AbbVie 2012 Annual Report Download - page 131

Four primary pay components make up AbbVie’s executive pay program: base pay, annual
bonuses, long-term incentives and benefits. Each serves complementary, but different and specific,
purposes.
Base Pay
Setting appropriate levels of base pay ensures AbbVie can attract and retain a leadership team that
will continue to meet our commitments to customers and patients, and sustain profitable growth for our
stockholders. Adjustments to base pay may be made from time to time by the Committee to reflect
factors such as level of responsibility and market data for similar positions at comparable peer
companies. Talented executives have choices of where they work, and our base pay rates need to be
competitive in the context of total compensation.
Annual Bonus
AbbVie’s annual bonus (short-term incentive) program is based on the Abbott incentive structure
and aligned with competitive market rates, based on peer company comparisons. This incentive
structure is intended to align executives’ interests directly with the annual operating strategies, financial
goals and leadership requirements of the business. It provides a direct link between executives’
short-term incentives and the Company’s annual performance results through both measurable financial
and operational performance and subjective assessments of strategic progress. Some goals, strategies
and leadership requirements may apply to all executives and, as such, may be corporate priorities that
are shared by all named executive officers in any given year. Measurable financial goals apply to all
executives, reflecting their specific areas of responsibility.
Most executives also carry strategic or leadership-oriented goals, which require qualitative,
subjective assessment of their progress during the year. Finally, the process allows for Committee
discretion, since many goals, especially for certain positions, cannot be reduced to formulaic, numerical
targets, or anticipated in advance. By definition, therefore, short-term incentives directly tie executives’
pay with both Company and individual results, allowing for Committee discretion to address unforeseen
developments. In the aggregate, short-term incentives should be paid roughly at target when results are
substantially met, below target if results are not substantially met, and above target if results are
substantially exceeded.
Long-Term Incentives
Long-term incentives serve two primary purposes: first, to directly align the largest component of
executive pay with stockholders’ interests; and second, to help ensure successful long-term performance
through effective focus and retention of executive talent. Executives’ interests are directly aligned with
those of stockholders in two ways. First, through direct stock ownership, executives benefit from the
results they create for other stockholders. Second, the level of awards executives receive vary, by plan
design and each executive’s individual performance, as reviewed by the Committee. The Committee
considers various measures it believes align with an increase in stockholder returns, or with operating
or strategic results that help drive stockholder value creation. Awards are further differentiated based
on each executive’s specific contribution to long-term strategic results and leadership contribution.
In 2012, long-term incentives comprised roughly two-thirds of total compensation for AbbVie’s
named executive officers. Accordingly, there is a compelling and direct link between executives’
long-term incentives and Company results and stockholder return.
For awards in 2013 and future years, Abbott established and the Committee has approved the
AbbVie 2013 Incentive Stock Program (‘‘Incentive Stock Program’’), under which participation is based
on level of responsibility as well as market data for similar positions at comparable peer companies.
AbbVie expects to grant non-qualified stock options, performance-based shares and units and restricted
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