Hawaiian Electric Execs Got Big Raises In 2023. They’re About To See How Shareholders Feel About It

Shareholders of Hawaiian Electric Industries, who have seen the value of their investments drop by 75% since the Aug. 8 wildfires, soon will have the chance to vote on whether the company’s top executives deserved the raises they received in 2023.

Base salaries of key executives with the HEI holding company and its utility and bank subsidiaries all went up, despite a dismal year, according to the company’s 2023 proxy statement.

HEI Chief Executive Scott Seu’s salary rose to $958,333 for 2023 from $875,000 the previous year. Hawaiian Electric Co. Chief Executive Shelee Kimura’s salary went up 28%, to $575,000 in 2023 from $450,000 in 2022.

The raises were bigger when counting perks like stock awards and pension increases. Seu’s total compensation jumped to $5.4 million for 2023 from $3.1 million in 2022, the proxy statement says. Kimura earned $2.1 million in 2023 compared to $1.5 million the previous year.

Shareholders now get to say whether they agree with what the executives were paid.

“This proposal, which we present to our shareholders on an annual basis is commonly known as the ‘say-on-pay’ proposal, gives shareholders the opportunity to express their views on the overall compensation of our named executive officers and the policies and practices described in this Proxy Statement,” the document says.

The proxy statement makes clear HEI’s board “recommends that you vote FOR the advisory resolution approving the compensation of HEI’s named executive officers.” But the document also gives shareholders the option to reject the compensation package put together by the HEI board’s Compensation and Human Capital Management Committee.

The say-on-pay vote is non-binding, covering compensation already awarded. But the proxy statement says the board and its compensation committee are supposed to “consider the vote results when making future decisions regarding HEI’s executive compensation.”

Executives Declined Incentive Bonuses Earned In 2023

Such proxy resolutions ordinarily sail through the approval process, with shareholders taking a passive approach. But 2023 was hardly typical for HEI, its utility subsidiary and its shareholders — many of them individual Hawaii investors who bet big on the company, which has been viewed as a low-risk stock that paid a generous dividend.

But HEI’s stock has proven to be risky after all. Its stock value has plummeted since the catastrophic Aug. 8 wildfires, which may have been started by a Hawaiian Electric Co. downed electrical line. It faces more than 300 lawsuits.

HEI suspended its dividends. Its bond rating has dropped to junk status. And a bid to get permission to raise up to $2.5 billion to pay future wildfire mitigation expenses and claims related to the August fires stalled in the Legislature.

So how can executives rake in seven-figure compensation packages with big raises given such performance?

Kevin Murphy, a professor with the University of Southern California’s Marshall School of Business, said the reasons, as they’re laid out in the proxy statement, are complicated.

One issue is that the base salaries were approved in early 2023, before the August fires, Murphy said. So the fires would have had no impact on the base salary increases.

In addition, it’s not clear the fires would have had much impact on salaries anyway: Salaries are based not on performance but on “competitive market data, internal equity and each executive’s level of responsibility, experience, expertise and performance, as well as retention and succession considerations,” the proxy statement says.

Moreover, Murphy noted, the executives didn’t get incentive pay, a form of bonus. It wasn’t that the executives failed to meet performance goals. In fact, the proxy statement indicates Kimura achieved 99% of her performance goals set by the board in 2023.

But Kimura and the other key executives agreed to forego incentives in 2023 in light of the fires. Based on the compensation policies and practices established by the board, senior executives were entitled to even more than they earned in 2023, even when factoring in the catastrophic wildfires.

But “in recognition of the extraordinary challenges being experienced by the Utility’s Maui customers and the entire Maui community following the Maui windstorm and wildfires, as well as the Company’s financial challenges, the Compensation & Human Capital Management Committee and the Company’s named executive officers jointly determined, and the Board of HEI and Hawaiian Electric approved and ratified, respectively, that no 2023 annual incentive payments would be made to the Company’s named executive officers,” the proxy statement says.

