Ontario Power Generation s Executive Compensation Program. January 1, 2017

Transcription

1 Ontario Power Generation s Executive Compensation Program January 1,

2 A. Context: Ontario Power Generation () provides about half of the electricity used in Ontario, and does so at a cost that s approximately 40% below the average of other generators in the province. is one of the largest and most complex generating companies in North America. It operates a nuclear fleet of 10 units at two sites the largest fleet in Canada and one of the largest in North America. Along with generating nuclear power, ensures the safe storage and transportation of low, intermediate and high-level nuclear waste at three facilities. There are currently about 80 executive level employees responsible for leading the complex operations and staff of just over 9000 regular employees. s generating mix also includes two biomass-fueled generating stations, one thermal station, 65 hydroelectric generating stations, and 240 associated dams located on 24 river systems across Ontario. We also help manage lake levels, river flow controls and dam safety. Operating this complex fleet safely and reliably is s primary objective. With more than $40 billion in assets, $5 billion in annual revenue, and more than 9,000 employees, is one of the largest commerciallyoriented public sector organizations in Canada. We undertake capitalintensive, infrastructure investments aimed ensuring a reliable supply of clean power for the province. These include the recently started $12.8 billion investment in Darlington refurbishment and the successfully completed $2.5 billion Lower Mattagami River hydroelectric project. s business includes a complex mix of assets across rate-regulated and unregulated businesses, as well as accountability for power marketing operations across Ontario and the North Eastern and Mid- Western United States. Our Memorandum of Agreement with the Province requires us to operate this complex business with a commercial orientation. This means we must generate a commercial rate of return in a competitive market environment, while meeting the needs of the Shareholder on public policy issues. About Us Large and complex power generating company Major capital investments Focus on safe and reliable operations Commercially-oriented, with public policy and stewardship responsibilities 2

3 B. s Compensation Philosophy s compensation philosophy guides the development of all compensation elements and is a key consideration in the development of s Executive Compensation Program (the program ). The Philosophy is intended to ensure that is able to attract, retain and motivate key talent in a manner that complies with the Regulation, is competitive and affordable, and aligns with s business strategy. s compensation philosophy is comprised of five key principles: 1. Drive organization results with a performance orientation that aligns with s business strategy and risk tolerance, while taking into consideration affordability, market competitiveness as well as the context and environment in which operates. 2. Demonstrate fiscal conservatism through sustainability, sound financial management and defensibility while supporting the attraction and retention of top talent. 3. Have a strong performance orientation linked to s value creation and results while allowing individual compensation to be meaningfully differentiated based on performance, where appropriate. 4. Recognize s role as a significant Ontario employer; encourage long-term employment and development, a culture of trust and respect and a seamless integration with talent and succession management objectives. 5. Be simple to understand and administer, sustainable and scalable; communicated in a way that is integrated with messages about other monetary and non-monetary rewards such that the perceived value of all programs meet or exceed program costs. Compensation Philosophy Performance orientation Market competitive and fiscally conservative Individual differentiation Long-term employment and development Simple and easy to understand In determining compensation, we consider both external competitiveness and internal equity: Externally Competitive - maintaining, in aggregate, a 50 th percentile target total compensation level relative to the target labour market of organizations with similar skill sets and complexities. Internal Equity - compensation programs are oriented to providing equal value for equal contribution for the period of employment, regardless of employee demographic. This is consistent with our corporate objectives of diversity and inclusion. provides equitable reward opportunities for similar jobs. s program is designed to support delivery of critical strategic objectives and address staffing challenges that have developed due to prior compensation restraints. As a result of five years of legislative constraints on compensation, by 2016, s approach to executive compensation (prior to this program) was no longer effective in aligning, attracting or retaining the executive talent needed to execute on key deliverables. This jeopardizes s ability to 3

4 execute on the critical operations and projects essential to the people of Ontario and the long-term integrity of the Ontario Electricity system. s program is designed to address these challenges and support the achievement of operating goals and strategic objectives by delivering performance-based pay that will better enable to attract, align and retain the executive talent critical to delivering shareholder and customer value, while ensuring safe and reliable operations. The program will provide market-competitive compensation (at the 50 th percentile) that is fully compliant with the restrictions of the Regulation. s program is designed to reward achievement of performance goals through its approach to atrisk performance pay. s Executive Compensation Program includes base pay and pay-at-risk incentives. Pay at risk incentives drive s strategic direction through goals designed to drive the right organizational behaviour for success in the short, medium and longer-term. The Program s incentive mechanisms deliver sustained value for the Shareholder and customers. Examples of these performance goals which span different time periods are shown below. Short Term Measures (current year) Medium Term Measures (over 3 years) Operational Excellence Project Excellence Financial Strength Social License Return on Equity Net Income Total Generating Cost Darlington Refurbishment Milestones 4

