Think back to 2018, when the steel-cage match of the summer was Doug Ford versus Hydro One H-T. The newly minted Premier had campaigned against high electricity prices and promised to sack the utility’s leadership, blaming chief executive officer Mayo Schmidt, whom he derisively dubbed the “six-million-dollar man,” and the company’s board of directors.
Mr. Ford won decisively. He dismissed them all about two weeks after taking office. In early 2019, the government – which owns 47 per cent of the former Crown corporation – imposed a hard $1.5-million cap on Hydro One’s CEO pay, introducing a new era of austerity at Hydro One.
Unbeknownst to most of us, that era has come to an end after a little less than four years. The company’s “executive compensation framework,” the product of that contentious 2018 battle, ended Jan. 1, 2023, as was originally contemplated. With the expiry – previously disclosed by Hydro One, but not widely known – the company has broken free of those constraints.
While Hydro One executive pay still badly lags that of many of its peers, the disclosures in the company’s recently filed proxy circular to shareholders suggest more raises could be forthcoming. And they should be.
CEO David Lebeter, promoted to the top job on Feb. 1, 2023, made $3.16-million last year, more than double the $1.51-million spread between two individual CEOs in 2022. (The compensation totals, disclosed by Hydro One in its proxy circular, include tens of thousands of dollars in pension estimates not considered direct compensation in the provincial framework.)
Two other Hydro One executives topped the previous $1.5-million CEO pay cap in 2023. Then-chief financial officer Chris Lopez made $2.28-million, up from $1.21-million in the prior year. Megan Telford, the company’s executive vice-president for strategy, energy transition and human resources, made $1.91-million, up from $1.04-million.
Hydro One reports $293-million first-quarter profit, up from $282-million a year earlier
Key to the compensation figures are large grants of performance stock awards, part of a program started last year. Hydro One gave Mr. Lebeter a grant of shares it valued at $1.2-million, while other top officers received grants valued between $350,000 and a little more than $700,000.
Viewed in isolation, these pay totals aren’t scandalous. They’re actually quite small for a public company of Hydro One’s size.
They’re only remarkable because of all the hoo-ha Ontarians went through in 2018 to put the pay caps in place. Remember, regulators in Washington State and Idaho rejected Hydro One’s cross-border bid to acquire Avista Corp., citing the Ford government’s interference with the company’s governance. Hydro One had to pay Avista a $138-million “break fee,” the biggest cost of the Ford government’s populist buffoonery.
So why was the executive compensation framework given a sunset of less than four years? If the framework was a good enough idea to put in place, why wasn’t it a good enough idea to make permanent?
Palmer Lockridge, the deputy chief of staff for Ontario Minister of Energy Todd Smith, sent me a statement that didn’t answer these and other questions. Instead, it started with some bafflegab about “skyrocketing” energy prices under the previous government that were “chasing hundreds of thousands of jobs out of the province.” The legislation continues, he said, to have a requirement that “the Ontario Energy Board does not include any Hydro One executive compensation costs in rates.”
Hydro One provided a statement attributable to Melissa Sonberg, the chair of the human resources committee of the board of directors, that also said the company’s executive pay “is funded from Hydro One’s earnings and is not paid for by customers.” (Neat trick, that.) Ms. Sonberg also said that, to set pay, “We use third-party experts and balance the needs of our customers and all our stakeholders with our desire to attract and retain top talent.”
That will be a delicate balance, because Hydro One’s executives remain distinctly underpaid compared with leaders at peers that trade on Canadian and U.S. stock exchanges. That’s despite Hydro One shares outperforming all other utilities on the S&P/TSX Composite Index, as well as the energy companies in its peer group, since the day the board departed in July, 2018.
Hydro One included AltaGas Ltd. ALA-T, Atco Ltd. ACO-X-T, Emera Inc. EMA-T, Fortis Inc. FTS-T and Keyera Corp. KEY-T in its comparator peer group for executive pay in 2017, and they were still there in 2023. Total CEO compensation at these companies has increased anywhere from 19 per cent to 99 per cent since 2017.
It has doubled at Pembina PPL-T, to $11.53-million, for CEO Scott Burrows. At Fortis, CEO David Hutchens received $14.40-million in 2023, up from $11.56-million in 2022 and $9.14-million in 2021. (Mr. Hutchens is actually paid in U.S. dollars – Fortis converts the figures to Canadian dollars for its compensation reporting – so these increases are partly the result of the weakening loonie.) AltaGas, which had a leadership change in 2023, paid $7.14-million to its previous CEO, Randall Crawford, and $12.32-million to its new one, Vern Yu.
For 2023, Hydro One added four new publicly traded utilities to its peer group. Two of them are U.S. companies that paid their CEOs the Canadian-dollar equivalent of $12.16-million and $9.63-million. The median pay at Hydro One’s public-company peers topped $9-million last year.
In its circular, Hydro One tells shareholders that the updated peer group “was used to inform” compensation for the company’s executives. “Hydro One aims to be competitive with the peer group, over time, but does not target a specific percentile (such as the median).” Ms. Sonberg added via her e-mailed replies: “There are no plans to change the compensation philosophy.”
Hydro One executives won’t stick around too long if they deliver above-average shareholder returns and receive below-average pay. The company is, after all, on its fourth CEO since Mr. Schmidt left. It can try to stick to its current compensation philosophy, but the expiration of the provincial mandate and the pay numbers of its peers suggest these numbers could – and should – rise.