Letter from the Chairman of the Compensation Committee

Dear shareholder,

On behalf of the Board of Directors (Board) and the Compensation Committee (CC), I am pleased to present the Compensation report for 2016.

Following the election of the CC at the 2016 Annual General Meeting (AGM), we welcomed Frederico Fleury Curado as a new member of the Board and the CC, to which he brings his extensive international experience and expertise.

In 2016, ABB continued with the implementation of the Next Level Strategy and the launch of Stage 3. The successful execution of the Next Level Strategy has led to significant improvements of the company’s performance and to a stronger external focus. The Compensation report explains how these results impacted the variable incentive payments made to the Executive Committee (EC) members under the various compensation components.

For the 2015–2016 term of office, aggregate Board compensation increased by 25 percent compared with the previous year, due to the expansion of the Board from 8 to 11 members.

Aggregate EC compensation was lower in 2016 than in 2015, principally due to a reduction in the number of EC members as part of the organizational realignment under Stage 2 of the Next Level Strategy.

During the reporting year, the CC continued to review ABB’s compensation programs in order to ensure their alignment with Stage 3 of the Next Level Strategy. In this context, we further improved the focus on performance in our short-term and long-term variable compensation plans, effective for 2017. Furthermore, the CC performed its regular activities throughout the year such as the performance goal setting at the beginning of the year and the performance assessment following the year-end, the determination of the compensation of the Board and the EC members, as well as the preparation of the Compensation report and of the “say-on-pay” vote at the AGM. You will find further information on our activities and on ABB’s compensation system and governance in the following pages.

This Compensation report will be submitted to a non-binding, consultative vote by shareholders at the AGM in April 2017. You will also be asked to vote on the maximum aggregate compensation amount of the Board for the 2017–2018 Board term and on the maximum aggregate EC compensation for 2018.

Looking ahead, we will continue to assess and review our compensation programs to ensure that they are still fulfilling their purpose and are aligned with the interests of our shareholders. We encourage and pursue an open and regular dialogue with our stakeholders. Your feedback is highly valued and appreciated as we continue to evolve the compensation system. On behalf of ABB and the CC, as well as the Board, I would like to thank you for your continued trust in ABB and for your consistently constructive and supportive feedback regarding our compensation framework.

Michel de Rosen
Chairman of the Compensation Committee

Zurich, March 10, 2017