5 C. Salary and performance-related pay caps The caps established by the Regulation are based on salary plus performance pay (total compensation) in s benchmark peer groups (the market). To establish caps, obtained data on maximum compensation in the market (top of the salary range plus maximum performance pay) and established caps at the 50 th percentile of this data. Half the market has maximum total compensation above these caps and half the market has maximum total compensation below the caps. The caps are noted in the Appendix. s Program is designed to ensure that the midpoint of each salary range plus the target at-risk incentives reflect the 50 th percentile of target compensation in the market. That is, for each position/class of executive half the market would target more and half would target less pay than our Program. Target pay levels reflect achievement of expected performance objectives aligned with our business strategy and long-range plans. A substantial portion of total compensation is at risk and subject to achievement of performance targets. To achieve Maximum pay levels would require delivering stretch performance above normal expectations, which is not expected to be achieved regularly. Incentive compensation is largely self funding with costs covered by achievement of financial results and key project milestones. To check compliance with the Regulation s caps, we calculated the maximum potential compensation for each class of executive (the maximum of their salary band plus maximum incentive). For each class of executive the potential maximums allowed by the Program are below the caps determined by the Regulation (refer to Section D for additional details on peer groups and methodology). In practice, expects actual compensation to be well below the maximums allowed by the Regulation It is important to note that, as depicted in the following diagram: 1. The regulated caps set maximum upper limits on total compensation levels s Program could be designed to deliver. s Program has been designed with maximum potential compensation levels that are below these regulated caps. 2. While s Program design includes maximum potential compensation levels, in practice s Program targets actual average compensation for each position/class of executive at the middle of the range, below the potential maximums. Top 50th Percentile Bottom Range of Market Maximums Regulated Cap Program range Maximum Target Minimum Note: The diagram is for illustrative purposes only 5

6 D. Comparative analysis details Establishing s peer groups The first step in designing an Executive Compensation Program is to establish appropriate peer groups representing the companies that competes with for executive talent (i.e., the companies that we lose executives to and from which we attract executives). In order to tailor the external market comparisons effectively for each specific labour market, categorizes its roles into three segments: Utilities (Nuclear and Non-Nuclear), Authorized Nuclear and General Industry, as described below. Segment Definition Utilities Requires specific education and in-depth knowledge in a unique discipline related to the theories, principles and methods associated with the generation, regulation or trading of energy. The requirement to apply this professional body of knowledge represents a significant portion of the job. Nuclear Authorized Requires specific education and in-depth knowledge in a unique discipline related to the theories, principles and methods associated with the generation, regulation or trading of nuclear energy. The requirement to apply this professional body of General Industry knowledge represents a signification portion of the job. Roles that do not meet the Utilities and Nuclear segment definition criteria. These roles may require formal education and/or in-depth knowledge of a professional body of knowledge; however, this body of knowledge is not specific to energy generation. Previous industry experience may support faster contextual understanding; however this can be learned on the job. To establish the appropriate organizations against which to benchmark positions in each of these segments, formed selection criteria which mirror the selection criteria set out in the Regulation: The scope of responsibilities of the organization s executives The type of operations the organization engages in The Industries within which the organization competes for executives The size of the organization The location of the organization In applying the criteria to peer selection, it is essential to recognize that is a large complex organization including the following characteristics: One of the largest commercially-oriented public sector organizations in Canada with more than $40 billion in assets, $5 billion in annual revenue, and over 9,000 employees One of North America s largest and Ontario s largest clean energy generator with 10 nuclear generating stations in two sites, three nuclear waste management operations, three thermal generating stations, 65 hydroelectric generating stations and 240 associated dams located on 24 rivers systems across Ontario, and one wind power turbine. In addition, has an energy trading/marketing unit and co-ownership of two stations with private sector utilities Significant capital intensive infrastructure investments to grow and maintain the business, particularly the $12.8 billion Darlington refurbishment 6

