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For questions or more information, please contact: Ryan Colucci Senior Associate 646-486-9745 or Joshua Hovden Senior Analyst 646-512-9135.

Click here to read more about the second year of CEO Pay Ratio disclosures:

Compensation Advisory Partners, Equity Methods and PayFactors are sponsoring a long-term incentive (LTI) survey. The purpose of this survey is to provide insight on LTI design features and pay levels below the most senior executive positions as this type of information is challenging to obtain from published survey data. We want to provide a simplified output to help participants understand the typical LTI award opportunities and vehicles used at different salary levels within an organization.

This LTI survey will focus on the following by salary level:

  • LTI target opportunity levels
  • LTI mix
  • Design features of LTI vehicles
  • Stock ownership guidelines

Click here for a summary of topics covered.

The survey will take approximately 30 minutes to complete. Submission deadline is Friday April 5, 2019. All responses will be kept confidential and participants will receive a complimentary report on survey findings.

If you have any questions, please contact and someone will respond within 1 business day.

Click here to participate

In late 2018, Institutional Shareholder Services (ISS) and Glass Lewis & Co (Glass Lewis) each issued proxy voting guidelines for 2019. While policy changes announced by both firms were minimal, both ISS and Glass Lewis announced policy updates aimed at increasing female representation on boards of directors. This summary highlights some changes to ISS and Glass Lewis’ policies for 2019 and is not intended to be all encompassing.

ISS Policy Updates

ISS did not make substantial changes to its policy for 2019. In fact, ISS postponed implementing a vote recommendation on excessive director pay that was to be introduced in 2019. After receiving investor feedback, ISS revised its methodology for identifying excessive director pay and will begin making vote recommendations in 2020. Under the new policy, ISS will recommend a vote “Against” Board members responsible for setting director pay if individual director pay is above the top two to three percent of a company’s index and sector for two or more consecutive years (e.g., 2019 and 2020). ISS will consider mitigating factors, such as compression in pay within the index and sector, disclosure of a rationale for a director’s pay positioning, and a larger equity grant at time of joining the board, in its vote recommendation.

In addition to the vote recommendation on director pay in 2020, ISS will recommend an “Against” vote for the Nominating Committee Chair if the Board does not have female representation. This will apply to companies in the Russell 3000 and S&P 1500 indices for meetings that occur after February 1, 2020.

Another policy change anticipated for 2019 was ISS replacing the metrics in the pay-for-performance assessment. However, ISS did not make any changes to their assessment from 2018. ISS considered using Economic Value Added (EVA) in lieu of the current GAAP measures (Return on Invested Capital, Return on Equity, Return on Assets, Earnings Before Interest, Taxes, Depreciation and Amortization growth and/or Cash Flow (from operations) growth). Instead, ISS will disclose a company’s EVA performance as additional information within the research report and not in the Financial Performance Assessment (FPA). This is similar to the approach ISS used in 2017 for the FPA. ISS introduced the FPA as additional information in the research report in 2017 and, ultimately, incorporated it into the pay-for-performance assessment a year later. ISS may use a similar approach with EVA.

In addition to these policy updates, ISS provided clarification on its views on the use of TSR as an incentive metric, front-loaded awards and impact from regulatory updates, as well as updated its list of problematic pay practices as summarized in the below chart. For information on all ISS policy updates, please visit

Other Select ISS Policy Updates

Front-loaded Awards

Will likely recommend “Against” a company’s say on pay (SOP) vote for large multi-year awards that are intended to cover more than four years.

Updated Problematic Pay Practices

Added the definition of “Good Reason” whereby an executive could receive a windfall in the event of a corporate failure (such as bankruptcy or delisting).

ISS will not consider the definition to be problematic if it is in connection with a constructive termination (e.g., material reduction in compensation, title or role, etc.).

Incentive Metrics

Clarified that it does not advocate the use of any incentive metric over another (specifically TSR). ISS stated that the Board and Compensation Committee are best suited to determine the appropriate measures to incent executives to create long-term value for shareholders.

Updates due to Regulatory Changes

Updated its policy to reflect recent regulatory changes:

Elimination of 162(m) Tax Deductibility Exemptions: Will view pay programs negatively if a company shifts performance-based pay into fixed or discretionary forms of compensation.

Smaller Reporting Companies: Will continue to review the completeness of the disclosure. ISS will likely recommend “Against” an SOP vote if it is difficult to assess the compensation philosophy and practices.

Glass Lewis Policy Updates

Similar to ISS, Glass Lewis did not make changes to its pay-for-performance assessment for 2019. The firm did, however, clarify that its letter rating system (i.e., A, B, C, D and F) is not equivalent to the typical school grading system. In the policy update, Glass Lewis notes that receiving a “C” means that pay is aligned with performance. An “A” or a “B” indicates that the pay percentile is less than the performance percentile, and a “D” or an “F” means that the pay percentile is higher than the performance percentile.

