AbbVie 2012 Annual Report Download - page 134

Long-Term Incentives
Long-term incentive targets are driven by two primary factors: first, the performance of each
executive and his or her relative contribution to the Company’s long-term success; and second, the
Company’s short- and long-term returns to stockholders, as well as relative performance against
financial or operating measures that drive stockholder returns, and performance against strategic
objectives. Starting with the independent compensation consultant’s recommendations regarding target
or reference levels of appropriate long-term incentives by individual, the Committee determines grants
for each individual based on its objective and subjective assessment of performance, progress against
strategic milestones and environmental factors which affected the individual’s or Company’s
performance.
It is important to note that while the Committee may target pay levels for a group of executives or
a specific executive at, higher than, or below a certain performance percentile that the independent
compensation consultant may forecast, the actual awards are made without knowledge of the actual
long-term incentive awards of competitors for the current performance period, since some elements of
competitors’ actual performance and their actual compensation awards for the current performance
period are unknown at the time of award. The independent compensation consultant’s long-term
incentive information always reflects prior performance periods, so it is impossible at the time of the
award to predict precisely where actual pay decisions will leave AbbVie’s named executive officers in
comparison to others.
In 2012, AbbVie’s named executive officers participated in Abbott’s annual long-term incentive
program. Awards for 2012 were based on Abbott’s assessment of business performance, the goals of
Abbott’s long-term incentive program, each individual’s relative performance against his or her
pre-determined goals, current outstanding awards held by the officers and the recommendation of the
independent compensation consultant to the Abbott compensation committee. After contemplating
these factors, Abbott delivered long-term incentive awards that were intended, in the aggregate, to
reflect performance at the median of the health care peer comparison group.
Applying these standards, Abbott determined the equity award value for each named executive
officer and made the awards reported in the Summary Compensation Table as shown on page 29 of
this proxy statement. Further, Abbott determined in 2012, based on market practice, advice from the
compensation committee’s independent compensation consultant and recommendations of institutional
stockholders, that the long-term incentive awards for named executive officers should be in the form of
25 percent stock options and 75 percent performance-vested shares.
In 2012, Abbott’s annual grant was dated and the grant price set on February 17. Abbott’s
historical practice for setting the grant price is the average of the highest and lowest trading prices of a
common share on the date of the grant (rounded up to the next even penny). The grant price for the
2012 annual grant was set at $56.26. The high, low and closing prices of an Abbott common share on
February 17 were $56.48, $56.04 and $56.36, respectively.
In establishing criteria for performance-vesting shares, the Committee considers the
recommendation of its independent compensation consultant, and the fact that the secondary
comparison of ‘‘High-Performance Companies’’ is currently defined by five-year average return on
equity of 18 percent or greater. Accordingly, performance-based stock awards granted in 2012 will be
earned (vested) over a period of up to five years, with not more than one-third of the award vesting in
any one year, dependent upon the Company achieving an annual return on equity threshold of
18 percent from continuing operations adjusted for specified items per the quarterly earnings releases.
If the thresholds are met in three of the five years, 100 percent of the performance-based shares will
vest. If the thresholds are missed in all five years, 100 percent of the performance-based shares will be
forfeited. Outstanding restricted shares receive dividends at the same rate as all other stockholders.
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