Executive Committee compensation in 2011

ABB discloses the compensation elements for each member of the EC, going beyond the requirements of the Swiss Code of Obligations.

The shares conditionally granted under the performance component of the Long-Term Incentive Plans are valued using Monte Carlo modeling, an accepted simulation method under US GAAP (the accounting standard used by ABB). By assessing the probability of various levels of payout, it provides a realistic estimate of their value.

The following table provides an overview of the total compensation of members of the Executive Committee in 2011, comprising cash compensation and the estimated value of the conditional grants awarded under the LTIP launched in 2011 that runs until 2014. Cash compensation includes the base salary, the short-term variable compensation for 2011, and pension benefits as well as the amounts paid by the company to cover other benefits comprising mainly social security contributions. The compensation is shown gross (ie, before deduction of employee’s social security and pension contributions).

Short-term variable compensation for any given year is dependent on ABB’s performance in that year, and is therefore only paid out once the full-year results are known. As a result, EC members received their short-term variable compensation for 2010 in 2011. However, to reflect widespread market practice, the compensation table below shows the short-term variable compensation expected to be paid in 2012 for ABB’s performance in 2011 instead of the amount actually paid in 2011 for ABB’s 2010 performance. Comparative numbers in the notes to the financial statements have been adjusted to reflect the current year’s presentation.

Total compensation for current members of the EC was 37.8 million Swiss francs in 2011 compared with 31.4 million Swiss francs in 2010, reflecting mainly the larger size of the EC in 2011 and the higher value of share-based awards under the Long Term Incentive Plan. The grant conditions of the Plan did not change between 2010 and 2011. The significantly higher valuation of the 2011 Plan is due to the fact that the performance of ABB’s share price relative to its peers was higher than in 2010 during the assessment period preceding the valuation using the Monte Carlo modeling method described above.

In addition, the base salaries of the Executive Committee members increased by an average of 3 percent in 2011 after remaining unchanged since 2009. The annual compensation of the CEO in 2011 includes the social security payments that were paid in respect of the shares which were conditionally granted to him when he joined in 2008 and which he received in 2011.

Details of the share-based compensation granted to members of the EC during 2011 are provided in a table of their shareholdings in the section “ABB shareholdings of members of the Board and Executive Committee” of this remuneration report. Consistent with past practice, no loans or guarantees were granted to members of the EC in 2011.

Members of the EC are eligible to participate in the Employee Share Acquisition Plan (ESAP), an employee stock-option plan with annual launches, which is open to employees around the world. In addition to the above awards, seven members of the EC participated in the eighth launch of the plan. One EC member is entitled to acquire up to a maximum of 700 ABB shares while the other EC members who participated in ESAP are each entitled to acquire up to 620 ABB shares at an exercise price of CHF 15.98 per share. ESAP is described in the section “Employee participation programs” of the Corporate governance report.

Members of the EC cannot participate in the Management Incentive Plan (MIP), also described in the section “Employee participation programs” of the Corporate governance report. Any MIP instruments held by EC members (and disclosed in the section “ABB shareholdings of members of the Board and Executive Committee” of this remuneration report) were awarded to them as part of the compensation they received in earlier roles that they held in ABB.

(XLS:)

Total compensation of members of the Executive Committee in 2011

 

Base
salary

Short-term
variable
compen- sation(1)

Pension
benefits

Other
benefits(2)

Estimated
value of share-
based awards
granted
in 2011(3)

Total
2011

Name

(CHF)

(CHF)

(CHF)

(CHF)

(CHF)

(CHF)

(1)

