Overall positioning of compensation
The ratio of fixed to variable components in any given year depends on the performance of the in-dividuals and of the company against predefined performance objectives.
Exhibit 13: Total compensation of EC members (in CHF million)
2017 2016
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
For an overview of compensation by individual and component, please refer to Exhibit 23 on page 79 and Exhibit 24 on page 80.
In 2017, as shown in Exhibit 14, the variable com-pensation 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 illus-trates the significant emphasis placed on performance-related compensation.
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 prin-cipally 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 Minimum Target Maximum
Fixed and short-term variable compensation
Base salary
and benefits Base salary and benefits are generally stable
Short-term variable compensa-tion payout
There will be no payout of this component if performance is below threshold in all performance criteria. When performance exceeds targets, this component is capped at 150% of the targeted amount
Long-term variable compensation
Conditional grant allocation(1)
The reference grant size of half of the LTIP (performance component P1) may be increased or decreased by 25%. Consequently, the total fair value at grant of ABB’s LTIP may vary from 87.5% to 112.5%
of the fair value of the unadjusted reference grant size. However, the ultimate payout on vesting depends on meeting the performance criteria of the plan
(1) Note: the grant is conditional. At vesting, the payout can vary from zero to 175% of the grant depending on how well the performance criteria of the LTIP are met.
Payout of the LTIP
There will be no payout if performance is below the threshold in both the P1 and P2 components. The maximum payout is 150% for P1 and 200% for P2.
As the two components are equally weighted, the maximum total payout for the LTIP is 175% of the conditional grant allocation Exhibit 14: Ratios of fixed and variable compensation components of EC members in 2017
Fixed compensation
Short-term variable compensation (actual payout) Long-term variable compensation (fair value at grant)
Objective Performance
Below threshold Threshold to target Target Target to maximum
Performance component 37%
Retention component N/A N/A 100% N/A
Exhibit 16: LTIP 2014 objectives and actual vesting percentages 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 weight-ing of 10 percent, were below the targets with both measures reflecting significant operational charges recorded in the EPC businesses. The pay-out 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 per-cent, 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 sav-ings, almost on target, while service orders, de-spite 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 ex-cluded 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.
each EC member, the achievement ranges be-tween 75 percent and 122 percent, reflecting the financial results of their respective areas of re-sponsibility as well as their achievements on op-erational performance, strategic initiatives and leadership performance. This resulted in an over-all payout of the short-term incentives for the en-tire 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 (previ-ous year: 43 percent for the 2013 LTIP). The payout was based on the cumulative weighted EPS achieved during the plan’s three-year vesting pe-riod. The retention component vested fully, condi-tional 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 implement-ation starting from the 2018 grant.