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Today, Minister of Energy, Northern Development and Mines Greg Rickford released the following statement on Hydro One:
“I am pleased to report that our government has delivered on its commitment to put the People of Ontario first and bring Hydro One’s executive compensation levels down to acceptable levels.
“The Hydro One Board of Directors has provided us with a compensation framework that is consistent with Management Board of Cabinet’s directive issued to the Board on February 21.
“The maximum CEO compensation will now be $1.5 million annually, which is less than 25 per cent of the former CEO’s direct compensation. This includes $500,000 in base salary, with performance-based short-term and long-term incentives making up the rest. Actual compensation could be lower than $1.5 million if targets are not met. We have been steadfast in our commitment to the People of Ontario to rein in the excess at Hydro One.
“Most significantly, performance targets will include the CEO’s contribution to reducing system costs, supporting our commitment to reduce Ontarians’ electricity rates by 12 per cent.
“Other newly appointed senior executives will be able to earn no more than 75 per cent of the CEO’s pay and the base, short-term and long-term incentive payment structure will be consistent with the CEO. Directors on the Board will now earn $80,000, Committee Chairs will earn $85,000 and the Chair of the Board will earn $120,000.
“Hydro One’s compliance with this directive allows us to move forward as a province. It sets the company on the right course for the future, proving that it can operate as a top-class electricity utility while reining in executive compensation and increasing public transparency.
“Moving forward, I am confident that Hydro One’s Board of Directors will continue to act with the trust and confidence of the people of Ontario.”
Directive – February 21, 2019
Hydro One Accountability Act, 2018 – CEO, Other Executives and Board of Directors Compensation Directive
This directive sets out certain compensation-related requirements for the Chief Executive Officer (“CEO“), other executives and board of directors of Hydro One Limited and its subsidiaries (“Hydro One”), which Hydro One must follow when developing its board and executive compensation framework (“Compensation Framework”) as set out in the Hydro One Accountability Act, 2018.
1.0 Introduction
The Management Board of Cabinet has issued this directive (the “Directive”) under the authority of the Hydro One Accountability Act, 2018 (the “Act”).
1.1 Governing Legislation
The Act received Royal Assent on July 25, 2018 and was proclaimed into force on August 15, 2018. The Act was introduced to increase accountability of decisions made around board and executive compensation footnote 1 at Hydro One. The Act requires Hydro One’s board of directors to establish a new Compensation Framework within six months of the requirement coming into force, and in consultation with the Province and 5 other largest shareholders of Hydro One.
Under the Act, the Management Board of Cabinet may also issue directives,
- governing the compensation of the directors, Chief Executive Officer and other executives of Hydro One, including, without being limited to, directives restricting the total annual compensation payable to such persons; and
- governing the development, form, manner and timing of the new compensation framework Hydro One is required to establish under the Act and any amendments to that framework.
1.2 Purpose
The Directive sets out certain CEO, other executive, and director compensation requirements that Hydro One is required to follow when establishing its new Compensation Framework as required by the Act. The Directive also sets out additional reporting requirements and timelines with respect to Hydro One’s Compensation Framework and any subsequent amendments to it.
2.0 Application
The Directive applies to Hydro One Limited and its subsidiaries until the earlier of the date the Directive is revoked by Management Board of Cabinet or December 31, 2022. footnote 2
3.0 Caps on CEO, other Executive, and Board Compensation
Hydro One’s Compensation Framework shall include the compensation elements set out below:
3.1 Compensation Cap – CEO
Hydro One’s Compensation Framework shall provide a cap on total maximum direct compensation for the CEO that is not more than $1.5 million CDN per year. This shall include base salary not to exceed $500,000.
Two thirds of the total maximum direct compensation shall be risk based, comprised of short or long term incentives, and dependent on meeting challenging and measurable performance targets, including the CEO‘s contribution to reductions in transmission and distribution costs that contribute to achieving the Province’s commitment to 12% reduction in electricity bills.
The total maximum direct compensation for the CEO may be adjusted annually by the lesser of the rate of Ontario CPI and the annual rate at which total maximum direct compensation may be adjusted for non-executive managerial employees.
3.2 Compensation Cap – Other Executives footnote 3
Hydro One’s Compensation Framework shall provide a cap on total maximum direct compensation for all other Executives such that total maximum direct compensation for all other Executives does not exceed 75% of the CEO‘s total maximum direct compensation. The base, short-term and long-term incentive payment structure shall be consistent with that of the CEO and align the management team with the performance objectives of the CEO.
The total maximum direct compensation for other Executives may be adjusted annually by the lesser of the rate of Ontario CPI and the annual rate at which total maximum direct compensation may be adjusted for non-executive managerial employees.
3.3 Compensation Cap – Board of Directors
Hydro One’s Compensation Framework shall provide a cap on total maximum compensation for members of its board of directors, other than the Chair, that is not more than $80,000 CDN for each year, including any annual retainer and attendance or meeting allowances. Committee Chairs may receive an additional stipend not to exceed $5,000 annually. The Compensation Framework shall provide a cap on total maximum compensation for the Chair of the board of directors that is not more than $120,000 CDN for each year.
The maximum total compensation for the board of directors, including the Chair of the board of directors, may be adjusted annually by the lesser of the rate of Ontario CPI and the annual rate at which total maximum direct compensation may be adjusted for non-executive managerial employees.
3.4 Other Elements of Compensation
Hydro One’s Compensation Framework shall not provide for pension and benefits entitlements in excess of those offered to non-executive managers. No other bonuses (including signing bonuses), perquisites, or share options shall be permitted.
4.0 Reporting
The Act requires Hydro One to seek the approval of the Management Board of Cabinet of its Compensation Framework and any subsequent changes to it. This requirement ceases to have effect on January 1, 2023.
Prior to seeking Management Board of Cabinet approval, Hydro One shall report to the Ministry of Energy, Northern Development and Mines.
For the initial Compensation Framework, Hydro One shall develop a detailed proposal including the elements outlined in this directive and shall report back to the Ministry of Energy, Northern Development and Mines no later than one week after the date of this directive, with its proposed Compensation Framework.
The Compensation Framework would be submitted to Management Board of Cabinet for consideration and final approval.
Footnotes
- footnote[1] Back to paragraph Under the Act, “compensation” is defined as “anything paid or provided, directly or indirectly, to or for the benefit of a person who performs duties and functions that entitle the person to be paid, and includes salary, benefits, perquisites and all forms of non-discretionary and discretionary payments”. This includes, but is not limited to, short-term incentive payments, long-term incentive payments, termination pay, and retirement benefits.
- footnote[2] Back to paragraph Under the Act, “subsidiaries” are defined as “having the same meaning as in the Business Corporations Act, but does not include a subsidiary incorporated in a jurisdiction outside Canada”.
- footnote[3] Back to paragraph Under the Act, “executive” means any person who holds the office of executive vice-president, vice-president, chief administrative officer, chief operating officer, chief financial officer, chief information officer, chief legal officer, chief human resources officer or chief corporate development officer, or holds any other executive position or office, regardless of the title of the position or office.
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