Asked to explain the rationale for executives getting raises in 2023, a HEI spokesperson pointed to this decision on incentive bonuses.

“The senior executives and Board conferred and decided that the senior executives should decline the annual incentive compensation they had earned in 2023, significantly reducing the amount they were paid,” the company said in a statement.

One reason the executives were in a position to decline incentive pay at all was that the board didn’t consider wildfire mitigation as a performance measure in 2023. That will change next year, the proxy statement says.

“The Board reviews executive compensation metrics every year,” HEI said in the statement. “In the wake of the devastating wildfires in Maui in August, it is not a surprise that wildfire mitigation will be a top priority for the team moving forward.”

Murphy, who studies executive compensation, also noted that part of the executives’ compensation isn’t as high as it seems. For instance, while the proxy statement indicates Seu received about $2.3 million in HEI stock, Murphy noted that the award was granted in February, when shares were trading at approximately $40, versus $10 today. That means Seu’s stock award today is worth about 25% of the $2.3 million stated on the proxy statement.

“When you look at the $5.2 million,” Murphy said of Seu’s total reported compensation, “that’s not really what he’s making.”

All told, Murphy said, 2023 wasn’t a great year for the executives.

“Things don’t look great,” he said of the executive compensation. “Should they be worse? Should they be fired? I can’t make that call.”

Shareholders Also Get To Vote On Board Members

The proxy statement, dated March 29, was sent to shareholders ahead of HEI’s 2024 annual meeting scheduled for May 13. In addition to the say-on-pay provision, shareholders get to say whether they want to reelect the current non-employee board members: Thomas Fargo, Celeste Connors, Elisia Flores, Peggy Fowler, Micah Kane and William Scilacci.

Like the executives, HEI’s part-time directors were well compensated in 2023. Fargo as board chair got a base retainer of $125,000, while other directors got $85,000 base retainers. Directors earned extra for serving as committee chairs and got stock awards valued at $120,000 as of June, which brought their totals to around a quarter of a million dollars or more each.

Fargo topped the directors with total compensation of $369,500, while Connors’ $236,567 marked the low end.

Only two current board members have direct, high-level utility experience. Fowler is former chief executive of Portland General Electric Co. and Scilacci former executive vice president and chief financial officer of Edison International.

Fargo is a retired Navy admiral who was previously commander of the U.S. Pacific Command, where, his HEI bio says, "he was responsible for the security of nearly 52% of the world’s surface." Connors is chief executive of Hawaii Green Growth, a "network based organization focused on achieving Hawai‘i’s 2030 climate, energy and environmental sustainability goals," and sister of former Hawaii attorney general and current Hawaii District U.S. Attorney Clare Connors. Flores is chief executive of L&L Franchise Inc. and daughter of the plate lunch empire's co-founder, Eddie Flores Jr. Kane is chief executive of the Hawaii Community Foundation, the state's largest and oldest charitable foundation.

In the proxy statement, the board recommends shareholders reelect the board members to another one-year term.

But some shareholders have made clear they're not likely to do that. A shareholder derivative lawsuit filed against board members in state court in Honolulu names all of the board members as defendants and claims the board breached its fiduciary duties to the companies they were in charge of overseeing. Among other things, the suit points to the board's failure to tie executive compensation to mitigating wildfire risk, as some utilities have done.

"Hawaiian Electric’s Board of Directors has refused to make urgently needed repairs to the company’s electrical infrastructure and has prioritized profits over safety," the complaint says. "As a result, the Directors have enriched themselves — and destroyed Lahaina."

Ultimately, the votes of the shareholders will serve as a referendum on the performance of the board and executives. The results of the proxy vote will be made public through securities filings, Murphy said. And it will be a bad sign if even a third of shareholders reject the board's proposals in the proxy statement, he said.

"A typical vote would be 90% in favor," Murphy said. "If you get less than 70%, it's a vote of no confidence."