Robert Benzie and Paul Vieira
National Post
June 5, 2002

 TORONTO – The board of Hydro One resigned en masse yesterday hours after Ontario’s Conservative government introduced legislation to fire the directors and reduce the salaries and benefits of the utility’s senior executives.

But the multimillion-dollar management team remains at the Crown-owned electricity transmitter for the time being.

"Given the turn of events and lack of confidence of the government, we feel we have no option but to resign," said Sir Graham Day, departing chairman of the 12-member board.

He expressed surprise at the Conservatives’ recent outrage over the seven-figure compensation packages for Hydro One’s five-member executive team, because the government has been aware of the salaries since it created the company in 1999 out of the old Ontario Hydro monopoly.

"The board felt the compensation packages were fair and reasonable for a major Canadian company."

"We didn’t pull these figures out of a hat. We systematically benchmarked the cash compensation against other comparable public companies — including those that were trying to hire away our top management because they are so good at what they do," Mr. Day said.

Chris Stockwell, the Minister of Environment and Energy, said the Conservatives were forced to act after Hydro One’s board declined to make the significant reductions the government ordered following days of Liberal and NDP attacks on the lucrative packages.

"A new board of directors will be put in place and they will be directed as their first order to renegotiate the compensation packages of senior executive staff at Hydro One," said Mr. Stockwell, adding the members should be named today.

While the Liberals and New Democrats refused to give unanimous consent to the Hydro One Inc. Directors and Officers Act – which rolls back salaries and severance payouts and bars executives from suing the government – the Conservatives’ majority will ensure its passage within the next few weeks, the Minister said.

Mr. Stockwell insisted the tumult will not have any impact on the value of Hydro One, which the government had been considering privatizing for up to $5.5-billion, in what would have been the largest initial public offering (IPO) in Canadian history.

Ernie Eves, the Premier, said he was confident the legislation would protect the government from any lawsuits. "I’m telling you, this bill will not cost the taxpayers of Ontario one red cent," Mr. Eves told the legislature.

At the centre of the furor is Hydro One president and CEO Eleanor Clitheroe, who resigned her seat on the board, but is still in charge of the utility.

Last year, Ms. Clitheroe – a Royal Canadian Yacht Club member who approved Hydro One’s controversial $360,000 sponsorship of an elite racing boat – earned total compensation of $2.18-million, which was made up of: $750,000 in base salary; a $806,250 bonus; and $625,930 in "other" compensation, including $174,644 for her car and $172,484 in vacation pay.

After her, the four other senior executives were paid total annual compensation of $3.13-million. There are escape clauses in their contracts that could be exercised if the government decides on a different corporate structure for Hydro One, such as a not-for-profit entity or income trust.

Those clauses would trigger $13.5-million in buyout fees – including about $6-million for Ms. Clitheroe, who would also be eligible for a pension of up to $1-million. The escape clauses were amended May 17 after the government signalled it was reviewing its options regarding privatization.

Mr. Stockwell said the board’s move three weeks ago was "the straw that broke the camel’s back" for the government.

He said the legislation introduced yesterday nullifies the previous contracts, but Dalton McGuinty, the Liberal leader, warned that the Conservatives have left taxpayers on the hook for millions of dollars in wrongful dismissal and breach-of-contract suits.

"We are going to be caught up in very costly litigation for a lengthy period of time and I think ratepayers are going to be burned because of this government’s incompetence or negligence," said Mr. McGuinty, whose party is now demanding that a review of compensation at Ontario Power Generation (OPG), a sister company of Hydro One.

The Liberal leader said Ron Osborne, the president and CEO of OPG, makes $2.3-million a year, about $100,000 more than Ms. Clitheroe.

But the Conservatives defended Mr. Osborne’s compensation.

Howard Hampton, the NDP leader, meanwhile, urged the government to cap salaries at $500,000 as they are at Hydro-Québec and BC Hydro.

Yesterday’s events sent shockwaves through the financial community. "This is destructive. The government is trying to do something that is populist, but it is illegal," said one Bay Street financier.

Another senior executive said it is now impossible for Hydro One to be sold. "Not for a few months, anyway." The executive added Mr. Eves might using compensation as a "pretext" to delay or cancel the IPO because of his party’s poor standing in the polls. "Maybe [replacing the board] becomes a convenient excuse not to do it," he said of the sale.