Glass Lewis noted three voting policy updates related to compensation and diversity:

  1. If the Board does not have any female members, Glass Lewis will recommend a vote “Against” the Nominating Committee Chair and may extend the recommendation to other committee members, depending on factors including company size, state headquarters, and a company’s governance profile. Glass Lewis will take into consideration mitigating factors, such as a disclosed timetable for addressing female representation or an agreement with restrictions from a significant investor. The vote recommendation on Board diversity is in effect for 2019.
  2. Glass Lewis will generally recommend a vote “For” shareholder proposals that request additional information regarding employee diversity or the process for promoting diversity within the workforce.
  3. Glass Lewis will consider the addition of an excise tax gross-up, particularly if there is a prior commitment for no gross-up, as a factor that may influence a negative vote recommendation against the Compensation Committee.

In addition to these policy updates, Glass Lewis also noted that it will review the terms of a company’s recoupment or clawback policy. The mere presence of a policy that meets the legal minimum requirement will no longer suffice. Glass Lewis states that, at minimum, the recoupment should be triggered for a financial restatement. The lack of a comprehensive clawback policy may inform Glass Lewis’ overall opinion of a company’s compensation program.

Additionally, Glass Lewis provided insight on its views on front-loaded awards and contractual payments and arrangements, both summarized in the chart below. For all information related to Glass Lewis' 2019 voting policies visit

Other Select Glass Lewis Policy Updates

Front-loaded Awards

Will review a company’s rationale for a front-loaded grant and will expect a commitment to not grant additional awards during the defined period of the award.

Contractual Payments and Arrangements

Will consider the amount of a “make whole” award as well as the process for determining the award size. Glass Lewis notes that the disclosure should include a meaningful rationale.

To evaluate severance and sign-on awards, Glass Lewis will review the size of the payment in relation to the amount of target compensation, amounts paid to other executives (including an executive’s predecessor) and the design of the payment.

The CAP 100 Company Research consists of 110 companies from 10 industries, selected to provide a broad representation of market practice among large U.S. public companies. In this report, CAP reviewed Pay Strategies, Annual Incentives, Long-Term Incentives, Perquisites, and Shareholder Friendly Provisions of these companies in order to gauge general market practices and trends.

Characteristics of the CAP 100 Company Research Sample

The CAP 100 Research Study now consists of 110 companies selected from ten industries intended to provide a broad representation of market practice among large U.S. public companies. The fiscal year revenues of the companies in our sample range from approximately $5 billion to $500 billion (median revenue $32.2B). The sample is further summarized in the following exhibits.

10% 11% 11% 10% 11% 9% 9% 9% 10% 10% Automotive Consumer Goods Financial Services Health Care Manufacturing Insurance Oil and Gas Pharmaceutical Technology Retail Industries



Net Income




Cumulative Total Shareholder Return (TSR) ending on 12/31/2017




























Note: Financial Data ($mil.)

Pay Strategy

Among companies in the CAP 100 Research, 98% use a peer group of public companies for pay benchmarking purposes. The median number of companies in a peer group is 18 companies.

Approximately one-third (32%) of the companies with a peer group use more than one peer group. Companies with two or more peer groups typically use an industry-specific peer group as well as a general industry peer group for benchmarking purposes. Other companies with two or more peer groups use an industry peer group for benchmarking purposes and a second broader peer group, typically from an index of stocks, for relative performance comparisons.

Peer Group (n=108)

% of companies with a disclosed peer group

% of companies with more than one peer group (among companies with a peer group)

Median # of companies in peer group




53% of the companies disclose a target pay philosophy for total compensation. Most of these companies (93%) use median as a benchmark, with only 7% of companies targeting total compensation above the median.

Target Pay Philosophy (n=58)





Long-Term Incentive

Total Compensation

% Disclosing






% Target Below Median Pay


% Target Median Pay






% Target Above Median Pay






Annual Incentive

Award Leverage

CAP reviewed proxy disclosures to understand how companies establish annual incentive (bonus) payout ranges (i.e., threshold payout and maximum payout expressed as a percentage of the target award). Approximately half of companies disclose a threshold bonus payout at a defined level other than zero. A threshold payout of 50% of the target award is most common; in general, the range among our sample was 25% to 50% of target. Other companies start at a 0% payout for threshold performance with payout levels progressing to target.

93 of 110 companies disclose a maximum bonus opportunity. Most companies (75%) have a maximum bonus opportunity of 200% of the target award. The number of companies in our study with maximum payouts above 200% (8 total) decreased by almost one-third compared to last year’s study (11 total).

Annual Incentive Plan Payout Range

Threshold Payout as a % of Target (n = 51)


# of Cos.

% of Cos.

< 25%



> 25% to < 50%






> 75% to < 100%



Maximum Payout as a % of Target (n = 93)


# of Cos.

% of Cos.

> 100% to < 150%



> 150% to < 200%






> 200% to < 250%



250% or more



Annual Incentive Plan Metrics

Operating Income (including EBITDA and EBIT), Revenue, Cash Flow, and EPS continue to be the most common metrics used in annual incentive plans. Most companies fund annual incentive plans using two or three metrics. These metrics are typically measured against absolute financial performance targets based on budget. The use of multiple performance metrics allows for annual incentive payouts to be tied more closely to overall company performance in a balanced fashion.

