swiss francs in 2011for individuals who were members of the EC at the end ofthe respective year. This change reflects the addition ofone member to the EC as well as the higher award level underthe 2012 LTIP. The conditional award in 2012 under the onetimeAIEP resulted in an additional 8.4 million Swiss francs,bringing their total compensation to 50.9 million Swiss francsin 2012.ABB Annual Report 2012 | Remuneration report 37