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Ontario Lottery and Gaming Corporation president and CEO Rod Phillips, right, and OLG chair Paul Godfrey speak to reporters and members of the editorial board at The Globe and Mail in Toronto on March 11, 2013. Executive pay at OLG rose by nearly 50 per cent over the past two years, despite a salary freeze for managers in the public sector.Peter Power/The Globe and Mail

Executive pay at Ontario's lottery corporation rose by nearly 50 per cent over the past two years, despite a salary freeze for managers in the public sector.

The Globe and Mail reviewed compensation for the 10 highest-paid executives at four Ontario government-owned entities between 2010 and 2012. The analysis revealed that compensation practices at the Ontario Lottery and Gaming Corp. are out of sync with the other Crown agencies that generate revenue for the province – the Liquor Control Board of Ontario, Hydro One and Ontario Power Generation.

All except the OLG reined in performance pay for executives. The LCBO, for example, has frozen executive pay across the board.

The OLG also consistently spends far more to operate its casinos and lotteries than any other province, a Globe analysis shows. From 2002 to 2011, Ontario saw an average of 60 per cent of its gambling revenue go toward operating expenses, compared with a low of 25 per cent in Alberta.

How the OLG spends public money is a key question as the agency – with the blessing of the deficit-laden Ontario government – embarks on a major overhaul of the province's gambling sector.

In one of the largest privatization efforts in Canadian history, the agency aims to raise an extra $1.3-billion annually for the province by 2017. The number of public-sector employees at the OLG is expected to shrink to 800 from just over 7,000 today as the agency turns to the private sector for employees to do everything from finance new casinos to serve drinks and deal cards.

The OLG is not like most Crown corporations, said chairman Paul Godfrey. As a "hybrid" between a government-run agency and one with a mandate to generate profits, the OLG needs to emulate the private sector, he said.

"Without performance pay," he said in an interview, "we wouldn't be able to attract the people to do these types of jobs."

Total compensation for the ten highest-paid executives at the OLG jumped 49 per cent to $3.6-million in 2012 from $2.4-million in 2010, The Globe analysis reveals. The increases consisted of bonuses paid to employees who met their performance targets, Mr. Godfrey said.

The Ontario government introduced public-sector restraint legislation in 2010 that froze salaries for two years for non-unionized employees. The legislation, which was extended indefinitely in last year's budget, does not prohibit bonus pay.

The OLG's ambitious privatization and expansion plans have met with staunch opposition in some quarters. Many Toronto city councillors oppose a proposal to build a casino downtown.

The wage increases will likely spark a new debate.

In Alberta, the province's gambling and liquor Crown agency has not doled out bonuses to executives for the past four years, mirroring a government freeze on pay perks.

"We certainly look at our practices and try to ensure that we're somewhat consistent with what government is doing," said Jody Korchinski, spokeswoman for the Alberta Gaming and Liquor Commission.

The base salary of Alberta's gambling chief executive has seen a modest increase, though, rising 5.6 per cent since 2010 to $264,000. But this pales in comparison to compensation for his Ontario counterpart. Rod Phillips, chief executive officer of the OLG, took home $672,989 in 2012, including $297,989 in bonus pay. His pay perk outstripped bonuses meted out to gambling CEOs in other provinces – $40,000 in B.C. and $21,193 in Quebec in 2011.

Not only was Mr. Phillips the province's 12th highest-paid public-sector employee, he earned 73 per cent more than his predecessor. Kelly McDougald was paid $388,041 in 2008, the last time OLG had one CEO for an entire year.

"I have to tell you, we're really lucky to have [Mr. Phillips]," Mr. Godfrey said. "I know in the eyes of the public they'll think it's a lot of money, but he could do better in the private sector than he does here."

Mr. Godfrey said OLG has reduced compensation costs by requiring some executives to perform dual roles. However, any savings are not reflected in the overall payroll costs, which totalled $950-million in fiscal 2012. The figure was unchanged from fiscal 2011 even though the agency's head count shrank by 800 employees.

The OLG's response to legislated restraint measures stands in stark contrast to the other Crown agencies, all of which reined in performance pay for executives.

The LCBO froze executive pay across the board, the Globe analysis shows, paying out $2.5-million in compensation to its top ten executives in 2012. In a "spirit of fiscal prudence," no one received bonuses, said spokeswoman Heather MacGregor.

The province's Crown-owned electricity utilities also restrained executive pay. At Hydro One, compensation for the ten highest-paid executives totalled $5-million in 2012, up 3 per cent over two years, the Globe analysis shows.

At Ontario Power Generation, some senior executives, including CEO Tom Mitchell, the province's highest-paid public-sector employee, took home smaller pay packages in 2012. Overall, however, compensation for the top ten highest-paid executives rose 9 per cent over the two years to $7.6-million in 2012, the Globe analysis shows. The bulk of the increase reflects higher pay for three individuals who received job promotions part way through 2010, said OPG spokesman Neal Kelly.

At the OLG, the large number of gambling-sector employees on the government payroll is one reason Ontario spends more to operate its casinos and lotteries than any other province. An analysis by The Globe shows that from 2002 to 2011, Ontario saw an average of 60 per cent of its gambling revenue go toward operating expenses compared with a range of 25 per cent to 51 per cent across the country.

The gap is costing the Ontario government hundreds of millions of dollars. In 2010-2011, the OLG contributed $1.9-billion to provincial coffers, according to figures from the Canadian Partnership for Responsible Gambling, but spent nearly $2.9-billion on non-prize expenses, such as upkeep of casinos and maintaining head offices in Toronto and Sault Ste. Marie. Privatization, the OLG contends, will boost profit margins.

The operating model needs fixing, acknowledges Mr. Phillips, the CEO of OLG. "We are going to create a much leaner agency," he said in an interview. "OLG in the next few years is going to be about 90 per cent smaller."