21% 38% 41% Number of Metrics 1 Metric (n=21) 2 Metrics (n=37) 3 Metrics (n=40)

The use of Cash Flow, EPS and Return Metrics all increased slightly (by 3% to 4%) versus 2016. We are also seeing an increased use of strategic measures, more formally, in incentive plans.

Annual Incentive Metric Prevalence 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% EBITDA / EBIT /Op. Income Revenue CashFlow EPS StrategicGoals ReturnMetrics NetIncome Pre-TaxIncome Pipeline /R&D OperatingEPS OperatingMargin 45% 43% 34% 33% 30% 14% 10% 9% 7% 4% 4%

The chart below shows the three most common metrics by industry in 2017:



Metric #1

Metric #2

Metric #3


Cash Flow (73%)

Strategic Goals (55%)

EBIT / Op. Income (45%)

Consumer Goods

EPS (67%)

Revenue (58%)

EBIT / Op. Income (42%)

Financial Services

EPS (33%)

Return Metrics (17%)


Health Care

EPS (64%)

Strategic Goals (45%)

Op. Income (36%)


Op. Income (58%)

Op. EPS (33%)

Op. ROE (25%)


Cash Flow (60%)

EPS (40%)

EBIT / Op. Income (30%)

Oil and Gas

Strategic Goals (50%)

Cash Flow (30%)

EPS, EBIT/Op. Income, EBITDA, ROI / ROIC (each 20%)


Revenue (80%)

Pipeline / R&D (70%)

EPS (50%)


Revenue (64%)

Op. Income (36%)

EBIT (27%) Strategic Goals (27%)


Revenue (64%)

Cash Flow (55%)

Op. Income (45%)

Note: Percentages reflect the prevalence of companies disclosing the metric.

2017 Actual Bonus Payouts

Overall, the median CEO bonus payout for 2017 performance was 118% of target – an increase over the median payout for 2016 performance of 101%. Across the industries, median CEO bonus payouts were the highest in Health Care (140%), Oil and Gas (135%), Technology (129%), and Consumer Goods (126%). None of the ten industries had a median bonus payout of less than 100% of target. Compared to bonuses paid for 2016 performance, the Retail industry showed the greatest increase in payout, year-over-year.

Median CEO bonus payouts for 2017 compared to 2016


CEO Bonus Payouts as a Percentage of Target

75th Percentile


25th Percentile














Consumer Goods







Financial Services







Health Care





















Oil and Gas




























Total Sample







Note: Most companies in the Financial Services industry do not disclose a target bonus for the CEO. For these companies, three-year average actual bonus was used as a substitute for target.

Long-Term Incentives Long-term Incentive Vehicle Prevalence

Most companies (84%) use a portfolio approach to long-term incentives based on a combination of long-term vehicles, such as stock options, restricted stock (or RSUs) and/or performance-based plans. Fifty-three percent of the companies in the study use two long-term incentive vehicles. These companies grant a combination of either a long-term performance plan and stock options (55%) or a long-term performance plan and restricted stock/RSUs (45%).

The next most common approach is to use three vehicles (31% of companies), and the least common approach is to use only one vehicle (16% of companies). Among companies using one vehicle, over 75% use a long-term performance plan.

82% 75% 54% 96% 61% 58% 0% 20% 40% 60% 80% 100% 120% Performance-Based Stock Options Time-Based RS Prevalance of Vehicle Long-Term Incentive Vehicle Prevalance 2011 2017

Since 2011, the percentage of companies using stock options declined by 14 percentage points to 61%, while the prevalence of time-based restricted stock/units has remained relatively flat. The bulk of the decline in stock options has transitioned to performance-based awards over time.

1 Vehicle (n=17) 2 Vehicles (n=57) 3 Vehicles (n=34) 16% 53% 31% Number of LTI Vehicles

LTI Award Mix

While 61% of companies still utilize stock options, its emphasis in the overall CEO long-term incentive mix has declined significantly with the corresponding increase in performance-based long-term incentives.

34% 20% 20% 19% 46% 61% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2011 2017 CEO Average Long-Term Incentive Vehicle Mix Stock Options Time-Based RS Performance-Based

Restricted Stock / Units (RS/RSU)

The majority of companies use ratable vesting over a period of three years for time-based RS/RSU awards. Approximately one-quarter of companies require a vesting schedule of four years or more.

Vesting Approach

Vesting (Years)

Ratable (n=43)

Cliff (n=24)

3 (n=49)

4 (n=11)

> 4 (n=7)






3 Years (n=49) 4 Years (n=11) >4 Years (n=7) 64% 36% Vesting Approach Ratable (n=43) Cliff (n=24) 16% 10% 74% Vesting (Years)

Stock Options

Most companies use a three-year ratable vesting schedule for stock options with a 10-year term.

Vesting Approach

Vesting (Years)

Term (Years)











> 4




< 10










(1) Both companies awarding performance-vested stock options utilize stock price performance as the performance metric, one based on absolute stock price and the other based on relative TSR versus the S&P 500.

3 Years (n=44) 4 Years (n=16) >4 Years (n=5) Vesting Approach Ratable (n=54) Perf-Based (n=2) Cliff (n=9) 68% 24% 8% Vesting (Years) 3% 83% 14%

Performance-Based Awards

Among companies that grant performance-based awards with upside and downside leverage, 85% of companies have a threshold payout of 25% to 50% of target. At maximum, the most common payout opportunity is 200% of target. Five percent of companies provide payout opportunities greater than 250% of target.