To reflect widespread market practice, the basis of presentation of the short-term variable compensation has changed from a cash basis to an accruals basis. Payment is made in the following year, after publication of the financial results. Comparative figures for 2010 in the Notes to ABB Ltd’s statutory financial statements have been adjusted to reflect the current year’s presentation.
On July 1, 2011, Veli-Matti Reinikkala relocated from the U.S. to Switzerland. According to the Group’s policy, he received in 2011 a pro-rata short-term variable compensation payout of CHF 244,581 for his service in the U.S. for the period January 1, 2011, to June 30, 2011. The final payout amount for Veli-Matti Reinikkala, which is based on the 2011 results, has been reduced by this pro-rata short-term variable compensation payment already received.
In March 2011, the current and former executive committee members received the 2010 short-term variable compensation payments in the amount of CHF 11,951,967. This number does not include any short-term variable compensation amount for Frank Duggan, who joined the executive committee on March 1, 2011.
Short-term variable compensation is linked to the targets defined in the ABB Group’s scorecard. Upon full achievement of these targets, the short-term variable compensation of the CEO corresponds to 150 percent of his base salary, while for all other executive committee members it represents 100 percent of their respective base salary. The Board has the discretion to approve a higher payout than 100 percent, if the targets are exceeded. For 2011, the Board exercised its discretion and awarded a 12 percent higher payout, reflecting the company’s performance against the targets.

(2)

Other benefits comprise payments related to social security, health insurance, children’s education, transportation, tax advice and certain other items.

(3)

The estimated value of the share-based awards is subject to performance and other parameters (e.g. the share price development) and may therefore vary in value from the above numbers at the date of vesting, March 15, 2014. The above amounts have been calculated using the market value of the ABB share on the day of grant adjusted, in the case of the performance component, according to the parameters considered in the Monte Carlo simulation model.

(4)

Veli-Matti Reinikkala received 50 percent of his base salary in USD and 50 percent in EUR at a fixed USD/EUR exchange rate for the period January to June 2011. All USD payments were converted into Swiss francs using a rate of 0.94115 per USD. As of July 2011, Veli-Matti Reinikkala relocated to Switzerland and since then receives his compensation in Swiss francs.

(5)

Frank Duggan received 20 percent of his base salary in Arab Emirates Dirhams (AED) and 80 percent in EUR at a fixed AED/EUR exchange rate for the period March to December 2011. All AED payments were converted into Swiss francs at a rate of 0.2562417 per AED.

(6)

The above compensation figures related to Tom Sjökvist and Anders Jonsson represent contractual payments for the period January to December 2011.

Joe Hogan

1,991,676

3,376,800

280,384

849,768

2,871,650

9,370,278

Michel Demaré

1,200,006

1,344,000

267,014

323,361

1,189,349

4,323,730

Gary Steel

799,168

901,600

282,501

173,691

687,243

2,844,203

Ulrich Spiesshofer

812,502

917,280

229,895

171,064

868,307

2,999,048

Diane de Saint Victor

748,258

842,128

267,566

300,585

745,419

2,903,956

Bernhard Jucker

945,002

1,064,000

275,936

220,816

811,031

3,316,785

Peter Leupp

770,005

862,400

285,712

164,442

2,082,559

Veli-Matti Reinikkala(4)

701,230

551,861

267,987

320,362

541,126

2,382,566

Brice Koch

741,676

840,000

227,416

244,330

769,347

2,802,769

Tarak Mehta

660,835

742,560

215,716

244,075

680,105

2,543,291

Frank Duggan (joined on March 1, 2011)(5)

597,598

595,962

256,020

140,636

623,213

2,213,429

Total current executive committee members

9,967,956

12,038,591

2,856,147

3,133,130

9,786,790

37,782,614

 

 

 

 

 

 

 

Tom Sjökvist (retired from the EC on September 30, 2010)(6)

188,851

47,971

617,040

853,862

Anders Jonsson (retired from the EC on July 31, 2010)(6)

857,284

857,284

Total former executive committee members

188,851

47,971

1,474,324

1,711,146

 

 

 

 

 

 

 

Total

10,156,807

12,038,591

2,904,118

4,607,454

9,786,790

39,493,760

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