The EC members collectively owned less than 1 percent of ABB’s total shares outstanding at De-cember 31, 2017.
At December 31, 2017, members of the EC held ABB shares and conditional rights to receive shares, as shown in Exhibit 27 on page 83. Their holdings at December 31, 2016, are shown in Exhibit 28 on page 84.
Members of the EC cannot participate in the Man-agement Incentive Plan (MIP). Any MIP instru-ments held by EC members were awarded to them as part of the compensation they received in pre-vious roles they held at ABB. For a more detailed description of MIP, please refer to “Note 18 Share-based payment arrangements” to ABB’s Consoli-dated Financial Statements contained in the sec-tion titled “Financial review of ABB Group” of this Annual Report.
Except as described in Exhibits 27 and 28, no member of the EC and no person closely linked to a member of the EC held any shares of ABB or options on ABB shares at December 31, 2017 and 2016.
Compensation area Status in 2014 Evolution over the last 3 years Going forward from 2018 Annual base salary • Benchmarked against
Hay Group’s Pan-European Top Executive Market, with consideration given to Hay’s data on Swiss and U.S. peers as well as a global industry peer group. Annual salary increases are approved by the Board based on the CEO’s
• Remained consistent with same benchmarks
• Announced clear statement that annual base salaries of the EC will be benchmarked between the market median and upper quartile in order to attract suitable talent
• Clarified the use of the Swiss and U.S. market benchmarks as well as the Global industry group for benchmarking compensation design
• Stronger emphasis placed on assessment of performance and potential
• Pay levels are assessed annually against market competitive benchmarking using the peer groups described in Exhibit 6
• No changes envisaged
• Disclosure of Global industry group (already in this report). See Exhibit 6 footnote (1)
Short-term variable
compensation • Payout solely dependent on the achievement of Company performance objectives
• Board had authority to approve a higher than target payout if an objective was exceeded
• Significant performance alignment introduced with objectives set in financial, operational, change and leadership areas in line with NLS
• Payout dependent on achievement of both Company and Individual/Team performance with balance between Group and Individual/
Team shifted from 100%/0%
to 65%/35% to 35%/65%
(Corporate EC members to 50%/50%)
• CEO from 100%/0% to 80%/20%
• A mathematical computation replaces the Board “discretion”
for payout computation if an objective exceeds target
• Strong performance alignment continues; stronger emphasis on earnings and operational excellence
• Payout dependent on achievement of both Company and Individual/
Team performance
• Balance between Group and Individual/Team will be consistently 35%/65% for all EC members and 80%/20% for the CEO
• Individual objectives are set as part of the annual performance management process and support the implementation of the NLS in the respective areas of responsibility of each EC member
• Opportunity levels will be as follows:
- 0% payout at or below threshold - 100% payout at target
- 150% payout at or above maximum
Payout is interpolated for achievement in between points
Exhibit 17: Detailed summary of Compensation structure over time.
Compensation area Status in 2014 Evolution over the last 3 years Going forward from 2018 Long-term variable
• Retention component was share-settled for
based on a look-back assessment of how size to reflect personal performance and contribution to the Company(1)
• A two-tier performance was introduced with vesting of the P1 component based on a Net Operating Income measure and the P2 component on a cumulative weighted EPS(2) measure; the Net Operating Income measure further evolved in 2017 from a binary
“threshold” criteria (pay or no pay) to a payout based on a payout curve for various achievement levels
• Balance shifted to 50% P1 and 50% P2
• Both P1 and P2 components were share‑settled for 70%
and cash‑settled for 30% (to assist in meeting tax payment obligations) with an option for a 100% share‑settlement
• “Look-back” assessment removed to reinforce forward-looking incentive with assessment at vesting
• Performance alignment to the NLS will further be strengthened
• A single, simplified performance driven LTIP will be introduced with two equally weighted performance measures to assess vesting payout:
- average EPS(3) to focus on the Company’s strategic plan; and - relative Total Shareholder Return
(TSR) against a peer group
• Inclusion of TSR element gives specific focus on an external market perspective
• Composition of peer group for relative TSR assessment will be disclosed in the next Compensation report following the initial grant
• The opportunity levels under the LTIP will be as follows:
- 0% payout at or below threshold - 100% payout at target
- 200% payout at or above maximum
• Payout will be interpolated for achievements in between points
• Payout will be share‑settled for 65%
and cash‑settled for 35% (cash settlement increased to 35% to be more in line with tax rates). Option for 100% share‑settlement remains unchanged
Share ownership
requirements Our share ownership requirements have been significantly above market practice:
• 5 years of annual gross base salary for the CEO and 4 years for EC members
• Expected to reach requirement within 5 years of EC tenure and review is based on expected share price developments
• No changes made Remains above market practice.
The following ownership requirements will be enforced:
• 5 years of annual net base salary for the CEO and 4 years for EC members (based on a 35% tax rate)
• No disposal of shares vesting from the Company’s LTIP programs until the ownership requirements are met
(1) For the CEO, this will be based on the recommendation of the Chairman of the Board.
(2) Cumulative weighted EPS: 33 percent of EPS year 1 + 66 percent of EPS year 2 + 100 percent of EPS year 3; EPS target is based on external investors’ expectations.
(3) This is a simple average EPS over years 1 to 3; the EPS target continues to be based on external investors’ expectations.
Members of the EC are eligible to participate in the Employee Share Acquisition Plan (ESAP), a sav-ings plan based on stock options, which is open to employees around the world. Seven members of the EC participated in the 14th annual launch of the plan in 2017. EC members who participated will, upon vesting, each be entitled to acquire up to 380 ABB shares at CHF 26.26 per share, the mar-ket share price at the start of the 2017 launch.
For a more detailed description of ESAP, please refer to “Note 18 Share-based payment arrange-ments” to ABB’s Consolidated Financial Statements contained in the section titled “Financial review of ABB Group” of this Annual Report.
to the members of the EC for services rendered to ABB other than those disclosed in this report. Ex-cept as disclosed in the section “Business relations between ABB and its EC members” of the Corpo-rate governance report, ABB did not pay any addi-tional fees or compensation in 2017 to persons closely linked to a member of the EC for services rendered to ABB.