Pollution Payday: Analysis of executive compensation and incentives of the largest U.S. investor-owned utilities

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Con Edison

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, 20198/19
Compensation ratio: CEO to median employee, 201971:1
Percent change in CEO compensation, 2017-2019-4.4% ($702,626)
Maximum payout of performance-based shares as a percentage of target, 2019200%
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.