7 Required to generate a commercial return and operate in a competitive market environment to compete with other utilities for capital investments, but with the added complexity of accountability to public policy issues worked with our compensation advisor (Willis Towers Watson) and the Board of Director s independent advisor (Hugessen Consulting) in applying these criteria to select peers. The peer groups for the general industry and utility segments include public and private sector organizations in order to meet the peer selection criteria for the following reasons: is larger than most of the public sector organizations and they tend to lack a similar scope of responsibilities/accountabilities and diversity of assets (e.g., capital and project oversight) Private sector organizations are required to provide a complete assessment of the labour market for executive positions that would be comparable to s executive positions has a commercial orientation and mandate for a commercial rate of return on its significant asset base is more aligned with the private sector The size, scope, and variety of s operations are more complex than those of many other public sector organizations in Canada and is more comparable to the private sector The organizations from whom has recruited executives have primarily been in the private sector For the small number of executives who have significant accountability for nuclear operations, international organizations are required because there are no Canadian public sector peers that have nuclear power generation operations of comparable size and scale. Based on this analysis, we determined the types of organizations that should be selected for each segment resulting in the actual peer organizations shown in the tables below. s size in terms of revenue and total assets were compared to each peer group to confirm that each peer group is balanced and representative of the scope and complexity of. received approval from the President of Treasury Board, in accordance with the Regulation, to incorporate private sector and international organizations in the peer groups established as comparators for all segments. Approval was also received to utilize the peer group for the small Nuclear Authorized segment without inclusion of a Canadian public sector or broader public sector organization. A representative sample of executive roles comparable to positions within the comparator groups were selected as benchmarks for the compensation review. Each benchmark was compared to a similar survey benchmark position within Willis Towers Watson s Executive Compensation Survey based on the underlying accountabilities and responsibilities as outlined in the survey relative to the benchmark. The following tables summarize how each position was compared to a survey position. 7

8 General Industry General Industry 1 General Industry Private Sector General Industry Public Sector Canadian crown corporations Ontario-based public sector (cross-section of industries / services) Utilities (reflect utilities as part of, but not the majority of general industry) General industry (cross-section of organizations of varying sizes that serve as significant employers in Ontario) Air Canada Alcoa Canada ATCO Group Bruce Power LP Cadillac Fairview Canadian Imperial Bank of Commerce Canadian Pacific Railway Canadian Tire Corporation Capital Power Corporation Cargill Limited Chrysler Canada Inc. Domtar Corporation Encana Corporation Ford Motor Company of Canada, Limited General Electric Canada Gerdau Long Steel North America Honda of Canada Manufacturing Irving Oil Kinross Gold Corporation Kruger Inc. Maple Leaf Foods Inc McCain Foods Limited Molson Coors Canada Nexen Energy ULC Nissan Canada, Inc. Parmalat Canada Procter & Gamble Inc. Resolute FP Canada Inc. Rio Tinto Alcan Canada Rogers Communications Sun Life Financial Talisman Energy Inc. TransAlta Corporation TransCanada Corporation Viterra Inc BC Hydro Power & Authority Canada Post ENMAX Corporation EPCOR Utilities Inc. Export Development Canada Hydro-Québec Insurance Corporation of British Columbia Loto-Québec SaskPower Toronto Hydro Electric Systems 1. In developing this peer group, a focus was made to ensure that it was diverse in terms of industry representation and that it was not dominated or overly influenced by any one industry Role Band Benchmark Match General Industry SVP Corporate Business Development & CRO C Top Strategic Planning and Development Executive CFO & SVP Finance, Strategy & Risk C CFO/Top Financial Officer SVP, Legal, Compliance and Ethics C Top Legal Executive SVP People, Culture and Communications C Top Human Resources Executive SVP Business & Admin Services C Top Administration Executives (Major Functions) VP Chief Investment Officer D Head of Externally Managed Investments VP Chief Controller & Accntng Offcr D Finance Executive (Second Level) Chief Information Officer D Top Information Technology Executive VP Corp Sec & Exec Operations E Corporate/Company Secretary VP Talent Management/Business Change E Top Talent Management Executive VP Shared Financial Services E Top General Accounting Executive VP Nuclear Finance E Top Financial Reporting Executive Vice President Law E Associate General Counsel VP HTO Finance E Top Financial Reporting Executive VP Total Rewards E Top Compensation and Benefits Executive VP Business Partners E HR Generalist / Consultant Generalist / Multidiscipline Group Manager Vice President Treasurer E Treasurer VP Corporate Relations & Communications E Top Public Relations and Internal Communications Executive VP Business Planning & Reporting E Top Financial Reporting Executive VP Environment E Corporate Affairs / Communications Executives Data sourced from Willis Towers Watson's General Industry Compensation Survey 8

