Monday, April 6, 2015
Local utility CEOs enjoy big pay increases
By Peter S. Cohan WALL & MAIN
When it comes to paying the chief executive officers of utilities that serve the Worcester area, Boston- and Hartford-based Eversource beat Waltham-based National Grid and Hampton, N.H.-based Unitil hands-down last year.
But in comparing their stock price, revenue and profit growth, I wonder whether that victory is fairly earned.
How so? Thomas May, Eversource's CEO, hauled in a $9 million pay package, including a $1.2 million base salary and a bonus. That was 15 percent more than National Grid CEO Steven John Holliday, who earned $7.8 million. Mr. May earned 150 percent more than Unitil CEO Robert Schoenberger, who made a mere $3.2 million in compensation in 2014.
But compared to 2013, Mr. Shoenberger earned a much bigger raise than did Mr. May. Mr. Holliday enjoyed a 56 percent pay surge, while Unitil's CEO saw his pay package soar 84 percent. Mr. May's pay increase was 17 percent.
Based on financial performance alone, the three executives enjoyed percentage pay increases that exceeded revenue and net income increases several-fold.
For instance, Eversource's revenues and net income grew 5 percent and 4 percent in 2014, to $7.7 billion and $827 million, respectively. National Grid's revenues and net income rose 3 percent and 14 percent to 14.8 billion British pounds and 2.4 billion British pounds, respectively. Meanwhile, the much smaller Unitil's revenues and net income grew a more impressive 16 percent and 14 percent in 2014 to $426 million and about $25 million, respectively.
Their pay packages and 2014 increases exceed those of the typical U.S. worker. In June 2014, the median household income was $53,891. Last year, Mr. May, Mr. Holliday and Mr. Shoenberger hauled in 167, 145 and 59 times more than that median household, respectively. Workers surveyed by Mercer saw their pay rise by a mere 2.9 percent.
Eversource is confident that Mr. May's compensation is justified.
"All of our employees — from energy efficiency experts to lineworkers to executives — are paid market-based compensation. Eversource has achieved top-quartile performance under Tom May's leadership — specifically in the areas of reliability and in financial performance," spokeswoman Caroline Pretyman said.
Eversource wants us to know that Mr. May is being rewarded for things that are hard to measure, as well.
"One aspect of Tom's performance that does not necessarily show up in charts and graphs depicting service quality or financial performance," Ms. Pretyman said, "is how he motivates employees to focus on customer service. Tom works tirelessly to establish a teamwork culture with 'excellent service to customers' as the mission. He is recognized for his strong management skills."
Eversource believes that Mr. May's compensation is based on how much he benefits customers and shareholders. His compensation is "purposely calculated so that a significant portion is provided by stock awards to link the interests of executives with the company's customers and with shareholders because stock performance comes from operational and financial performance, which equals service quality and cost control, which is to the direct benefit of customers," Ms. Pretyman said.
National Grid spokesman Fred Kuebler said in a statement that executive pay is benchmarked against other companies and designed to reward success: "Last year, the company delivered solid operational and financial performance, so we believe our directors earned their remuneration," he said.
Unitil also offered a spirited defense of Mr. Schoenberger's pay. Unitil spokeswoman Carol Valianti said, "Executive compensation is set through a third-party agency (Towers-Watson) that makes sure the packages remain competitive."
For Mr. Schoenberger, Unitil said, the biggest part of his compensation increase was not in cash, but in the estimated future value of his retirement plan, due to what Ms. Valianti described as "interest rate swings" rather than "real dollars."
Mr. Schoenberger was also rewarded for excellent operating performance. Ms. Valianti said, "The next largest compensation increases are due to merit-based rewards based on reliability, safety record and customer satisfaction surveys. 2014 was one of the best performing years for Unitil on record."
But when it comes to stock price increases during 2014, Mr. May seems to have been conservatively rewarded, while Mr. Schoenberger and Mr. Holliday made out well.
In 2014, Eversouce's stock price soared about 29 percent to $54 by year-end, while Unitil's shares enjoyed a 20 percent rise to end the year at $36.50. National Grid's American Depository receipts rose a mere 8 percent, to $69.94.
Do you feel well-served by these CEOs?
Peter Cohan of Marlboro heads a management consulting and venture capital firm and teaches business strategy and entrepreneurship at Babson College. His email address is email@example.com.