Ontario issued a directive Thursday to Hydro One, ordering it to pay its CEO no more than $1.5 million per year — substantially less than the partially-privatized utility had proposed.

Hydro One and the government have been at loggerheads over executive compensation, with the company refusing repeated requests to slash the CEO pay below $2,775,000.

Energy Minister Greg Rickford had asked Hydro One last week to come up with a revised executive compensation framework that set its CEO's salary and incentives no higher than $1.5 million, but the utility didn't budge.

Rickford took the step Thursday of issuing a formal directive that compels Hydro One to set the CEO's base salary no higher than $500,000 with a maximum of $1 million in incentives. Those incentives must be dependent on meeting certain targets, including reducing transmission and distribution costs.

The Tories have promised to reduce electricity bills by 12 per cent.

Rickford said he was scheduled to have a discussion Thursday afternoon with the board chairman about the directive, but warned that "there isn't any room to negotiate on this."

"We're frankly focused on a directive that we think reflects a fair parameter for compensation for the CEO and the board of directors," Rickford said. "I don't know how we could be more clear."

The directive also requires that the Hydro One board chair be paid no more than $120,000 and board members be paid no more than $80,000 per year.

Hydro One issued a brief statement in response, confirming it had received the directive.

"The board will continue to focus on its CEO search," it said.

Fundraising attempt followed directive

Less than two hours after Rickford announced the directive, the Progressive Conservatives sent a fundraising email about it to supporters, touting their action and asking for money.

"The board of Hydro One is trying to hire a new CEO," the email in Premier Doug Ford's name said. "You know what they want to pay? $2.7 MILLION per year. For one person! We told them it's a flat-out no. But they didn't listen. So we are directing them."

NDP Leader Andrea Horwath said the way in which the Tories have handled Hydro One seems to be about raising money for their party.

"I guess they're trying to appeal to their base, who I guess are folks that don't like to see CEO's of Hydro One having big salaries," she said.

Hydro One had said its proposed compensation framework took into account the need to attract, retain and motivate highly-qualified leadership at Ontario's largest electricity transmission and distribution provider, noting it is responsible for more than $25 billion in assets and annual revenues of nearly $6 billion.

But Rickford said that the compensation levels in the directive are reasonable, more closely aligning it with corporations such as Ontario Power Generation, which produces about 50 per cent of Ontario's electricity.

"Moving forward, I am confident that Hydro One's board of directors will continue to take steps to earn the trust and confidence of the people of Ontario," he said in a statement. "I believe Hydro One's best days are ahead, and the corporation will emerge stronger than ever while respecting Ontario's electricity customers."

The Progressive Conservatives campaigned hard against Hydro One salaries in last year's election campaign, dubbing then-CEO Mayo Schmidt the "six-million-dollar man." Soon after they were elected, one of the government's first acts was to force Schmidt's resignation.

After Schmidt was forced out, the utility's entire board resigned and downgrades and lower values of Hydro One shares followed.

Last month, Hydro One and American utility Avista Corp. announced they were cancelling a planned merger, after regulators in Washington state said the deal would not sufficiently safeguard customers from the whims of the Ontario government.

The previous Liberal government began partially privatizing the utility in 2015, ultimately selling off just over half of its stake.