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Utilities: pay and profit in the S&P 500

The most tightly clustered sector in the S&P 500. Every utility falls between 28:1 and 178:1, a range narrower than the gap between two companies in most other industries.

Utilities is the most internally consistent sector in the index. Its entire range runs from 28:1 to 178:1, and its median of 87:1 is less than half the index median of 196:1. For comparison, a single technology company spans a wider range on its own than this whole sector does.

Why the sector is so uniform

Three structural facts converge.

The workforce is skilled, unionised and full-time. Utilities employ linemen, plant operators, engineers, technicians and field crews. There is essentially no part-time or seasonal population, and no offshore manufacturing base. The sector's median worker pay of $149,396 is the second highest in the index behind Energy, and its lowest figure, AES at $76,082, would be respectable in most other sectors. Edison International's $220,100 median is the highest.

Executive pay is constrained by regulation and scale. These are rate-regulated businesses whose returns are set by public utility commissions, and compensation committees operate under more public scrutiny than in most industries. The largest three-year average package in the sector is Southern Company's at $25.2 million, with American Electric Power at $24.9 million and Sempra at $23.7 million. These are substantial, but far short of what comparable-sized companies pay elsewhere.

The businesses are structurally similar to one another. A regulated electric utility in Arizona and one in Michigan do roughly the same thing with roughly the same kind of workforce, so there is little of the business-model variation that produces wide dispersion in other sectors.

The range, such as it is

The narrowest gaps: Pinnacle West at 28:1 on a median of $182,127, DTE at 32:1 on $158,285, Alliant at 41:1 on $177,645, American Water Works at 50:1, CMS Energy at 54:1 on $187,884, Evergy at 54:1.

The widest: American Electric Power at 178:1, AES at 154:1, Southern Company at 146:1 on a $173,100 median, NRG at 142:1, Sempra at 138:1, NextEra at 134:1.

AES is the sector's only company with a workforce profile resembling other industries: a median of $76,082 reflecting substantial international operations, which is what puts its ratio above peers despite a comparatively modest $11.7 million package.

Profit per employee, and a caution about headcount

The sector's median profit per employee is $158,152, well above the index norm, and the top figures are high: Sempra at $849,738, Duke Energy at $817,585, NextEra at $747,872, CenterPoint at $619,963.

These figures warrant a caveat that applies more strongly here than in most sectors. Utility headcounts as reported vary considerably in what they include. Some holding companies report only corporate and regulated-subsidiary staff, and a great deal of construction, maintenance and vegetation-management work is contracted out. Sempra's 3,048 employees against $2.6 billion of profit, or CenterPoint's 1,613, do not describe the full population of people who keep those systems running.

Where headcount is understated, profit per employee is overstated, and the pay-versus-profit score suffers accordingly. Duke Energy's 5,027 reported employees against $4.1 billion of profit is the clearest example. Read these particular figures with more caution than elsewhere in the index.

A sector with no loss-makers

With Energy, Utilities is one of only two sectors in which every constituent averaged a profit over the three-year window. Here it is structural rather than incidental: regulated utilities earn an authorised return on their asset base, which makes sustained losses rare by design.

Every utility in the S&P 500

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