Top utility executives are winning pay hikes these days, but only at the cost of risky stock options that put a premium on company performance.
"Higher overall pay levels, and especially the increased use of long-term incentive plans, point to the trend in the utility industry toward heightened risk-and-reward pay strategies," according to Executive Compensation in the Utility Industry, a recently released report compiled by William M. Mercer Inc.
The use of at-risk pay incentives becomes even more pronounced as the size of the utility increases. For instance, at utilities with revenue of more than $7.5 billion in 1995, total direct compensation (em which includes base salary, annual bonus, and long-term incentives (em for utility executives increased an average of 19 percent from 1994. This compares to an average increase of only 1 percent for executives at utilities with revenue of $200 million.
However, although utility salaries are growing increasingly unpredictable, there is some good news. Base salaries for utility industry CEOs increased at almost the same rate as in general industry (em 5.5 percent compared to 5.8 percent, respectively.
The public should begin to notice a trend of CEOs at utility companies working to develop ways to make their product more attractive to the consumer, through use of tactics such as advertising and cold-calling. This places the utility stock in greater demand and therefore makes the potential apayout in long-term incentive awards for utility CEOs likel.y to increase.