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Ontario's Energy Minister Greg Rickford speaks as Labour Minister Laurie Scott looks on during a press conference at Queen's Park in Toronto, Ont., on Dec. 17, 2018. Mr. Rickford said the government was 'profoundly disappointed' in Hydro One's compensation proposal and will not approve it.

Frank Gunn/The Canadian Press

Ontario’s Progressive Conservative government has rejected Hydro One’s plan to pay a new chief executive officer up to $2.775-million and says it will take “any and all action necessary” to cap the salary at $1.5-million, further embroiling the company in political conflict.

In response to the government’s demand to slash executive pay at the power utility, the board of directors said Thursday that its plan would reduce the CEO’s pay level by nearly 60 per cent and cut directors’ compensation by 47 per cent, saving $5-million annually. The government had set a limit in December of $1.5-million for the CEO and reduced compensation for other board members.

Read more: Ontario caps compensation for Hydro One chief at $1.5-million

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Under the Hydro One Accountability Act passed last August, the provincial government − which owns 47 per cent of Hydro One − must approve the utility’s compensation plan.

In a letter to the Hydro One board on Wednesday, Energy Minister Greg Rickford said the government was “profoundly disappointed” in the compensation proposal and will not approve it, setting a 5 p.m. deadline Thursday for the utility to comply with its requirements. Fifteen minutes after the deadline passed, the utility posted its compensation plan online.

Mr. Rickford indicated in the letter that the government could establish a compensation plan through a ministerial order, which is permitted under legislation. A government spokesman confirmed Thursday that Queen’s Park could issue such a directive.

The company insists that the higher compensation level is necessary to attract a top-quality chief executive officer. It says the target would be $2.475-million but could go as high as $2.775-million. The compensation would include $750,000 in base salary and the rest would be performance bonuses tied to a number of benchmarks.

In a document posted Thursday, Hydro One produced a table showing CEO salaries at 13 other utilities, both government-owned and publicly traded, with its proposal near the bottom of the publicly traded companies. At the top of the list was investor-owned Fortis Inc. at $7.3-million while Toronto Hydro Corp. came in at the bottom at $906,000.

“Our new framework proposes significantly lower compensation for the CEO, top executives and the board of directors," Hydro One chairman Tom Woods said in a letter accompanying its release.

Read more: Hydro One chair defends compensation plan after province rejects CEO pay proposal

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“It will provide our shareholders as well as current and future employees clarity, stability and a competitive compensation framework for the foreseeable future. This will help ensure stability and the company’s continued progress in driving efficiencies, improving customer service and strong financial performance for the benefit of its customers, employees, shareholders and all Ontarians.”

Seizing on voter resentment over rising electricity prices, Premier Doug Ford targeted Hydro One pay levels during last year’s provincial election, dubbing former CEO Mayo Schmidt the “$6-million-dollar man” and promising to fire him if elected.

Once the Progressive Conservatives took office, Mr. Schmidt resigned along with the board of directors; the new government appointed a new board with Mr. Woods as chairman. The board has undertaken an executive search, looking for a new CEO for the past several months.

In the letter sent to Mr. Woods and the board on Wednesday, Mr. Rickford said the Ontario cabinet was “profoundly disappointed” by the compensation framework initially proposed by the board on Feb. 8.

The letter said the initial proposal was a maximum compensation of $2.775-million for the CEO, between $875,000 and $1.856-million for the executive vice-president, $140,000 for board members and $169,500 for the board chair.

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“Unfortunately, the proposed framework as submitted indicates a significant divide between the views of the Hydro One board and the largest shareholder, the people of Ontario. Cabinet was profoundly disappointed to receive a compensation framework that is higher than the desired maximum cap of $1.5-million for the CEO,” Mr. Rickford wrote.

The letter goes on to say the government “does not accept the compensation framework as proposed by Hydro One,” but reiterates that the decision as to who will serve as the next CEO “remains the exclusive prerogative of the board and that our government will play no role in your hiring decision.” The minister gave the board until Thursday at 5 p.m. to return with a proposal that met the requirements set out by the government: total CEO compensation not to exceed $1.5-million; compensation for other top executives not to exceed 75 per cent of the CEO’s level; and board-member pay not to exceed $80,000 a year.

“If Hydro One refuses to bring the compensation framework in line with these requirements by Thursday, February 14th at 5 p.m., our government is prepared to take any and all action necessary,” Mr. Rickford wrote.

In response to Mr. Rickford’s letter, Hydro One spokeswoman Tiziana Baccega Rosa said: “Hydro One’s framework is the result of a rigorous process and balances concerns around cost management with the need to attract, retain and motivate highly qualified leadership to Ontario’s largest electricity transmission and distribution provider with over $25-billion in assets and annual revenues of nearly $6-billion. We continue to seek the approval of management board of cabinet.”

The board and the government have been at loggerheads for months over the issue, as the directors have at the same time mounted a search for a new CEO.

Hydro One became a target for Mr. Ford during his campaign for leader last year, and then in the general election as he vowed to slash costs in the electricity system and cut rates by 12 per cent. The new government’s intervention in Hydro One compensation and executive search contributed to the failure of the company’s $6.7-billion acquisition bid for U.S.-based utility Avista Corp. Regulators in Washington State and Idaho rejected the takeover, citing the government’s involvement in Hydro One’s business plans. As a result, Hydro One was forced to pay a $138-million penalty to Avista.

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Ontario NDP energy and climate-change critic Peter Tabuns said Mr. Ford is to blame for the new compensation package.

“Doug Ford’s attempt to impose his political will and install allies at the top of Hydro One has cost ratepayers over $100-million in botched deals and severance payments,” Mr. Tabuns said in a statement.

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