1. Background

Employers may recall Bill 179 from the FWTA "What's New in HR Law" from October 2014.  Bill 179, otherwise known as An Act to promote public sector and MPP accountability and transparency by enacting the Broader Public Sector Executive Compensation Act, 2014 and amending various Acts (the "Act") was introduced approximately a year ago.  The Act contains measures intended to increase transparency and also to strengthen existing government control over executive pay in the broader public sector. 

Schedule 1 of the Act, which is the Broader Public Sector Executive Compensation Act, 2014 (the "Executive Compensation Act"), was enacted on March 16, 2015.  The Executive Compensation Act governs the compensation for designated executives with designated employers in the broader public sector ("BPS").

2. Designated Employers

The Executive Compensation Act applies to designated employers for the purposes of the Broader Public Sector Accountability Act, 2010 (the "BPSAA") and also to a number of other broader public sector ("BPS") employers.  Included in the scope of the Executive Compensation Act are:

  • Every hospital within the meaning of the Public Hospitals Act and the University of Ottawa Heart Institute/Institut de cardiologie de l’Université d’Ottawa;
  • Every board within the meaning of the Education Act;
  • Every university in Ontario and every college of applied arts and technology and post-secondary institution in Ontario;
  • Hydro One Inc. and each of its subsidiaries;
  • Independent Electricity System Operator;
  • Ontario Power Authority;
  • Ontario Power Generation Inc. and each of its subsidiaries;
  • Every community care access corporation within the meaning of the Community Care Access Corporations Act, 2001;
  • Every body prescribed as a public body under the Public Service of Ontario Act, 2006 that is not also prescribed as a Commission public body under that Act;
  • Ornge; and
  • Subject to subsection (2), every other authority, board, commission, committee, corporation, council, foundation or organization that may be prescribed.

3. Designated Executives

As with the BPSAA, two criteria are required in order for an individual to be included within the scope of the Executive Compensation Act.  Designated executives are: 1) employees or office holders who are the head of the organization or senior executives, such as vice president, chief administrative officer, chief operating officer, chief financial officer or chief information officer or any other executive position or officer holder regardless of title, who are: 2) entitled to or could receive compensation in excess of $100,000 in a calendar year.  Other employees could be defined by regulation as being designated employees.

4. The Compensation Framework

The Executive Compensation Act authorizes the government to make regulations establishing “compensation frameworks” imposing compensation restraints on all designated executives, classes of designated employers and designated employees, or specific employers and specific designated executives.  BPS employers should note that the Executive Compensation Act does not, in itself, create and implement any compensation frameworks, nor does it stipulate the precise parameters of a compensation framework.  Once implemented, a compensation framework could limit any aspect of an employer’s compensation plan, including salary, benefits, bonuses, perquisites, discretionary and non-discretionary payments, payments payable on or in connection with termination, performance plans, incentive plans, bonus plans, allowances and any other form of remuneration.

A designated executive who is subject to a compensation framework cannot be paid more than is authorized by the compensation framework – the Executive Compensation Act provides that it prevails in the event of a conflict with a designated executive's compensation plan.  In that case, the compensation plan would be inoperative to the extent of the conflict. 

There is an exception to the above for designated executives holding office immediately prior to the effective date of the compensation framework.  For three years following the effective date of the relevant compensation framework, executives who continue to be employed in the same position are entitled to continue under their previous compensation plan, even if the compensation under the plan exceeds the amount provided for in the compensation framework. After the third anniversary of the effective date, all designated executives will be subject to the maximum compensation provided for in the relevant compensation framework.

5. Enforcement Measures

BPS employers should be aware that there is an anti-avoidance measure in the legislation which prohibits an employer from providing new or additional compensation to offset any freeze on compensation.  The Executive Compensation Act also contains enforcement measures to ensure that compensation limits are respected. Designated employers could be required to comply with directives to provide to the Management Board of Cabinet a broad range of compensation information for designated executives.  Leaving aside the "grandfathering" exception outlined above, any amounts paid to an executive which exceed the limits set by a compensation framework under the Executive Compensation Act are deemed to be overpayments. If an overpayment is made, the employer is responsible for remitting an amount equal to the overpayment to the Crown. The executive who received the overpayment then becomes indebted to the employer for that amount.

6. Commentary

As noted in section 4, the Executive Compensation Act will only impact an organization if a compensation framework is implemented that applies to that organization. The status quo remains, unless or until a compensation framework is implemented that applies to an organization and its designated executive.

BPS employers also should note that, if they become subject to a compensation framework, they are shielded under the legislation from a constructive dismissal claim under the Employment Standards Act, 2000 or under the common law, as a result of having done or not having done anything required by the Executive Compensation Act or the regulations.