Letter from the Chairman of the Compensation Committee

Dear shareholders,

On behalf of the Board of Directors and the Compensation Committee (CC), I am pleased to present the Compensation report for 2015.

Following the election of the CC at the 2015 Annual General Meeting (AGM), we welcomed David Constable as a new member of the Committee. His extensive international experience and expertise will further enrich the Board of Directors and the Compensation Committee. We are deeply grateful to Michael Treschow, who, after 12 years of dedicated service, including as a member of the Compensation Committee, stepped down as a Member of the Board. We thank Michael for his valuable contribution.

In 2015, we implemented the key changes to the Executive Committee (EC) compensation system, which were already outlined in last year’s Compensation report. The revised incentive system aims to improve ABB’s business speed, agility and customer focus and to strengthen its operational and performance culture. Key changes to the compensation system are:

  • incorporation of a better balance between Group and individual performance into the short-term incentive plan;
  • expansion of key performance indicators (KPIs) related to short-term incentives to drive the execution of strategy and creation of shareholder value;
  • payout of the short-term compensation above 100 percent is no longer at the Board’s discretion, but is solely driven by achieved performance; and
  • realignment of the long-term incentive plan components in order to give a greater emphasis on performance.

At the 2015 AGM, our shareholders approved the proposed maximum aggregate compensation amounts of the Board for the 2015-2016 Board term by a majority of 98 percent and of the EC for 2016 by a majority of 94 percent, demonstrating strong support for our revised compensation system. Furthermore, in a consultative, non-binding vote, the shareholders approved the 2014 Compensation report by a majority of almost 83 percent.

On the following pages you will find further details of ABB’s compensation system, including the compensation principles, structure, governance, and the levels of compensation in 2015. This Compensation report will be submitted to a non-binding, consultative vote of the shareholders at the AGM in April 2016. You will also be asked to vote on maximum aggregate compensation to the Board for the 2016-2017 Board term, and on maximum aggregate EC compensation for 2017.

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, February 25, 2016