Canada: Tightening The Belt On Broader Public Sector Compensation

On March 16, 2015, the Broader Public Sector Executive Compensation Act (the "Act") comes into force. The purpose of the Act is to regulate and govern the total compensation of individuals who hold certain executive positions within the broader public sector ("BPS"), through the implementation of "compensation frameworks". The "compensation frameworks" would apply to "designated employers" and "designated executives".

Designated Employers

The following are characterized as "designated employers" under the Act:

  1. Hospitals;
  2. Every board within the meaning of the Education Act;
  3. Universities, colleges and other post-secondary institutions;
  4. Hydro One Inc. and its subsidiaries;
  5. Independent Electricity System Operator;
  6. Ontario Power Authority;
  7. Ontario Power Generation Inc. and its subsidiaries;
  8. All community care corporations;
  9. 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; and
  10. Ornge.

It is important to note that the number of "designated employers" under the Act is far greater than in previous BPS wage restraint legislation. This is largely due to point nine (9) above. The list of "public bodies" and "commission public bodies" can be found in Regulation 146/10.

Designated Executives

The following are characterized as "designated executives" under the Act:

  1. An individual who holds one of the following positions:
    • The head of the designated employer, regardless of whether the title of the position or office is chief executive officer, president, or otherwise;
    • The vice president, chief administrative officer, chief operating officer, chief financial officer or chief information officer of the designated employer; or, an employee who holds any other executive position or office with the designated employer, regardless of position title or office title;
    • The director of education or a supervisory officer of a designated employer that is a board within the meaning of the Education Act; AND
  2. Is entitled to receive or could potentially receive annual cash compensation of $100,000 or more per calendar year under his/her compensation plan.

The Act does not apply to those who hold similar positions within municipalities and makes exception for those who are represented for the purpose of collective bargaining.

The Act does not limit compensation per se. Instead, it gives the Lieutenant Governor in Council the authority to create regulations in the form of "compensation frameworks". It is the "compensation frameworks" (once created) that will place parameters around the amount of total remuneration paid by "designated employers" to "designated executives", including salaries, salary ranges, benefits, perquisites, discretionary and non-discretionary payments, payments made with respect to termination of employment, performance plans, incentive/bonus plans and allowances. "Designated employers" will not be permitted to provide compensation to "designated executives" outside of the parameters established in the "compensation framework(s)", unless such compensation terms were in effect prior to the enactment of the compensation framework.

For those individuals whose terms and conditions of employment were in effect prior to the "compensation framework", even if such terms do not meet the requirements set out in the regulations, their compensation may remain status quo for a maximum of three (3) years after of the effective date of the applicable "compensation framework". At that time, any component of the total compensation package which is in excess of the framework will need to be reduced to meet the framework requirements. However, any provision in an agreement that authorizes or requires an amount to be paid in excess of the limits set out in the applicable "compensation framework" will be void and unenforceable.

In order to ensure compliance and seek to enforce the Act, the Minister has the authority to request that a "designated employer" submit reports and/or statements or participate in an audit in order to demonstrate compliance with the established framework. Individuals may face penalties up to a $5,000 fine where they are found to have wilfully failed to provide the required documentation or have wilfully falsified such documentation.

Next Steps

The Government is currently in the consultation and development process in regard to the "compensation frameworks" and has indicated that it expects such process to take approximately six months (i.e. to May 2015). However, in order to prepare for the same, "designated employers" should begin to turn their minds to how these regulations will impact their respective organizations. It is important that designated employers begin to review their executive compensation structures/plans, and current contracts in place. To the extent that "designated employers" are engaging in the recruitment of executive roles, it will be necessary that they factor these frameworks into their conversations. Ultimately, the impact that these frameworks will have will not be fully understood until they are released; however, they will undoubtedly influence how organizations in the broader public sector attract, recruit, retain and compensate top talent.

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