Threshold Payout as a % of Target (n=68)


% of Cos.

< 25%


> 25% to < 50%




> 50% to < 100%


Maximum Payout as a % of Target (n=99)


% of Cos.



> 100 to < 200%




> 200% to < 250%


250% or more


Performance Metrics

Among companies in our study, TSR is the most prevalent performance metric in long-term performance plans and is used by 58% of companies with performance-based awards. Most companies (97%) measure TSR on a relative basis. Among companies that report using TSR, 30% use it as a modifier. In general, TSR is viewed as a shareholder friendly design feature. It also provides a credible way for companies to measure multi-year success, while avoiding the challenges of setting multi-year financial or operational goals.

TSR, however, is an outcome and not a driver of longer-term company success. Relative TSR can also be heavily influenced by a company’s position in the performance cycle. Consequently, most companies (89%) that use TSR as a metric use it in connection with another metric—most commonly, a return metric or EPS.

Return measures are the second most prevalent (53% of companies) type of performance metric, followed by EPS (29%) and Revenue (23%). Companies use these metrics – often in combination – in long-term performance plans to support operational efficiency and/or profitable growth.

When selecting specific performance metrics or modifiers, if any, companies should consider those yardsticks that best support long-term value creation in their industry and align executives’ interests with those of shareholders.

Similar to annual incentive plans, companies tend to use multiple metrics to create balance in their long-term performance plans.

19% 38% 43% Number of Performance Metrics 1 Metric (n=20) 2 Metrics (n=40) 3 Metrics (n=45)

Performance Measurement – Absolute Vs. Relative

Among the companies in our study, 50% use a combination of absolute and relative performance goals in their long-term performance plans. This approach motivates executives to achieve the company’s internal financial goals, while also balancing results relative to comparable companies with similar economic influences. When goals are relative, the goal setting process is substantially simplified.

For the companies utilizing a combination of absolute and relative performance goals in their long-term performance plans, when relative TSR is used, the most common additional measures are EPS, ROI/ROIC, and Revenue. These additional measures are most often measured on an absolute basis.

36% 41% 34% 24% 14% 45% 80% 58% 53% 29% 23% 18% 67% 84% Total ShareholderReturn (*) Return Measures EPS Revenue Cash Flow Relative Metrics Absolute Metrics 2011 (n = 94) 2017 (n = 105)

Note: Percentages add to greater than 100% due to multiple responses disclosed by many of the companies.Return measures category is comprised of the following metrics: ROE, ROI, ROIC, and ROA. (*) Approximately 30% of these companies use TSR as an award modifier.

Performance Measurement Period

Among companies that use a long-term performance plan (stock/units or cash), 97% have at least one plan with at least a three-year performance measurement period. Only three companies disclosed having a plan with a shorter measurement period.


The percentage of companies in our research providing perquisites to their CEO increased from 82% in 2013 to 87% in 2017. The percentage of companies providing perquisites to CFOs was 71% in 2017.

The four most common CEO perquisites in our analysis were: personal use of corporate aircraft (63%), personal security (34%), automobile allowance (31%) and financial planning (29%).

55% 29% 30% 24% 56% 29% 31% 31% 24% 62% 63% 33% 34% 32% 29% 29% 58% 30% 30% 27% 0% 10% 20% 30% 40% 50% 60% 70% Personal Use of Aircraft Personal Security Automobile Allowance Financial Planning CEO Perquisite Prevalance 2013 2014 2015 2016 2017

The median total value of perquisites delivered to the CEO and CFO has been relatively flat in recent years. Over the past five years, the median total value of CEO perquisites has ranged from $115,000 to $143,000. Over the same period, CFO total perquisites has ranged from $23,000 to $26,000.

Median CEO and CFO Perquisites Value ($000s) 2013 2014 2015 2016 2017 $125 $25 $143 $25 $24 $123 $26 $122 $115 $23 $0 $20 $40 $60 $80 $100 $120 $140 $160 CEO CFO

Shareholder Friendly Provisions

Stock ownership guidelines (SOG), hedging, pledging, and clawback policies are very common in publicly traded companies. These policies have grown in popularity due to the influence of legislation, proxy advisor firms, and shareholder scrutiny.

Stock Ownership Guideline








In addition to stock ownership guidelines, many companies, particularly larger companies, have instituted stock holding policies. Of the 110 companies studied, 54% require executives to hold shares until the stock ownership guideline requirement is met.

A smaller number of companies (24%) maintain stock holding policies that are independent of stock ownership guidelines or that apply even after the guideline requirement has been achieved. These policies require executives to hold net shares received from equity awards for a period of time ranging from one year to retirement.

