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

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Exelon operates six utilities that deliver electricity and natural gas to customers in Delaware, the District of Columbia, Illinois, Maryland, New Jersey, and Pennsylvania. It is also one of the largest power generators in the country and owns a retail energy company. Exelon’s executive compensation is composed of fixed and variable programs, and categorized into three different plans: base salary, an annual cash incentive plan, and a long-term incentive plan. 

The base salary is set by the Board’s Compensation Committee. The recommendations for the CEO are then also reviewed and approved by the rest of the independent directors. In 2019, the Board approved a 2.5% increase in base salary for the CEO and the rest of the named executive officers (NEOs), along with a 3% increase for Calvin Butler, a Senior Executive Vice President and Chief Executive Officer of Exelon Utilities, who succeeded Anne Pramaggiore in that role. Pramaggiore abruptly retired in October 2019 amid federal investigations into Exelon and ComEd regarding their lobbying activities. ComEd agreed to pay $200 million in July 2020 to resolve the federal criminal investigation into bribery of Illinois politicians, as part of a three-year deferred prosecution agreement. (WBEZ and others have reported that Pramaggiore is the unnamed “CEO-1” who took part in the bribery scheme detailed in the prosecution agreement.) The base salary for Exelon president and CEO Christopher M. Crane in 2019 was $1,293,000, but that made up a small fraction of Crane’s $15,444,692 total compensation that year.

The annual incentive program provides NEOs the opportunity to earn additional cash depending on the achievement of several predetermined financial and operations goals. These goals include earnings per share (EPS), the number of customer outages and the frequency of outages, the average capacity factor of all Exelon nuclear units, and the responsiveness of its fossil generating units. Despite boasting that it operates one of the nation’s cleanest power generation fleets, Exelon Generation owns 9,665 MW of fossil generation asset capacity, primarily oil and gas peaking units.

In 2019, Exelon executives surpassed each of the annual metrics targets except the outage duration category, earning hundreds of thousands of additional dollars as a result. Crane was awarded $2.1 million, while Exelon Generation CEO Kenneth Cornew and Exelon Vice President and Chief Strategy Officer William Von Hoene, Jr. were each awarded $1.04 million.

The long-term incentive program rewards NEOs with equity in the company in the form of restricted stock units and performance shares. The metrics in this program are divided between earning a high return on equity (ROE), net income, and the funds from operations (FFO) to debt ratio.

Exelon executive compensation long-term incentive program metrics.
Exelon’s long-term incentive program metrics (2017-2019). Source: Exelon’s 2020 Proxy Statement

As the above table illustrates, Exelon’s Board of Directors encourages executives to earn a high ROE through the regulated utility subsidiaries. The Board has set a target of 9.5% weighted average ROE over a three-year period, which Exelon surpassed for the 2017 to 2019 timeframe with a 10% average ROE. This is an increase from the 9.7% average during the 2016 to 2018 timeframe. For the 2017 to 2019 performance period, Exelon executives also achieved the net income target of $1.7 billion (actual $1.9 billion), and the FFO/debt ratio target range of 18% to 22% (actual 19.6%). As a result, Crane received $11 million under the total long-term incentive plan in performance shares and restricted stock units.

Crane and the other NEOs receive various perquisites. For instance, they and their families are allowed personal use of the corporate aircraft, fleet services, and rail passenger services. In 2019, Crane received values of $94,049 in the personal use of corporate aircraft, $60,955 for spousal travel, and $9,307 for other transportation-related benefits. Additionally, Von Hoene received a value of $119,917 for personal use of corporate aircraft, which the company said is largely related to commuting between Chicago and Washington D.C. The D.C. Public Service Commission mandated that Von Hoene and other senior leadership move their offices to D.C. as part of Exelon’s purchase of the D.C. utility Pepco. Von Hoene also received a value of $15,459 for spousal travel.

NEOs are also entitled to personal financial planning benefits, and can request Exelon to match gifts to charitable organizations in amounts up to $10,000. 

The NEOs are also offered benefits if terminated for reasons other than cause or disability, including a 24-month severance period, which is the continuation of payment in the amount representing base salary and target annual incentives. Crane, for example, was entitled to $34 million in total payments and benefits if he retired at the end of 2019.

CEO compensation ranking among utilities studied, 20197/19
Compensation ratio: CEO to median employee, 2019122:1
Percent change in CEO compensation, 2017-2019+3.9% ($586,833)
Maximum payout of performance-based shares as a percentage of target, 2019200%
Is Exelon’s executive compensation structure aligned with decarbonization?No.
Is there evidence from SEC filings that Exelon is using misleading financial metrics to determine executive compensation?No.
What key perquisites or benefits do Exelon executives receive?Exelon executives receive personal use of the corporate aircraft, fleet services, and rail passenger services. Spousal travel is also permitted. Executives have received relocation and living benefits as a result of regulatory commitments associated with the 2016 acquisition of Pepco Holdings. Additionally, executives receive personal financial planning, company gifts, matching charitable contributions, physical examinations, event tickets, and non-qualified supplemental retirement benefits.