The Ontario government is giving the chief executive officer of Hydro One a hefty raise – up to $4-million annually – as it moves to privatize the massive electricity company.
Meanwhile, the chief financial officer will make up to $1.5-million and the former CEO will be eligible for a $485,000 annual pension at the age of 65.
These figures were revealed in a preliminary prospectus released on Friday, a first step toward Hydro One's initial public offering.
Earlier this summer, the government removed much public oversight of Hydro One, including public disclosure of its employees' salaries, meaning that the prospectus is the first significant glimpse inside the company since the province started preparing it for sale.
The government is selling 60 per cent of Hydro One on the stock market, starting with a 15-per-cent IPO.
The 322-page preliminary prospectus was filed with the Ontario Securities Commission. The next step, in October, is a "road show," in which the government and the banks handling the IPO will meet with possible investors and try to drum up interest.
The share price is expected to be set by early November, with the start of trading shortly after that.
The province is hoping to raise $2.25-billion from the IPO, and $9-billion once the full 60 per cent of shares has been sold. Of that, $4-billion will be spent on Premier Kathleen Wynne's plan to build new transit lines and roads, and $5-billion used to pay down debt.
Ed Clark, Ms. Wynne's adviser on government assets, said private investors will make sure that Hydro One runs better. Their desire for a good rate of return will put pressure on the company to operate more efficiently and pass the savings on to customers, he said.
"Whether the prospect of billions of new infrastructure investment or the potential of a stronger performing company, a new publicly owned Hydro One will serve the public interest well and the interests of all Ontarians," Mr. Clark told reporters at the release of the prospectus.
Hydro One controls electricity transmission in the province, and also serves 1.4 million customers as a local utility.
The privatization is controversial. A slew of polls shows 60 to 80 per cent of Ontarians prefer to keep the company in public hands. The Progressive Conservatives, the NDP and a coalition of unions are all campaigning against the sell-off.
Opponents argue that private investors will push for higher electricity rates to increase their dividends. NDP MPP Peter Tabuns said on Friday that private investors will be "writing the script for governments in years to come."
Progressive Conservative MPP Todd Smith took aim at the sudden increase in executive compensation. "This is all about paying huge, exorbitant salaries, pensions, severances … to these big executives."
But Mr. Clark countered that the better pay is necessary to get the best people working for the company. In the run-up to the IPO, the government replaced both the CEO and the board of directors. "If we want Hydro One to be one of Canada's top companies, which indeed we do, it must attract top talent," he said. "It must pay competitively."
CEO Mayo Schmidt will have a base salary of $850,000, with potential bonuses of up to $3.15-million. CFO Michael Vels will make $500,000, with up to $1-million in bonuses.
By comparison, former CEO Carmine Marcello made $745,208.25 last year in pay and benefits. Mr. Marcello, who has stayed on at Hydro One as a special adviser to Mr. Schmidt, is expected to make $519,000 in his new job this year. He will also be eligible for a $428,000 annual pension at the age of 65, which the prospectus says will result in $8.4-million in pension obligations for the company.
Meanwhile, board members will make $160,000 a year, with the chair, David Denison, getting $260,000.
Energy Minister Bob Chiarelli argued that, because most of Mr. Schmidt's pay is contingent on his doing a good job, it will ultimately benefit the company. "Very, very specific targets have to be met and achieved in order for those executives to reach anywhere close to their maximum," he said.