Holding Requirement Until SOG is Met

Holding Requirement Separate from or After SOG is Met

Holding Period for Separate/Post-SOG Requirements (n=26)

1 Year

5 Years








For questions or more information, please contact:

Melissa Burek Partner 212-921-9354

Lauren Peek Principal 212-921-9374

Bryan Roberts Senior Associate 713-559-2716

Michael Bonner Senior Associate 646-486-9744

Compensation Advisory Partners (CAP) examined 2017 pay levels and financial performance across forty-two companies in the utility industry with median revenue of approximately $6.6B1. CAP analyzed all companies in the Philadelphia Utility Index and the Edison Electric Institute. The study focused on performance trends and external market factors affecting pay practices within the industry.

Key Takeaways

  • Adjusted earnings (non-GAAP) were up +6% year-over-year
  • Median annual incentive payout was above target in both 2016 (130%) and 2017 (119%) reflecting consistently strong performance
  • 80% of companies adjusted annual incentive payouts for the Tax Cuts and Jobs Act ("Tax Reform")
  • Adjusted (non-GAAP) earnings measures continue to be prevalent metrics in both the short- and long-term incentive plans
  • 95% of companies use total shareholder return (TSR) to measure long-term performance

2017 Financial Performance

Overall, the utility sector experienced revenue and earnings growth in 2017. Unlike the broader market, utilities are regulated at both the federal and state levels; as regulatory agencies oversee pricing, reliability, and safety. With the rising regulation comes more limited opportunities for revenue growth. Further, given the non-cyclical nature of the utility industry, utilities generally under-perform bull markets and over-perform bear markets. Utilities saw strong TSR of +15% for the year, compared to +20% for the S&P 500; however, year-to-date TSR (as of August 31, 2018) has slowed, with a median return of +4% for the utility industry and +6% for the S&P 500. Revenue and diluted EPS growth for utilities were also up year-over-year, at +4% and +7%, respectively.

Companies saw their financial results impacted by the Tax Reform signed by President Trump in December 2017. Reported (adjusted) non-GAAP earnings for the companies in our sample reflect modest growth (+6%). This slight difference compared to GAAP earnings is partially due to Tax Reform. Many companies experienced a positive impact on their financials, reflected in GAAP numbers, but adjusted numbers would likely eliminate this boost as it was an unknown when budgets were set at the beginning of the year. Return on average capital was also up in 2017 (+3%) compared to +2% in 2016. Overall, despite weaker performance as compared to the S&P 500 index, the utilities industry had a positive year, as evidenced by above-target annual incentive payouts.

Industry Group

2017 Median Company Performance

Revenue Growth

Diluted EPS Growth


Utilities Cos. (n=42)

+ 3.6%

+ 7.2%

+ 15.1%

S&P 500

+ 6.7%

+ 9.5%

+ 19.8%

Source: S&P’s Capital IQ

3%17%9%10%3%10%3%6%Base SalaryCash Bonus (Actual)LTITotal Actual Comp1-Year Change in Median Actual CEO Pay20162017

Our study examined the annual change in actual total compensation, which includes the sum of salary, 2017 bonus payments (paid Q1 2018) and the grant date value of 2017 long-term incentives (LTI) for CEOs who have been in their position for both 2016 and 2017. Total compensation increased by approximately 6%, driven primarily by an increase in cash bonuses. Last year, we saw larger increases in both LTI (+ 9%) and in cash bonuses (+ 17%) resulting in a 10% increase in total compensation.

1 Year Pay for Performance6%6%19%30%7%6%15%19%Diluted EPS Growth(GAAP)Earnings Growth(As Reported)Industry 1-Yr TSRMedian Annual Bonus*20162017

*Reflects performance payout above target.

Utilities generally pay out annual incentives above target. In our sample, at least 75% of companies' 5-year average payout was above target with a median 5-year average of 122%. CAP’s research suggests that in the broader market, companies and committees generally set goals with a degree of difficulty so that there is a 60-65% chance of achieving at least target performance. While it is not uncommon to continually pay out at or above target, utility companies do it at a higher rate than companies in other industries. This is partially due to a more predictable business model, so they rarely pay zero bonus, but also do not pay maximum very often.

106%105%98%105%99%134%125%125%130%119%157%155%142%148%147%2013201420152016201725th %ile50th %ile75th %ile5-Year Annual Incentive Payouts as a Percent of Target

Annual Incentive Plans – Adjustments

The most common metric among utilities continues to be earnings metrics (EPS, EBITDA, etc.) as it most directly correlates with the operations of the business. As is common in the broader market, nearly all companies use an adjusted metric. It is reasonable to adjust for variables outside of management’s control but adjusting for too many variables can lead to a disconnect between pay and performance and causing misalignment with shareholders. Further, ISS and Glass Lewis use GAAP metrics in their pay for performance models, so it is important to test their models using GAAP metrics to ensure there is no pay for performance misalignment.

Utilities generally adjust for mark-to-market fluctuations, closing of plants, merger/integration costs, cost saving initiatives, regulatory charges, operations and maintenance expenses, and nuclear decommissioning trust. These are the most common adjustments as management has limited ability to impact the way these variables affect metrics. CAP found that 90% of companies in our sample adjust for at least one of these variables.

Additionally, 80% of companies who made adjustments to incentive metrics also adjusted out the positive impact of Tax Reform as this was not anticipated at the time goals were set at the beginning of the year. Companies and committees felt they should not get the benefit of the positive impact.

