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

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The total direct executive compensation for Eversource, a utility providing electric and gas service across Connecticut, Massachusetts, and New Hampshire, consists of three elements: 1) base salary, 2) annual cash incentive awards, and 3) long-term equity-based incentive awards. Indirect compensation is provided through certain retirement, perquisite, severance, and health and welfare benefit programs. The incentive awards are performance-based.

The majority of the compensation mix is performance-based, with 68% of the CEO’s compensation consisting of long-term incentives, 17% of annual cash incentives, and 15% of base salary. The average pay mix for the other named executive officers (NEOs) is 54% long-term incentives, 20% annual cash incentives, and 27% base salary. 

The majority of the annual incentive awards is geared toward achieving financial performance goals (70%), which consist of 1) earnings per share (60%), 2) advancement of strategic growth initiatives and regulatory outcomes (30%), and 3) growth dividend (10%). The rest of the annual incentive awards (30%) are geared toward achieving operational goals, which consist of 1) combined service reliability and restoration goals (50%), and 2) combined safety ratings, gas service response, diversity promotions and hires of leadership employee positions goals, and sustainability and customer and clean energy initiatives (50%).

In 2019, Eversource included several renewable and clean energy metrics as part of its annual incentive awards’ strategic growth initiatives. These included the expansion of offshore wind energy in partnership with Orsted, the acceleration of a five-year electric vehicle charging program in Massachusetts to three years, and beginning construction on two energy storage projects in Massachusetts. The utility also included energy efficiency program goals in its reward metrics, citing its recognition as a national leader in this field by American Council for Energy Efficient Economy. While Eversource aims to be carbon-neutral by 2030, its renewable and clean energy goals comprise less than half of its executives’ annual incentive program, or less than 10% of total compensation. 

The long-term incentive program is a three-year program consisting of 1) 50% performance shares, and 2) 50% restricted stock units (RSUs). 

Performance shares are designed to reward future financial performance, measured by long-term earnings growth and shareholder returns over a three-year performance period. For the 2019 to 2021 period, the company measured performance shares using: 1) average diluted earnings per share growth (EPSG), and 2) relative total shareholder return (TSR) measured against the performance of companies that comprise the Edison Electric Institute Index. 

Each RSU granted under the long-term incentive program entitles the holder to receive one common share at the time of vesting. All RSUs granted under the long-term incentive program vest in equal annual installments.

CEO compensation ranking among utilities studied, 20193/19
Compensation ratio: CEO to median employee, 2019148:1
Percent change in CEO compensation, 2017-2019+24.4% ($3,890,627)
Maximum payout of performance-based shares as a percentage of target, 2019200%
Is Eversource’s executive compensation structure aligned with decarbonization?Not directly. Eversource’s annual incentives do include increasing renewable energy, electric vehicle programs, energy storage, and energy efficiency as strategic growth initiatives. These initiatives account for less than half of the annual incentive program, which itself forms less than 20% of compensation for NEOs.

Eversource has announced its intention to be carbon-neutral by 2030. None of Eversource’s incentives directly reward decreased carbon emissions.
Is there evidence from SEC filings that Eversource is using misleading financial metrics to determine executive compensation?Yes. Eversource excluded the failed Northern Pass Transmission (NPT) Project when it awarded its executives in excess of the company’s 2019 performance targets. The company used this exclusion, which resulted in a higher EPS, to determine both its annual and long-term compensation awards.
What key perquisites or benefits do Eversource executives receive?The company provides executives with limited financial planning benefits, vehicle leasing, and access to tickets to sporting events. Additionally, it offers 401(k), retirement, and pension benefits for the CEO, as well as deferred compensation benefits.