Overview
EC members received total compensation of CHF 51.4 million in 2019 compared with CHF 39.8 million in 2018, as summarized in Exhib-it 12 below and presented in detail in ExhibExhib-its 26 and 27.
The increase in total compensation in 2019 was principally due to the change of 3 EC members (the CEO, the GC and the CHRO) plus the addition of one EC member to lead the Motion Business, which was spun off from the former Robotics divi-sion. Further details are provided in the footnote to Exhibit 13 below.
Exhibit 12: Total compensation of EC members (in CHF millions)
2019 2018
Base salaries 12.1 9.9
Pension benefits 5.5 4.7
Other benefits 6.9 5.5
Total fixed compensation 24.5 20.1
Short-term incentive (fair value at grant) 12.7 9.1
Long-term incentive 12.6 10.6
Replacement share grant 1.6 0.0
Total variable compensation 26.9 19.7
Total compensation 51.4 39.8
For an overview of compensation by individual and component, please refer to Exhibit 26 and Exhibit 27 in “Compensation and share ownership tables” below.
At the 2018 AGM, the shareholders approved a maximum aggregate compensation amount of CHF 52 million for the EC for the year 2019.
The EC compensation for 2019 amounted to CHF 51.4 million and is within the approved amount. See Exhibit 13 below.
Exhibit 13: EC compensation (in CHF)
Executive Committee
Calendar year
2019 2018
Number of members 11 11
Total compensation 51,355,121(1) 39,773,211 Maximum aggregate
compensation amount
approved at AGM 52,000,000 52,000,000
(1) This amount includes CHF 1.6 million for the grant fair value of the replacement share grant provided to the incoming GC and CHF 0.5 million representing 10 months of a lost STI award, to compensate for benefits foregone from her previous employer.
It also includes another CHF 8.7 million representing the additional cost related to the overlap in EC positions due the departure of 3 EC members plus the addition of one EC member to lead the Motion Business. Excluding these effects, the total would have been CHF 40.6 million.
Overall positioning of compensation
The ratio of fixed to variable components in any given year depends on the performance of the
Company and individual EC members against predefined performance objectives.
In 2019, the outgoing CEO’s variable compensa-tion was 52 percent of his total compensacompensa-tion (previous year: 61 percent) which is the direct result of the absence of an LTI grant. For the other EC members the variable compensation repre-sented an average of 45 percent (previous year:
46 percent).
Changes to CEO compensation structure The compensation structure and levels for the CEO were changed during 2019, to reflect the appointment of an interim CEO, and will change again in 2020 to reflect the newly appointed CEO.
This is summarized in Exhibit 14.
The interim CEO, Peter Voser, receives a monthly payment equivalent to the same annual base salary and annual target STI as the former CEO.
He does not receive any LTI grants or benefits, except legally required pension and social secu-rity contributions, as specified in Exhibit 26. This compensation is in addition to his fees as Chair-man, given he is currently performing both roles.
Terms of appointment for Chief Executive Officer
As noted in the Compensation Committee Chair-man’s letter, the compensation package for the incoming CEO, Björn Rosengren, constitutes a 21.5 percent reduction in TTDC compared to that of Ulrich Spiesshofer. This is driven by reducing the target STI from 150 percent to 100 percent of annual base salary and the target LTI from 200 percent to 150 percent of annual base salary.
In addition, the Company will not be required to provide compensation for any contractually agreed one year non-compete period, following his employment with the Company.
He will receive standard EC benefits, including membership in the ABB Global Retirement Sav-ings Plan. He will receive standard relocation support commensurate with a senior executive transfer to Switzerland, including temporary accommodation. There will be no ongoing hous-ing allowance payments, again consistent with senior executives in Switzerland.
The Company will replace his forfeited, unvested LTI awards from 2017 to 2019, with a one-time replacement share grant, representing 149,054 ABB shares. The first tranche of this award, representing 130,150 ABB shares, will vest two years after grant and the second tranche of the award, representing 18,904 shares, will vest three years after grant. This award is subject to certain forfeiture clauses (e.g. employee giving notice of termination before vesting of awards).
Terms of appointment for other Executive Committee members
The President, Motion Business, Morten Wierod, was appointed to the EC on April 1, 2019, with an annual base salary of CHF 700,000, a target short-term and long-term incentive each of 100 percent of annual base salary, leading to a TTDC of CHF 2,100,000. He is eligible for standard EC benefits.