Annual Incentive Plans – Goal Setting

While profitability measured on a GAAP basis was up +7%, on a reported basis, earnings increased +6%, which aligns with above target bonus payouts in 2017.

It continues to be a trend in goal-setting among utilities to set targets lower than prior year target or actual performance, given the variables of the industry that are beyond management control (i.e., declining prices, changes in demand, etc.). This particular issue of goal-setting continues to be an area of concern for proxy advisory groups. However, continual higher performance can be challenging in the industry and setting unattainable targets can negate the effectiveness of incentives. When setting targets, management may have a better sense of the more “predictable” adjustments, but actual performance reflects the volatility of the business and unpredictable outcomes that are not foreseen in the target-setting process. Among the companies in our sample, 24% of companies set 2017 targets below 2016 targets and 25% set 2017 targets below 2016 actual. This is compared to 40% and 44%, respectively, for 2016 targets.

Long-Term Incentives – Emphasis On Longer Term Performance Plans

Utilities companies long-term incentive plans place strong emphasis on performance-based compensation with 90% of companies placing at least 50% weight on a performance plan. Only one company in our sample does not use a performance plan in their long-term incentives. These companies also place more emphasis on time-based restricted stock and less emphasis on stock options as compared to the broader market (only 5 companies grant stock options in our sample).

3%25%72%LTI Mix Utilities21%17%62%LTI Mix General Industry*Stock OptionsTime-BasedRestrictedStockPerformancePlans

*Compensation Advisory Partners 100 Company Database

Most companies use a 3-year performance period. As a result, companies are linking executive pay with long term performance, measured most often by Relative TSR or EPS vs. plan; all but three companies use relative TSR in their long-term incentive plans. The most common comparator group is the compensation peer group; however, over half the companies measure against an index.

TSR Comparator Groups

Comparator Group

Prevalence (% of companies)

Compensation Peer Group


Edison Electric Institute


S&P 500 / S&P 1500 / S&P 400 Mid-Cap Utilities


Performance Peer Group


Philadelphia Utility Index


Of the 21 companies with EPS in their long-term incentive program, 67% also use it as a metric in their short-term incentive program. This double-use can be an area of concern for select shareholders and is often raised by proxy advisors, especially when pay and performance are misaligned. However, these companies typically use different targets for the metric when both annual operating targets and long-term strategy are key areas of focus and we believe this can often be effective in reinforcing priorities.

95%63%29%10%27%5%83%TSREarnings/EPS/Net IncomeReturnMeasures(ROE/ROIC)Health &SafetyOtherRelative*AbsoluteLTI Metric PrevalenceFFO/Debt, Free CashFlow, Operational Objectives

*Excludes relative TSR metrics


After experiencing a relatively slow period of growth over the last several years, the utility industry is expected to pick up over the next few years. The industry, as a whole, is expected to face several conflicting factors. Increased energy efficiency will slow consumption, but demand for power is expected to increase, particularly in connection with an increase in new housing construction. With an increase in demand and an anticipated increase in prices, utility companies can expect to see profit growth over the next few years. The utility industry increase is expected to track with the greater macroeconomic growth anticipated in this period. On the other hand, regulation is expected to increase, slowing profit growth.

The removal of the Clean Power Plan, in addition to the expiration of the Federal Investment Tax Credit and Production Tax credit will slow the high growth that renewable energy has seen over the last couple of years. Despite this, many states are expected to continue to implement renewable portfolio standards which will lead to more energy creation from renewable resources. With the Environmental Protection Agency’s (EPA) removal of the Clean Power Plan, electric power operators may be less likely to move away from coal production (compared to if it had stayed in place) but with natural gas prices expected to remain low, coal-power generation companies will continue to face challenges.

Management and Boards of companies in this industry must continue to monitor the changing environment and maintain a corporate strategy and goals that will allow success in the highly regulated environment. The continued use of non-GAAP metrics in incentive plans will aid proper incentivization for executives in the challenging market, but adjustments should only be made for factors outside management’s control or were unforeseen in the goal-setting process (i.e., tax reform). The biggest struggle companies will face with shareholders and proxy advisory firms is ensuring that appropriate financial goals are being set in both the business plan and incentive plans for executives.

Additional Information – New Ceo Pay Ratio Disclosure

All of the companies in our sample were required to disclose the ratio of their CEO pay to that of the median employee in 2018. The utility industry saw some of the lowest pay ratios across all companies. CEO pay in our sample ranged from 15x to 190x, with a median of 64x that of the median employees’ pay. The lower ratios compared to the broader market are due to primarily US workforces and high percentages of unionization among the employee population, resulting in much higher median employee pay as compared to other industries (median pay of $122k). Given the flexibility that companies have in the methodology and assumptions used to calculate the ratio, comparisons of ratios between companies are less meaningful. To date, institutional investors and proxy advisory firms have not used disclosed CEO pay ratios to inform their voting decisions. We may see some year-over-year comparisons in the second year of disclosure.

For questions or more information, please contact:

Dan Laddin Partner 212-921-9353

Shaun Bisman Principal 212-921-9365

Joanna Czyzewski Associate 646-486-9746

Robert Martin and Diane Lee provided research assistance for this report.

