Compensation awarded to Board and EC in 2016

Compensation of the Board in 2016

Board members received a total compensation of CHF 4.2 million in 2016 compared with CHF 3.68 million in 2015, as presented in Exhibit 19. The change in compensation is primarily due to the increase in the number of Board members from 8 to 11.

At the 2015 AGM, the shareholders approved a maximum aggregate compensation amount of CHF 4.5 million for the Board for the term of office 2015-2016. The compensation paid for that period amounts to CHF 3.73 million as presented in Exhibit 20 and is therefore within the approved amount.

At the 2016 AGM, the shareholders approved a maximum aggregate compensation amount of CHF 4.7 million for the Board for the term of office 2016–2017. The compensation for that period amounts to CHF 4.67 million as presented in Exhibit 20 and is therefore within the approved amount.

Compensation of the EC in 2016

As described in Compensation principles, the compensation of the EC is aligned with the strategic targets of ABB’s Next Level strategy set as performance objectives.

Exhibit 13: Ratios of fixed and variable compensation components of EC members in 2016
Ratios of fixed and variable compensation components of EC members in 2016 (graphic)Ratios of fixed and variable compensation components of EC members in 2016 (graphic)

The ratio of fixed to variable compensation components in any given year depends on the performance of the company and of the individuals against these predefined performance objectives. In 2016, as shown in Exhibit 13, the variable compensation represented 67 percent of the CEO’s compensation (previous year: 69 percent) and an average of 53 percent for the other EC members (previous year: 55 percent). This again illustrates the significant emphasis placed on performance-related compensation.

EC members received total compensation of CHF 44.2 million in 2016 compared with CHF 45.5 million in 2015, as presented in Exhibit 14. The lower total compensation in 2016 is principally due to a reduction in the number of EC members from 12 to 11, partially offset by an increase in costs due to pension arrangements and an overlap period between Pekka Tiitinen and Sami Atiya.

Exhibit 14: Total compensation of EC members
(in CHF million)






For an overview of compensation by individual and component, please refer to Exhibit 21 and Exhibit 22.

Base salaries



Pension benefits



Other benefits



Total fixed compensation



Short-term variable compensation



Long-term variable compensation



Total variable compensation



Total compensation



Pension benefits increased as a result of adjustments that were decided in 2015 based on the benchmarking analysis conducted by Towers Watson. This review highlighted that the retirement benefits of EC members were below the median of 50 peer companies (part of Hay Group General Pan-European Market). As a result, the pension benefits of certain EC members were increased during 2016.

At the 2015 AGM, the shareholders approved a maximum aggregate compensation amount of CHF 52 million for the EC for the year 2016. The EC compensation for 2016 amounts to CHF 44.2 million and is therefore within the approved amount.

Short-term variable compensation

2016 has been a strong year for ABB as highlighted in Exhibit 15. The company exceeded the Group-wide objectives for cost savings and customer satisfaction (as measured by the use of the Net Promoter Score). On the other objectives (revenues, operational EBITA margin, operational net income and operating cash flow), the Group’s performance, while not achieving the set targets, was considerably above threshold. This resulted in an overall achievement of 101.8 percent for the Group component of the short-term variable compensation (previous year: 101.3 percent).

On or above target

Above threshold and below target

Below threshold


The financial objectives exclude the impact of currency fluctuation, major acquisitions and divestments, and impact of discontinued operations where appropriate.


Operational EBITA margin is Operational EBITA (as defined in Note 23 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.


Operational net income is calculated as Net income attributable to ABB adjusted for the after-tax effect of acquisition-related amortization, restructuring and restructuring-related expenses, non-operational pension cost, changes in pre-acquisition estimates, gains and losses from sale of businesses, acquisition-related expenses and certain non-operational items, foreign exchange/ commodity timing differences in income from operations.


Operating cash flow is defined as the net cash provided by operating activities, reversing the cash impact of interest, taxes, restructuring-related activities and one-time pension contributions.


Net Promoter Score (NPS) is a metric based on dividing customers into three categories: Promoters, Passives and Detractors. This is achieved by asking customers in a one-question survey whether they would recommend ABB to a colleague. In 2016, ABB had a target for countries and business to improve their NPS compared to the previous year.

Exhibit 15: Group-wide 2016 objectives, weighting and performance for short-term variable compensation






Operational EBITA margin(2)


Operational net income(3)


Operating cash flow(4)


Cost savings


Net Promoter Score(5)


For 2016, there is an 11 percentage point difference between the highest and lowest payout of the short-term variable compensation of the EC members (previous year: 16 percentage points). This reflects the performance of each EC member against their individual objectives.

Long-term variable compensation

In 2016, the estimated value of the share-based grants to EC members under the LTIP was CHF 13.3 million compared with CHF 14.4 million in 2015. This difference was mainly due to the decrease in the number of EC members from 12 to 11.

To determine the size of the P1 component granted in 2016, the Board assessed ABB’s 2013–2015 performance based on: revenue growth, cash return on invested capital, operational EBITDA margin, share price development, share price to earnings ratio, NPS development, integrity and safety performance. This resulted in an aggregate increase of 3 percent in the reference grant size of the P1 component for EC members as a pool. This compares to the 6 percent increase in 2015 versus 2014.

The payout for the performance component of the 2013 LTIP that vested in 2016 was 43 percent (previous year: 51 percent for the 2012 LTIP). The payout was based on the EPS achieved during the plan’s three-year vesting period.

Other compensation

Members of the EC are eligible to participate in the Employee Share Acquisition Plan (ESAP), a savings plan based on stock options, which is open to employees around the world. Seven members of the EC participated in the 13th annual launch of the plan in 2016. EC members who participated will, upon vesting, each be entitled to acquire up to 500 ABB shares at CHF 20.12 per share, the market share price at the start of that launch.

For a more detailed description of ESAP, please refer to “Note 18 Share-based payment arrangements” to ABB’s Consolidated Financial Statements contained in the Financial review of ABB Group section of this Annual Report.

In 2016, ABB did not pay any fees or compensation to the members of the Board or the EC for services rendered to ABB other than those disclosed in this report. Except as disclosed in the sections “Business relationships between ABB and its Board members” and “Business relations between ABB and its EC members” of the Corporate governance report, ABB did not pay any additional fees or compensation in 2016 to persons closely linked to a member of the Board or a member of the EC for services rendered to ABB.

Compensation of former Board and EC members

In 2016, no payment was made to any former Board member. One former EC member received contractual compensation for the period after leaving the EC, as shown in Exhibit 21.