The CHRO, Sylvia Hill, was appointed to the EC on June 1, 2019, with an annual base salary of CHF 700,000, a target short-term and long-term incentive each of 100 percent of annual base salary, leading to a TTDC of CHF 2,100,000. This represents a reduction in TTDC compared to the prior incumbent. She is eligible for standard EC benefits.
The GC, Maria Varsellona, was appointed to the EC on November 1, 2019, with an annual base salary of CHF 800,000, a target short-term and long-term incentive each of 100 percent of annual base salary, leading to a TTDC of CHF 2,400,000.
This represents a reduction in TTDC compared to the prior incumbent. She is eligible for standard Exhibit 14: CEO Total Annual Direct
Compensation overview (in CHF)
at target level 7,582,500 4,212,500 5,950,000 Annual Total Direct
Compensation at maximum
opportunity level 12,216,250 4,212,500 9,350,000 Annual Base
Salary (ABS) 1,685,000 1,685,000 1,700,000 Short-term Incentive (STI)
Target STI 2,527,500 2,527,500 1,700,000 Target STI as % of
Target LTI 3,370,000 N/A 2,550,000
Target LTI as % of
(1) In addition to the compensation for the interim CEO position, Peter Voser received payments related to his Board membership.
See Exhibit 23.
(2) Björn Rosengren will receive, at the time joining ABB, a one-time replacement share grant representing 149,054 ABB shares, to compensate for his foregone Sandvik shares.
(3) STI is guaranteed at target level and paid monthly.
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EC benefits and received standard relocation support commensurate with a senior executive transfer to Switzerland, including temporary accommodation.
Maria Varsellona is eligible to receive compensa-tion of CHF 0.5 million for 10 months of forfeited STI, representing the time served with her former employer in 2019, payable at the time of payment of the STI award to other EC members in 2020.
This payment is subject to forfeiture clauses (e.g.
employee giving notice of termination within 12 months of starting employment with ABB).
The Company has replaced her forfeited unvested LTI awards from her former employer, with a one-time ABB share grant representing a value of CHF 1.6 million. The foregone LTI awards have been valued applying a discount factor of 42 per-cent. The award will vest in two equal tranches, the first two years, and the second three years after the date of grant. Each tranche is subject to certain forfeiture clauses (e.g. employee giving notice of termination before vesting of awards).
Compensation elements – overview Annual base salary
In 2019, four out of eleven EC members received an adjustment of annual base salary, which ranged from 1.9 percent to 11.1 percent, the latter being for an exceptional performance and market adjustment.
2019 Short-term incentive – design
STI awards were set in 2019 under the previous Incentive Plan. This has been redesigned for 2020, as described in the Executive Committee Com-pensation Policy.
Awards for all EC members were subject to the achievement of common Group objectives, as set out in Exhibit 15.
These Group objectives were complemented by individual objectives by EC member. For Busi-ness and Regional Presidents, the majority were quantifiable objectives based on financial and operational metrics for their area of responsibil-ity; for the CEO and Corporate Officers, they are typically strategic objectives set by the Board.
Examples of quantitative individual measures included items such as Business or Regional Rev-enue, Operational EBITA Margin, Operating cash flow, Demand Orders and safety. Qualitative indi-vidual metrics include items such as the creation of the new ABB operating model, internal controls and functional effectiveness.
For each performance objective (Group and Individual), a target was set corresponding to the expected level of performance that will generate a 100 percent award. Further, a minimum level of performance, below which there is no award (threshold) and a maximum level of performance, above which the award is capped at 150 percent of the target (cap), were also defined. The award percentages for achievements between the threshold, the target and the cap are determined by linear interpolations between these points.
The relative weighting and composition of Group and Individual objectives are shown in Exhibit 16.
The majority of objectives for all EC members are quantitative in nature.
Exhibit 15: Group objectives and weighting in 2019
Objective Weighting Description
Revenues 25% Income realized from executing and fulfilling customer orders, before any costs or expenses are deducted Operational EBITA margin 15% Operational EBITA margin is Operational EBITA (as defined in “Note 23 – Operating segment and geographic data” to the Consolidated Financial Statements) as a percentage of Operational revenues, which is total revenues adjusted for foreign exchange/commodity timing differences in total revenues Operating cash flow
(OCF)
30% Operating cash flow is defined as the net cash provided by operating activities, reversing the cash impact of interest, taxes and restructuring-related activities Operational net income
(ONC) 15% Operational net income is calculated as net income attributable to ABB after adjustments(1) Cost savings 15% Savings generated from ABB group-wide cost reduction programs including supply chain management and operational excellence that have direct impact on the Group’s Operational EBITA (1) Adjustments include: the after-tax effect of acquisition-related amortization, restructuring, related and implementation cost,
non-operational pension cost (credit), changes in obligations related to divested businesses, changes in pre-acquisition estimates, gains and losses from sale of businesses (including fair value adjustment on assets and liabilities held for sale), acquisition- and divestment-related expenses and integration costs, certain other non-operational items and foreign exchange/commodity timing differ-ences in income from operations, as well as certain other non-operational amounts recorded within Provision for taxes.
