Europe’s utilities use inconsistent methods to pay their chief executives, creating a 6 million euro remuneration gap between the highest-paid executive at Spain’s Iberdrola IBE.MC and the lowest paid at France’s EDF EDF.PA, Bernstein Research said. Bernstein Research analysts, who scrutinised compensation methods of 15 utilities representing 364 billion euros of market capitalisation, scored Iberdrola and EDF among the worst for aligning chief executive pay with shareholder gains.
Iberdrola’s Ignacio Galan was paid nearly 7 million euros last year for leading the Spanish electricity producer and supplier, including short-term incentives and pension, compared with Henri Proglio’s pay at EDF capped by a 2012 law at 450,000 euros.
Europe’s utilities have outperformed most other European sectors this year after years of depressed share prices due to a new regulatory landscape. “A necessary condition to see further extra performance in the sector will be that investors believe in the industrial story behind stocks, which will crucially hinge on top management’s alignment with shareholders’ interests and on the ability to deliver, on often ambitious self-help targets,” Bernstein analysts said. They found that UK-based, regulated utilities that are rated as outperform by analysts ranked highest, with Britain’s network operator National Grid NG.L, water supplier United Utilities UU.L and Germany’s RWE RWEG.DE covering the top three positions. Bernstein especially rated National Grid’s balance of metrics in determining chief executive pay such as personal targets, which include stakeholder returns and employee engagement, and financial targets such as earnings per share.