Currently, the Broader Public Sector Accountability Act, 2010 (“BPSAA”) imposes what amounts to a compensation freeze on “designated executives” within a relatively small set of Broader Public Sector (“BPS”) organizations such as hospitals, school boards, universities and colleges.
The Broader Public Sector Executive Compensation Act, 2014 (“BPSECA”), which is intended to replace the BPSAA, came into effect in 2015 and replaces the compensation freeze with a new system for determining executive compensation. Under the BPSECA, employers (including those captured under the BPSAA, as well as Community Care Access Centers) are required to develop “compensation frameworks” that outline how designated executives will be paid. As with the BPSAA, “designated executives” under the BPSECA include individuals who earn more than $100,000 per year and are the head of the employer, hold an executive position with the employer, or are the director of education or a supervisory officer of a school board.
Requirement for Compensation Plans
Until now, it was not clear what employers would be required to include in their compensation frameworks, or how those frameworks were to be developed. However, on September 6, 2016, the Government of Ontario released the Executive Compensation Framework Regulation, which outlines the requirements for developing and implementing the compensation frameworks required by the BPSECA.
BPS organizations that are subject to the BPSECA must now prepare a compensation plan that includes, among other things, the maximum salary and performance pay for designated executives, how those maximums are calculated, and an overview of the organization’s “compensation philosophy”. This plan will come effective once it is posted on the organization’s website, which must occur no later than September 5, 2017.
Between now and September 5, 2017, organizations will be developing their compensation plans. This process involves, among other things, determining executive salary maximums by examining no less than eight comparator organizations and arriving at a figure that is not greater than the 50th percentile of what executives in those comparators are paid. The Regulation also establishes a procedure for determining which types of organizations may be used as comparators. Further, organizations must also engage in public consultations that provide members of the public with a “reasonable opportunity” to comment on the development of the compensation plan.
Importantly, the effective freeze imposed by the BPSAA continues to apply until the compensation plans are posted.
The compensation plans, once implemented, will immediately apply to any executives hired after the implementation date. For those executives that already hold office, the BPSECA provides that those executives will continue to receive compensation based on their existing package; however, any increase must comply with the organization’s new compensation plan. In any event, all existing executives must comply with the new compensation plan within three years of when the organization posts its new compensation framework to its website.
The Government of Ontario has published a guide to assist organizations in developing executive compensation frameworks, which can be accessed here.
Should you have any questions about developing a compensation plan, please do not hesitate to contact us.