Exhibit 16: Weighting and composition of objectives for EC members for 2019
CEO
2019 Short-term incentive – outcomes
In 2019, the achievement against most objectives were below the challenging targets set by the Board. The award under the Revenue measure, with a weighting of 25 percent, amounted to 89.1 percent of target (2018: 99.3 percent).
The award under Operating cash flow, with a weighting of 30 percent, was 93.1 percent of target, an improvement against 2018, where the award amounted to 56.6 percent of target.
Operational EBITA margin and Operational net income, both with a weighting of 15 percent, led to awards of 82.8 percent and 79.4 percent, respectively, compared to the prior year of 81.1 percent and 82.6 percent, respectively.
The Group continues to deliver very strong oper-ational Cost savings, which were above target.
The Cost savings parameter, weighted at 15 per-cent, achieved a 149.0 percent award (2018:
150.0 percent).
The combined achievement of these perfor-mance measures resulted in a 96.9 percent (2018:
85.5 percent) achievement level at the Group level in 2019.
With respect to individual/team objectives for each EC member, the achievement ranges between 58.6 percent to 111.3 percent of target, reflecting the financial results of their respective areas of responsibility as well as their achievements on operational performance, strategic initiatives and leadership performance. This compared to a range of 35.5 percent to 112.0 percent in 2018.
The overall average award of STI for the entire EC was 94.7 percent of target (2018: 85.1 per-cent) with a range from 72.0 percent (lowest achievement) to 106.2 percent of target (high-est achievement). This compared to a range of 52.3 percent to 102.4 percent in 2018.
These outcomes are summarized in Exhibit 17.
Exhibit 17: ‘At a Glance’ STI 2019 outcomes (rounded, with 2018 comparisons)
Operational Cash Flow 93% 57%
Operational Net Income 79% 83%
Cost savings 149% 150%
Overall Group Result 97% 86%
EC Individual Objectives
Range of outcomes 58.6%–111.3% 35.5%–112.0%
Average 93% 88%
Combined Overall Group Result and EC Individual Objectives
Range of outcomes 72.0%–106.2% 52.3%–102.4%
Overall Average 95% 85%
2019 Long-term incentive
The estimated value at grant of the share-based grants to EC members under the 2019 LTIP award was CHF 12.6 million, compared with CHF 10.6 mil-lion in 2018.
The 2019 LTIP comprises of two equally weighted performance factors, a three year average EPS and relative TSR, designed to be fully aligned with our strategy, which focuses on EPS delivery and attractive shareholder returns, both on an abso-lute and relative basis.
The companies approved by the Board to deter-mine ABB’s relative TSR performance for the 2019 LTIP were: 3M, Danaher, Eaton, Emerson Electric, Honeywell, United Technologies, General Electric, Rockwell, Rolls Royce, Schneider Electric, Siemens, ThyssenKrupp, Legrand, Yokogawa and Mitsubishi Electric. These were selected to pro-vide an appropriate and very challenging set of peers, and influenced the payment point setting accordingly (see Exhibit 18).
The 2019 LTIP award curves are also illustrated in Exhibit 18.
The EPS performance target for vesting LTIP awards will be retrospectively disclosed in future ABB compensation reports.
2016 LTIP outcome
The 2016 LTIP, which vested in 2019, was com-prised of two measures – P1 (net income) and P2 (cumulative weighted EPS) measures.
The net income measure fully vested at 100 per-cent, same as in previous year. The cumulative weighted EPS measure vested at 85 percent (previous year: 61 percent) out of a potential 200 percent.
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Historical vesting outcomes
The historical vesting percentages for the prior five years are shown in Exhibit 19 below.
Exhibit 19: LTIP historical actual vesting percentages(1) Plan Year of Award
2012 2013 2014 2015 2016 Vesting in % of
target award 80.4% 77.2% 74.8% 80.5% 92.5%
Vesting in % of maximum
potential award 57.4% 55.1% 53.4% 53.7% 61.7%
(1) Average of P1 and P2 components.