Senior management sustainability incentives
Target: Linking ESG targets to senior management incentive awards
Financial incentives are among the many tools that we use to ensure that ABB meets its 2030 sustainability targets.
In 2021, ABB designated progress towards defined ESG targets as a necessary “boundary condition” for Annual Incentive Plan (AIP) awards to all senior managers. ABB's Board of Directors must agree to specific ESG targets and will review whether the company made adequate progress to justify making the specified AIP award.
The ESG boundary condition for 2021 was the setting of strategic and implementation plans outlining the key actions and activities required to reduce or compensate for GHG Scope 1 and 2 emissions to achieve carbon neutrality in ABB’s own operations by 2030 (vs. a 2019 baseline). At the end of the year, the Board of Directors determined that the terms for this condition had been fully met.
AIP payments are also awarded on the basis of individual performance. Individual awards are informed by a combination of up to three quantitative and qualitative objectives and are based on a discretionary judgment of the individual’s combined performance against all objectives.
In 2021, all members of ABB’s Executive Committee (EC) shared a single safety objective – namely, the percentage improvement in the lost-time incident frequency rate (LTIFR), underpinned by sustainability observation tours (SOTs)SoTs are typically conducted by the line managers. The safety objective for the CEO and other corporate officers was tied to Group-level results; the safety objective for Business Area presidents was tied to the results for their respective Business Areas.
In 2022, all EC members will have two or more ESG-related KPIs associated with the individual component of their AIPs. The past practice of subjectively adjusting the AIP individual component according to one’s achievement against an ESG boundary condition will be discontinued.
A corporate ESG measure will also be added to the Long-Term Incentive Plan (LTIP) for all EC members and around 100 senior executives, with a material weighting of 20 percent. For 2022, the ESG measure will be the company’s Scope 1 and 2 emissions reductions at the end of the three-year performance period (2022-2024), compared to the 2019 baseline, as illustrated in the table below.
ESG target points for the 2022 LTIP
ABB Scope 1&2 CO2 emission reduction compared to 2019 baseline