Utility Incentive Compensation Study

Utility Incentive Compensation Study

April 16 2013

We recently completed a study of incentive compensation programs at 73 of the largest utility companies in the United States entitled Powering Incentive Compensation: How Utilities Pay for Performance.  Below is a quick summation of our findings:

Fixed vs. Variable Compensation

  • Target CEO compensation is 26% fixed (i.e. base salary) and 74% variable
    • Target compensation for other named executive officers (“NEOs”) is 38% fixed and 62% variable
  • Companies with larger revenues pay more long-term incentive compensation and companies with smaller revenues pay more fixed compensation as a percentage of total compensation

Short-Term Incentives

  • Median annual incentive targets for CEOs equaled 100% of base salary
    • Median target range for other NEOs is 50% to 70% of base salary
  • 97% of the companies studied used at least one earnings metric
    • 69% of these companies disclosed they weighted earnings 50% or greater for CEO short-term performance

Long-Term Incentives

  • 93% of companies granted performance-based awards to the CEO
    • Performance-based awards comprised the largest portion of long term compensation for both the CEO and other NEOs
    • A majority of CEO long-term performance awards are based on total shareholder return (TSR) performance relative to a comparator group
  • 56% of companies granted time-vested restricted stock to the CEO
  • 25% of companies granted option awards to the CEO

Link to Study: Powering Incentive Compensation