Pollution Payday: Analysis of executive compensation and incentives of the largest U.S. investor-owned utilities
Xcel Energy
Xcel Energy is an electric and gas utility company with customers in Colorado, Minnesota, Michigan, Wisconsin, New Mexico, South Dakota, North Dakota, and Texas. Xcel Energy’s executive compensation includes a base salary (to reward “ongoing work performed”), annual incentives (to “reward short-term performance”), and long-term incentives (to “reward long-term performance”).
In 2019 for CEO Ben Fowke, 13% of total compensation was made up of base salary, 16% of short-term incentives, and 71% of long-term incentives. For all other named executive officers (NEOs), 26% of total compensation was made up of base salary, 20% of short-term incentives, and 54% of long-term incentives.
Base salaries are set by the Governance, Compensation and Nominating Committee (GCN), and a “key consideration is the median base salary rates at peer companies, although the GCN has flexibility to review other relevant factors as outlined in our compensation philosophy.”
Annual incentives for executives are up to 50% based on “superior financial performance as measured by ongoing EPS [earnings per share].” Up to 150% of targeted annual incentives are based on meeting operational objectives, which include customer satisfaction (per a J.D. Power residential survey), operations and management growth, employee safety (DART, or “Days Away; Restricted; Transferred”), public safety (gas emergency response), and Electric System Reliability (SAIDI, or System Average Interruption Duration Index).
Long-term incentives are 50% based on relative total shareholder return (TSR), 30% based on carbon emissions reduction, and 20% service-based, as a retention tool.
Xcel Energy is the only utility in this report with an executive compensation policy that clearly incentivizes decarbonization. The company’s carbon emission reductions incentive program is “based on the achievement of a specified reduction in carbon dioxide emissions.” For the three-year period ending in December 2019, the carbon emission reductions target (to receive 100% of the incentive) was a 33% reduction of CO2 emissions, compared to 2005 levels. If the company had achieved a 36% CO2 emissions reduction, that would have corresponded to 200% of the targeted incentive (the maximum payout), while achieving a 30% CO2 emissions reduction was the minimum to receive any incentive, which would have corresponded to 30% of the targeted incentive. The company achieved a 33.8% emissions reduction, which resulted in executives attaining 127% of the targeted incentive. Xcel Energy has established a goal to reduce carbon emissions 80% by 2030 (from 2005 levels) and generate 100% carbon-free electricity by 2050.
For the three-year period ending in December 2021, the carbon emission reductions target (to receive 100% of the incentive) is a 47% reduction of CO2 emissions from 2005 levels. If the company achieves a 51% CO2 emissions reduction, that will correspond to executives attaining 200% of the targeted incentive (the maximum), while achieving a 43% CO2 emissions reduction is the minimum to receive any incentive, which would translate to 30% of the targeted incentive.
Xcel Energy’s carbon emission reductions incentive program constitutes 30% of executives’ long-term incentive, which accounts for approximately 71% of the CEO’s total compensation, and 54% of all other NEOs’ total compensation. Therefore, the carbon emission reductions incentive program accounts for about 21% of the CEO’s total compensation, and 16% of all other NEOs’ total compensation – by far the most substantial decarbonization incentive among the utilities examined in this report.
While Xcel has maintained promised levels of executive compensation throughout the COVID-19 pandemic, it has also threatened to disconnect customers who have been unable to pay their bills during the crisis. Xcel could use half the compensation that it paid CEO Ben Fowke in 2019 – still leaving nearly $8.5 million for CEO compensation – to cover the arrearages of 23,173 residential gas and electric customers in Minnesota who were late on their payments as of the end of July 2020, according to data Xcel submitted to Minnesota regulators.
| CEO compensation ranking among utilities studied, 2019 | 5/19 |
| Compensation ratio: CEO to median employee, 2019 | 150:1 |
| Percent change in CEO compensation, 2017-2019 | +33.3% ($4,222,399) |
| Maximum payout of performance-based shares as a percentage of target, 2019 | 200% |
| Is Xcel’s executive compensation structure aligned with decarbonization? | Yes. Xcel Energy’s carbon emission reductions incentive program is “based on the achievement of a specified reduction in carbon dioxide emissions.” The program accounts for about 21% of the CEO’s total compensation, and 16% of all other NEOs’ total compensation. |
| Is there evidence from SEC filings that Xcel is using misleading financial metrics to determine executive compensation? | No. |
| What key perquisites or benefits do Xcel executives receive? | Xcel minimizes executive perquisites compared to many of the other utilities in this report. It offers non-qualified supplemental retirement benefits for CEO Ben Fowke. |