Exhibit 1

  • ALLETE, Inc.
  • Alliant Energy Corporation
  • Ameren Corporation
  • American Electric Power Company, Inc.
  • American Water Works Company, Inc.
  • Avangrid, Inc.
  • Avista Corporation
  • Black Hills Corporation
  • CenterPoint Energy, Inc.
  • CMS Energy Corporation
  • Consolidated Edison, Inc.
  • Dominion Energy, Inc.
  • DTE Energy Company
  • Duke Energy Corporation
  • Edison International
  • El Paso Electric Company
  • Entergy Corporation
  • Eversource Energy
  • Exelon Corporation
  • FirstEnergy Corp.
  • Hawaiian Electric Industries, Inc.
  • IDACORP, Inc.
  • MDU Resources Group, Inc.
  • MGE Energy, Inc.
  • NextEra Energy, Inc.
  • NiSource Inc.
  • NorthWestern Corporation
  • OGE Energy Corp.
  • Otter Tail Corporation
  • PG&E Corporation
  • Pinnacle West Capital Corporation
  • PNM Resources, Inc.
  • Portland General Electric Company
  • PPL Corporation
  • Public Service Enterprise Group Incorporated
  • Sempra Energy
  • The AES Corporation
  • The Southern Company
  • Unitil Corporation
  • Vectren Corporation
  • WEC Energy Group, Inc.
  • Xcel Energy Inc.

1 See Exhibit 1 for list of companies included.

Each year CAP analyzes non-employee director compensation programs among the 100 largest companies. These companies generally provide early insights into potential trends in terms of compensation practices. This report focuses on a summary of pay levels and pay practices trends based on 2018 proxy disclosure.

CAP Findings

Board Compensation
pay levels increased modestly

  • Total Fees. Board compensation has been in a steady state with low single-digit annual increases – we expect this to continue to be the norm. Median is now $300K, up from $290K last year, a 3.4% increase.
  • Retainers. Companies rely mainly on annual retainers (cash and equity) to compensate directors. Pay programs for large companies are simple and tend to rely less on meeting fees or committee member retainers.
  • Meeting Fees. Paid by 12 of the 100 companies, consistent with prior years. Most companies have moved to a fixed retainer pay structure, with a component in cash and a component in equity. We support this approach as it simplifies administration and the need to define what counts as a meeting. However, companies may want to consider having a mechanism for paying meeting fees if the number of meetings in a single year far exceeds the norm (“hybrid approach”). Consistent with prior year, five companies in our dataset used this hybrid approach to meeting fees, with the threshold ranging between 6 and 10 meetings.
  • Equity. 99 companies used full-value awards (shares/units) and only 6 used stock options (5 used both vehicles). Almost all companies denominated the equity awards in terms of a fixed value, versus a fixed number of shares, which is considered best practice as it manages the value awarded each year.
  • Pay Mix. On average, total pay is comprised of 61% equity and 39% cash, consistent with as last year.
  • Process: 24% of companies disclosed increases to board cash and/or equity retainers versus prior year.

Committee Member1 Compensation
prevalence continues to slowly decline

  • Overall Prevalence. 44% of companies paid member fees for Audit Committee service, 31% paid member fees for Compensation Committee service, and 28% paid member fees for Nominating/Governance Committee service. Companies rely more on board-level compensation to recognize committee member (non-chair) service, with the general expectation that all independent directors contribute to committee service needs.
  • Total Fees. Of the companies that paid committee member compensation, the median was $16K.

Committee Chair1 Compensation
no change

  • Overall Prevalence. More than 90 percent of companies provided additional compensation to committee Chairs to recognize additional time requirements, responsibilities, and reputational risk.
  • Fees. Median additional compensation remained $25K for Audit Committee Chairs, $20K for Compensation Committee Chairs, and $15K for Nominating/Governance Committee Chairs. Most often the extra fees were delivered through an additional cash retainer and not meeting fees.

Independent Board Leader Compensation
little/no change

  • Non-Exec Chair. Additional compensation is provided by nearly all companies with this role. Median additional compensation is $233K. As a multiple of total Board Compensation, total Board Chair pay is 1.8x a standard Board member, at median
  • Lead Director. Median additional compensation is $35K, same as prior year. Additional compensation is provided by nearly all companies with this role2. The differential in pay versus non-executive Chairs is in line with typical differences in responsibilities.

Pay Limits
now majority practice

  • As a result of litigation (e.g., Investors Bancorp), 54 percent of the largest 100 companies now have an award limit for director compensation, up from 47 percent in the prior year.
  • The limits are largely due to advancement of litigation where the issue has been that directors approve their own annual compensation and are therefore deemed to be inherently conflicted.
  • Limits range from $250K to $4.75 million, with a median limit of $750K. Companies that denominate the limit in shares tend to have a higher dollar-equivalent limit, with a median of $1.1M. The median for the companies with value-based limits is $600K.

    Limit Range


    <= $500,000


    $500,001 – $1,000,000


    $1,000,001 – $2,000,000


    > $2,000,001


  • The limits tend to be much higher than annual equity grants.

