Remuneration principles and governance

Board oversight

The Board and its Governance, Nomination and Compensation Committee (GNCC) have direct oversight of compensation policy at ABB. The GNCC is responsible for developing the general remuneration principles and practices of the ABB Group and for recommending them to the full Board, which takes the final decisions.

The GNCC also plays a role in setting compensation for members of the Board through recommendations that it makes to the full Board. The GNCC’s recommendations are based on regular comparisons with compensation at other major Swiss companies, as outlined under the section “Components of compensation to Board of Directors”. The full Board takes the final decisions on Board compensation.

Remuneration principles

The Board and GNCC are actively involved in the continuous development of ABB’s executive remuneration system to reflect a remuneration philosophy that is based on the principles of market orientation, performance, shareholder value and retention. The “Components of compensation to Executive Committee” section of this remuneration report explains the principles and how they apply to remuneration for EC members.

Compensation for most other managers in the company reflects primarily the principles of market orientation and performance, although some managers also participate in plans that support the creation of shareholder value and encourage retention.

The GNCC acts on behalf of the Board in regularly reviewing the remuneration philosophy and structure, and in reviewing and approving specific proposals on executive compensation to ensure that they are consistent with the Group’s compensation principles. Information on the number of meetings held by the GNCC in 2011 and on the attendees can be found in section “Meetings and attendance” of the Corporate governance report.

Annual reviews

Every year, the Board reviews the CEO’s performance and decides on any change in compensation. The CEO reviews the performance of other members of the EC and makes recommendations to the GNCC on their individual remuneration. The full Board takes the final decisions on compensation for all EC members, none of whom participates in the deliberations on their remuneration.

The CEO also recommends the Group performance targets that determine the short-term variable compensation paid to members of the EC and most other senior managers throughout the company. Short-term variable compensation for some managers with regional or country-level responsibilities is based on related targets adapted to ABB’s goals in these markets. The GNCC reviews the CEO’s recommendations and may make or request amendments before it submits a proposal to the Board, which is responsible for taking the final decision.

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