Toronto Hydro executives have earned incentive bonuses totaling $2.9 million in the past five years despite the company’s failure to meet reliability standards set by the Ontario Energy Board.

It was Toronto Hydro chairman Clare Copeland himself who noted Toronto Hydro’s failing reliability record in a letter to Ontario Energy Board chair Rosemarie Leclair.

“Approximately 40 per cent of power outages in Toronto last year were caused by equipment failures and we have not met the OEB’s minimum reliability standards for local distribution companies for the past five years,” he wrote.

But poor reliability has not crimped incentive payments.

For example, chief executive Anthony Haines received $340,018 in incentive bonuses in 2010, out of a total compensation of $757,730. Haines’s total pay is about double that of the other top four executives at Toronto Hydro.

The aggregate total of incentive payments to the top five active executives in the five years ending 2010 was $2.9 million.

The reliability issues are the fault of fraying equipment rather than management performance, says Copeland.

And the hydro executives’ compensation – including an array of high-end cars – are in the lower half of pay scale for comparable companies, he said.

The company has been feuding with the energy board – which regulates its spending and rates – since the board made a ruling that Toronto Hydro says will force it to slash spending to renew its system by two-thirds.

Curbing renewal spending will lead to longer and more frequent blackouts, the company says. It has stopped work on many renewal projects, throwing hundreds of contract workers out of work, and has threatened to lay off hundreds of staff.

The board insists it has not restricted the company’s spending nearly as much as the company claims. The company is asking the board to reconsider its decision.

Copeland said Toronto Hydro deliberately weights much of its executive pay on bonuses that have to be earned.

Reliability standards are only one of a dozen or more measures that go into determining executive bonuses, he said. Others include financial performance, safety and productivity.

For example, he said, executives have been rewarded because they’ve reduced the workforce by 35 per cent in the past dozen years.

The company’s reliability is hampered by aging equipment, he said. That’s exactly the reason why Toronto Hydro wants to spend heavily on renewing both its equipment and its workforce, to the tune of $500 million or more in each of the next three years.

The energy board is blocking that spending, he argued and executives can’t be faulted for the resulting loss in reliability:

“Until we spend the money and fix it we’ll hit our own standards, but we can’t hit the ones they’ve set.”

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Copeland said the high-end cars driven by Toronto Hydro executives – including Mercedes-Benz, and BMWs – are fully taxable, and part of their overall compensation package. If they choose to drive a fancy car, they’ll have another part of the package trimmed:

“You can have car but you don’t get it in salary, or you don’t get it in pension or you don’t get it in some other way.”

As for the over-all pay scale, Copeland says Toronto Hydro keeps itself at or below the half-way mark for comparable companies.

But he says Toronto Hydro can’t be compared with any other municipal utility in Ontario.

Instead, he said comparable companies include Ontario Power Generation (where CEO Tom Mitchell earned $1.8 million in 2010) and Hydro One (where CEO Laura Formusa earned $953,844 ). Gas utilities and companies like Duke Energy or Direct Energy are also comparable, he said.

Those are the firms who compete for the same talent as Toronto Hydro, he said.

“To replace Anthony (Haines) we’d probably pay more,” he said. “The marketplace is that way. It’s not an easy job, and you end up taking a lot of flak for not a huge reward.”

Toronto Hydro uses the human resources consultant Mercer to help set its compensation formulas.

Michael Thompson of Mercer said the company “probably uses one of the most disciplined and rigorous performance management processes I’ve seen in any organization, anywhere – public or private sector.”

Of the many performance measurements, each is weighted, and standards are set for achievement, ranging from minimal to outstanding. Executive are rated both on individual performance, the achievements of their own division, and of the company as a whole.

“Their performance is judged against hard, measurable standards,” Thompson said.

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