    Limit Multiple Range


    <= 3x annual equity


    3.01x – 5x annual equity


    5.01x – 7x annual equity


    > 7x annual equity


  • Limits typically apply to just equity-based compensation; however, some companies have applied the limits to both cash and equity-based compensation (i.e., total pay) and we anticipate the prevalence of this practice will increase. Other companies exclude initial at-election equity awards, committee Chair pay, and/or additional pay for Board leadership roles from the limit.


Range between 25th and 75th percentiles Median Value

Total Board Compensation ($000s)3

$250 $300 $350 2015 2016 2017 $274 $290 $319 $260 $282 $300 $280 $300 $328

Additional Compensation for Independent Board Leaders ($000s)

$325 $200 $225 $288 $200 $233 $275 $193 $220 $275 $125 $175 $225 $275 2015 2016 2017 $50 $30 $35 $50 $29 $35 $50 $20 $30 $40 2015 2016 2017 $26 $30 $50 Lead/Presiding Directors Non-Executive Chairs

Total Company Cost for Board Service ($000s)

$2,250 $2,500 $2,750 $3,000 $3,250 $3,500 $3,750 $4,000 2015 2016 2017 $2,723 $3,221 $3,683 $2,674 $3,130 $3,669 $2,648 $3,160 $3,490

1 Audit, Compensation and/or Nominating and Governance committees.

2 Excludes controlled companies. Also excludes instances where Lead Director role is assumed by Chair of Nominating and Governance Committee, who receives compensation for the role.

3 Total Board Compensation reflects all cash and equity compensation for Board and committee service, excluding compensation for leadership roles such as committee Chair, Lead/Presiding Director, or non-executive Board Chair.

Beginning with fiscal years ending on or after December 31, 2017, companies are required to disclose the ratio that compares the compensation of the CEO to the compensation of the median employee (pay ratio). This disclosure was part of the Dodd-Frank Wall Street Reform and Consumer Protection Act signed into law in 2010.

Compensation Advisory Partners LLC (CAP) researched early pay ratio disclosures. As of March 9, 2018, we obtained pay ratios from 150 companies with a median revenue of $2.1B from a cross-section of industries.

Pay Ratio

The median pay ratio disclosed by these companies is 87x. The lowest ratio is 1x (Apollo Global Management, Dorchester Minerals and The Carlyle Group) and the highest ratio is 1465x (Fresh Del Monte Produce Inc.).

Summary Statistics

Median Employee Pay

Median CEO Pay

Pay Ratio

75th percentile








25th percentile




As expected, the pay ratio correlates with company size, with larger companies disclosing higher ratios. CEO pay varies greatly depending on the size and complexity of the organization. Employee pay has less variability since it reflects the job function and does not vary significantly based on the size of the organization. The median ratio in our sample of 150 companies ranges from 20x for companies with revenue less than $500M to 218x for companies with revenue greater than $15B.

20x 54x 84x 157x 183x 218x <$500M $500M-$1B $1B-$5B $5B-$10B $10B-$15B >$15B Median Pay Ratio by Revenue Size

Few companies, 15, disclose a supplemental pay ratio with only a handful of companies (three) disclosing more than one additional ratio. These companies with supplemental ratios are typically adjusting the CEO’s pay which may exclude anomalies such as a one-time special bonus or equity award. Interestingly, three companies disclosed a higher supplemental pay ratio likely to provide context for a large year over year increase in the 2019 proxy statement.

Location of Disclosure

Nearly 70% of companies disclose the pay ratio after the Potential Payments upon Termination or Change in Control section of the proxy statement. Approximately 25% of companies disclose the pay ratio just before or after the Summary Compensation Table and a small minority, 5%, disclose it in the Compensation Discussion and Analysis (CD&A).

Pay ratio is typically not disclosed in the CD&A, signaling to shareholders that the pay ratio is not used to determine CEO pay levels. Additionally, around 25% of companies include language in the disclosure that the ratio should not be used to compare pay levels to other companies within the industry, region of the country or revenue size.

Measurement Date

The SEC’s final rules give companies the flexibility to use any date within the last quarter of the fiscal year to identify the median employee. Companies most commonly used the last day of the fiscal year or a date within the last month of Q4. It is also common for companies to use a day within the first month of Q4 to identify the median employee.

Measurement Month


Measurement Date


First Month of Q4


Last day of Q4


Second Month of Q4


First day of Q4


Third Month of Q4




Not Disclosed


Not Disclosed


Exclusions from Median Employee Determination

Approximately one-third of companies excluded a portion of their workforce when determining the median employee. The most common rationale is the de minimis exemption (approximately 55%) whereby a company can exclude up to 5% of its non-U.S. employee workforce. Companies also commonly cited an acquisition or corporate not responsible for setting pay (e.g., independent contractors) as rationales for excluding certain employee groups.


As more companies continue to file their proxy statements in the coming weeks, we will likely see larger pay ratios, particularly as companies with a significant part-time workforce begin to disclose their ratios. We do not anticipate an increasing trend in the number of companies filing supplemental pay ratios though it will be interesting to see the rationale for those that do. We expect to continue to see companies placing the pay ratio outside of the CD&A with most disclosing it after the Potential Payments upon Termination or Change in Control section.

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