AbbVie 2012 Annual Report Download - page 132

shares and units, subject to vesting requirements, under the Incentive Stock Program. AbbVie is asking
that stockholders approve this plan at the 2013 annual stockholders meeting (see Item 5 on the proxy
card).
Benefits
As with all AbbVie employees, named executive officers are provided certain employment and
post-employment benefits. Benefits are an important part of retention and capital preservation for all
levels of employees, protecting against the expense of unexpected catastrophic loss of health and/or
earnings potential, as well as providing a means to save and accumulate for retirement or other
post-employment needs.
Key Program Changes
During 2012, Abbott implemented three structural changes to its compensation plans that have
been incorporated into the AbbVie compensation plans, including its change in control agreements,
equity awards, and grantor trust arrangements.
First, Abbott replaced its change in control agreements. The new agreements eliminated: (1) the
automatic renewal feature; (2) the right to receive a tax ‘‘gross-up’’ payment from the Company if the
executive is subject to the ‘‘golden parachute’’ excise tax; and (3) the ‘‘modified single-trigger’’
severance provision, which was replaced with a ‘‘double trigger’’ severance provision. Previously, certain
executives could receive change in control severance benefits upon a resignation for any reason during
a 30-day period commencing after the six-month anniversary of the change in control. The new
agreements provide that if the executive’s employment is terminated by the Company without cause or
by the executive in a ‘‘good reason’’ termination during the two-year period following the change in
control, the executive will be eligible to receive change in control severance benefits. The new
agreements also provide that if an executive’s change in control severance payments would subject the
executive to the golden parachute excise tax, then: (1) the executive will bear the cost of such excise
tax; or (2) if it would leave the executive in a better after-tax position, the executive’s change in control
severance payments will be reduced to prevent application of the excise tax. The new agreements’
terms were developed with the assistance of the independent compensation consultant to Abbott’s
compensation committee.
Second, Abbott modified the terms of executives’ equity awards that provide for vesting in the
event of a change in control. Beginning with the 2013 grants, accelerated vesting of equity awards will
be limited to the circumstances where, within six months prior to and through two years after a change
in control, an officer’s employment is terminated without cause, or the officer resigns for good reason,
each as defined by the applicable agreement. Previously, grants to executives would fully vest upon a
change in control.
Third, beginning in 2013, executive officers will not receive tax gross-ups on their grantor trusts.
These trusts and their treatment in 2012 are discussed in the sections of this CD&A captioned
‘‘Retirement Benefits’’ and ‘‘Deferred Compensation.’’
How Executive Pay Decisions are Made
The vast majority of pay decisions at AbbVie are performance-based. Specific goals and targets are
the foundation of our pay-for-performance process and this section describes how they apply to each
pay component. It is important to note, however, that while our pay process is based on a
comprehensive, multi-level review at all levels, it is not entirely formulaic. Some goals can be measured
objectively against pre-determined financial results. Others take the form of the Committee’s subjective
assessment of success and progress against strategic objectives or leadership results, which cannot be
scored by numeric or formulaic application of measurable criteria. Consequently, while final pay
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