Pollution Payday: Analysis of executive compensation and incentives of the largest U.S. investor-owned utilities
The executive compensation program for Con Edison (ConEd), a utility providing electric and gas service across New York City and Westchester County, consists of two main elements: 1) fixed and other forms of compensation (base salary, retirement programs, and benefits and perquisites), and 2) performance-based compensation (annual incentive compensation and long-term incentive compensation). The annual incentive is cash-based while the long-term incentive is equity-based.
Performance-based compensation represents the largest portion of the ConEd CEO’s and other named executive officers’ (NEOs’) total compensation, and most of the performance-based compensation is in the form of long-term incentives. In 2019, 67% of CEO John McAvoy’s compensation was incentive-based, while 54% of all other NEOs’ compensation was incentive-based.
ConEd’s annual incentive awards are determined by the following: 1) financial objectives (adjusted net income and other financial metrics pertinent to ConEd’s subsidiaries), and 2) operational objectives. The operational objectives account for 25% of each NEO’s potential annual incentive award, and consist of four areas: 1) employee and public safety, 2) environment and sustainability, 3) operational excellence, and 4) customer experience.
ConEd’s long-term incentive compensation provides performance-based equity awards. For the 2019 to 2021 period, ConEd weighted these awards as follows: shareholder return at 50%, adjusted earnings per share (EPS) at 30%, and operating objectives at 20%. The operating objectives are comprised of four components, each weighted at 5%: 1) advanced meter infrastructure work plan/tasks, 2) cyber security work plan milestones/tasks, 3) number of miles of gas main replacement completed (for Con Edison of New York and Orange & Rockland), and 4) growth in renewable portfolio (MW-AC).
|CEO compensation ranking among utilities studied, 2019||8/19|
|Compensation ratio: CEO to median employee, 2019||71:1|
|Percent change in CEO compensation, 2017-2019||-4.4% ($702,626)|
|Maximum payout of performance-based shares as a percentage of target, 2019||200%|
|Is ConEd’s executive compensation structure aligned with decarbonization?||Not directly. Growth in renewable portfolio (MW-AC) comprises 5% of ConEd’s long-term incentive awards. ConEd bases these performance results on cumulative achievement over a three-year period, which may gloss over actual annual decreases in the company’s renewable portfolio (as occurred between 2018 and 2019). No incentives directly reward decreased carbon emissions.|
|Is there evidence from SEC filings that ConEd is using misleading financial metrics to determine executive compensation?||Yes. Both Con Edison’s adjusted earnings for net income for common stock and its adjusted EPS in 2019 excluded transaction costs for its acquisition of Sempra Solar Holdings, LLC.|
|What key perquisites or benefits do ConEd’s executives receive?||These include supplemental health insurance, reimbursement for reasonable costs of financial planning, a company vehicle and, in the case of the CEO, a personal driver.|