A showdown over executive pay is taking shape between Premier Doug Ford’s government and Hydro One after the publicly traded company proposed a cap of $2.78 million for its next CEO.

Energy Minister Greg Rickford warned the province will not approve more than $1.5 million in salary and incentives for the chief executive as a search wraps up with a preferred candidate to replace ousted boss Mayo Schmidt, whom Ford dubbed the “six million dollar man” in last spring’s election campaign.

“We will not stand by any further and see out-of-control and out-of-touch salaries at Hydro One,” Rickford told a news conference Friday, calling on the partially privatized former Crown transmission utility to show “respect for Ontario’s electricity customers.”

The Hydro One board — replaced by the government last summer — quickly fired back, insisting it needs leeway “to attract, retain and motivate highly-qualified leadership” at the company with $25 billion in assets and annual revenues approaching $6 billion.

“We continue to seek the approval of Management Board of Cabinet.”

Rickford issued a caution, saying “this is not a negotiation” and stated total compensation for senior executives should not exceed 75 per cent of the CEO level and pay for directors capped at $80,000.

Hydro One had proposed up to $1.86 million for executive vice president and $140,000 for directors, with $169,500 for the chair of the board.

Rickford described the disagreement as a “significant divide between the views of the Hydro One board and the largest shareholder, the people of Ontario.”

Hydro One board chair Tom Woods — who was appointed by Ford — noted in a separate letter to Rickford that majority shareholders in the company owned 47 per cent by the province are good with the $2.78 million CEO cap.

“As you know, we have been in discussion with a very talented prospective CEO, who we believe would accept the role with compensation as contemplated under the proposed framework,” wrote Woods, a veteran investment banker with CIBC.

“As we have previously advised, the entire top management team (five individuals) are under retention agreements and it appears likely that all five will depart soon after their agreements mature in the next 2 1/2 months.”

New Democrat Leader Andrea Horwath said the split public-private ownership of Hydro One engineered by the previous Liberal government is proving unworkable, pointing to a need to bring the company back under full provincial control with a share buyback.

She warned that government “meddling” in Hydro One — a reference to the Schmidt ouster — has already cost the company $103 million (U.S.) for a “kill fee” after American regulators cited concerns about “political interference” in the company, scuttling a $6.7 billion takeover of Avista Corp.

“Mr. Ford’s got to realize he can’t keep pretending he’s trying to save people money while at the same time undertaking activities that are costing us millions,” Horwath told reporters a day after the premier, in launching a new strategy to save auto sector jobs, proclaimed “for too long, government has been getting in the way.”

In the letter to Rickford, Woods said he recognizes the government’s push to reduce electricity bills but said “none of Hydro One’s top executive compensation will be charged to customer rates — it will all come out of bottom line company profits, borne by shareholders, not ratepayers.”

The government issued an order in August that Hydro One trim “generous pay packages,” with Rickford refusing to say publicly at the time how low they should go.

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Critics have warned that government interference in pay levels for a publicly traded company will send a chill through the business community.

Under legislation passed last summer, the government retains the power to control executive, CEO and senior executive salaries at Hydro One until the end of 2022.

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