9 Role Band Benchmark Match General Industry All market data were based on the 50 th percentile. The general industry market data were equally weighted (50/50) between the private sector and public sector peer groups. A representative sample of all executive roles were utilized for benchmarking purposes, not all executive positions are included in this document. Utility Utility 2 Utility Private Sector Public sector utilities Private sector utilities Metals & Mining - similar size ($1B to $15B) to and similar geographic scope (located in central or eastern Canada) Oil & Gas - similar size ($1B to $15B) to and similar geographic scope (located in central or eastern Canada) Alcoa Canada ATCO Group Barrick Gold Corporation Bruce Power LP Capital Power Corporation Chevron Canada Resources Irving Oil Kinross Gold Corporation Pembina Pipeline Rio Tinto Alcan Canada Spectra Energy Transmission TransAlta Corporation TransCanada Corporation Utility Public Sector BC Hydro Power & Authority ENMAX Corporation EPCOR Utilities Inc. Hydro-Québec SaskPower Toronto Hydro Electric Systems 2. In developing this peer group, metals & mining and oil & gas companies were added to provide a more regionally balanced sample of eastern Canadian companies that have similar complex operations, engineering and safety environments Role Band Benchmark Match Utility President Renewable Generation and Power Blend of Top Energy Generation Executive, Multi-Profit Center (Group) Head B Markets and CEO Chief Supply Officer D Top Supply Chain Executive Plant Manager, Hydro E Power Generation Group Manager Data have been sourced from Willis Towers Watson's General Industry Compensation Survey and Energy Services Compensation Survey (for roles with utility/nuclear responsibilities) All market data were based on the 50 th percentile. The utility segment market data were equally weighted (50/50) between the private sector and public sector peer groups. A representative sample of all executive roles were utilized for benchmarking purposes, not all executive positions are included in this document. 9

10 Nuclear Nuclear Bruce Power and the nine largest nuclear power generation companies in the U.S. (based on nuclear power generation capacity) Nuclear Authorized Private Sector Bruce Power Dominion Resources Duke Energy Entergy Exelon FirstEnergy NextEra Energy Public Service Enterprise Group Southern Company Services Public Sector (U.S.) Tennessee Valley Authority Role Band Benchmark Match Nuclear Chief Nuclear Officer & President CNP B Top Nuclear Executive SVP Nuclear Refurbishment C Top Nuclear Plant Site Executive (2000 MW+) SVP Darlington D Top Nuclear Plant Site Executive (2000 MW+) SVP, Pickering D Top Nuclear Plant Site Executive (2000 MW+) SVP, Nuclear Eng'g & Chief Nuc Engineer D Top Nuclear Engineering Executive Director Operations & Maintenance E Nuclear Plant Operations Generalist Group Manager Data have been sourced from Willis Towers Watson's Energy Services Compensation Survey (for roles with utility/nuclear responsibilities) The Authorized Nuclear segment market was based on the one peer group of 9 U.S. large nuclear organizations plus Bruce Power. A representative sample of all executive roles were utilized for benchmarking purposes, not all executive positions are included in this document. CEO Nuclear Bruce Power and the nine largest nuclear power generation companies in the U.S. (based on nuclear power generation capacity) Public Sector Organizations that are Provincial or national energy utility operations with Revenue greater than $4 billion Nuclear Authorized Private Sector Bruce Power Dominion Resources Duke Energy Entergy Exelon FirstEnergy NextEra Energy Public Service Enterprise Group Southern Company Services Tennessee Valley Authority Public Sector Hydro Quebec BC Hydro Power and Authority Role Band Benchmark Match Auth Nuclear Private Public Sector President and CEO A Top Executive Top Executive The CEO market was equally weighted (50/50) between the Authorized Nuclear and Public Sector data. 10

11 E. Other Elements of Compensation s Program does not provide any elements of compensation to executives that are not generally provided, in the same manner and relative amount, to non-executive managers. F. Conclusion s proposed Program meets the requirements of both the Act and the Regulation: 1. Caps on the total cash compensation for executives have been determined using methodologies set out in the Regulation. 2. In practice, s Program will be managed to ensure actual average compensation is kept below the potential maximums allowed by the Executive Compensation Framework. 3. s Program does not provide any elements of compensation to executives that are not generally provided, in the same manner and relative amount, to non-executive managers. 4. s Program will be compliant with all other prohibitions and limitations on various forms of executive compensation. 11

12 Appendix Band Segment Example Positions Market based Caps on max Base pay + max pay-at-risk incentive ($K) A CEO President & CEO $3,800 B Nuclear Authorized Nuclear President and Chief Nuclear Officer $3,640 Utility President of Renewable Generation and Power Marketing $1,740 C Nuclear Authorized SVP Nuclear Projects $1,425 General Industry CFO $860 D E Nuclear Authorized Site Vice President Nuclear Plant $1,385 Utility Chief Operating Officer $765 General Industry VP-Chief Controller $530 Nuclear Authorized Director of Operations $720 Utility Plant manager $600 General Industry VP-Treasurer $405 As required by the Regulation these caps represent the 50 th percentile of the maximum compensation available in the market for similar positions. That is, half of the companies in the benchmark groups offer maximum compensation above these caps. s Executive Compensation Program has maximum potential compensation levels that are below these caps for each position. In practice, s targets to operate with average executive compensation in the middle of the range Top 50th Percentile Range of Market Maximums Regulated Cap Bottom Program range Maximum Target Minimum Note: The diagram is for illustrative purposes only. 12