Ontario Premier Doug Ford’s assertion that Hydro One’s retiring CEO will get “no severance” overlooks cash payments of about $9-million the utility will pay him for his stock, bonuses and other compensation.
In addition, Hydro One will pay its 14 directors about $4.9-million for their stock holdings, which they were required to keep as long as they were directors — tenures that are ending, en masse, in the coming weeks.
The numbers come from a Globe analysis of stock ownership records, the company’s proxy circular to shareholders, and an agreement between the provincial government and Hydro One that set the terms of departure for the board and Mr. Schmidt.
The compensation for CEO Mayo Schmidt is in addition to the $400,000 payment in lieu of postretirement benefits and allowances that Hydro One announced on Wednesday. While Mr. Schmidt will not receive any of the termination payments in his employment agreement, retiring allows him to keep lucrative stock awards he has received during his tenure as CEO. (Stock awards are shares given to an executive as part of his total compensation.) Had he resigned, he would have forfeited them.
That distinction between retirement and resignation illustrates the importance of the terms of departure in the contract of a modern CEO — and undercuts the narrative that Mr. Schmidt is leaving with $400,000 and will not be entitled to severance.
Under the departure agreement, Mr. Schmidt can get a cash payment to compensate him for stock awards he would have lost had he resigned. At Wednesday’s closing price of $20.17, the settlement would be in the neighbourhood of $8.2-million.
The agreement also says Hydro One will pay Mr. Schmidt half of his 2018 target bonus, an amount paid out if the company achieves certain goals. While that bonus number is not disclosed, his 2017 target bonus was $1.32-million, suggesting Mr. Schmidt’s 2018 payout is $660,000 or more.
Hydro One will also pay Mr. Schmidt his accrued pension benefits, which were $162,729 at the end of 2017. Mr. Schmidt added almost $90,000 to his pension in 2017, meaning that number now could top $200,000.
In a statement, Simon Jefferies, a spokesman for Premier Doug Ford, reiterated “there will be no severance” and said the stock awards “will be paid out over time. If he had continued to serve as the CEO of Hydro One his stock [awards] would have only expanded - and under this Government’s watch, that won’t happen.” Hydro One has not commented for this story.
As with many of today’s executives, Mr. Schmidt’s salary — $1.2-million in the most recent disclosures — is a small portion of overall pay. The company estimated his 2017 compensation at $6.2-million, most of which was long-term stock awards.
Hydro One had granted Mr. Schmidt nearly 450,000 share awards and 500,000 stock options since his 2015 arrival at the helm of the company. These numbers include a large award in March of this year, when Hydro One gave Mr. Schmidt the 500,000 options and more than 150,000 share awards, worth about $4-million in total. The company did not disclose those awards in its proxy sent to shareholders late that month, presumably because they were granted after the close of the past fiscal year.
Mr. Schmidt, like other company executives, has participated in a range of long-term stock plans at Hydro One. As is typical, the company awards the shares, but the executives cannot sell them in the open market. Instead, they “vest,” or become fully owned and saleable as the executives continue their employment or hit certain performance requirements.
Only 50,000 of Mr. Schmidt’s stock awards had vested; the unvested shares depended on continued employment or Hydro One meeting certain performance goals by the end of 2018 or later. However, retiring means Mr. Schmidt could retain the stock awards and watch them vest on their original schedules and terms, according to Hydro One’s circular.
The departure agreement between Ontario and Hydro One says Mr. Schmidt’s unvested stock awards “may be cash-settled” at a specified (and undisclosed) price. Stock records show Mr. Schmidt had 243,621 performance share awards and 163,105 restricted shares, which would be worth $8.2-million at Wednesday’s close of $20.17. (This total doesn’t include another 50,042 shares that had already vested, of which Mr. Schmidt had not yet taken ownership.)
Hydro One canceled Mr. Schmidt’s stock options as part of the departure agreement. They were estimated to be worth about $866,000 in March when they were granted, but Hydro One’s declining share price on Thursday cut nearly 30 per cent of their value, The Globe estimates.
Hydro One pays some or all of its director fees in the form of stock awards, which must be held until a director leaves the board (hence the term “deferred share unit”). The agreement between Ontario and Hydro One calling for their departures has triggered their ability to sell the shares.
Hydro One will settle the deferred share unit holdings of the 14 directors — 243,664, in total — for about $4.9-million, according to the terms of the agreement.
In 2017, Hydro One paid its directors $2.47-million in fees and travel expenses; they accepted a total of $1.92-million of those payments in Hydro One deferred share units.