New Measures to Manage Public Sector Compensation Costs
Ontario Government Takes Strong Measures to Control Spending
With over half of all government spending going to salaries and benefits, the Ontario government is moving forward on two new measures to manage public sector compensation costs - an important part of the plan to control spending and protect front-line government services that Ontario families rely on.
In early 2014, Ontario will introduce new legislation to directly control the compensation of senior executives across the broader public sector, including hard caps. The government has appointed Jim Leech to advise on making electricity sector pension plans more affordable and sustainable.
New Public Sector Compensation Legislation
John Milloy, Minister of Government Services, will introduce legislation to enable the government to directly control the compensation of senior executives across the broader public sector. The legislation, if passed, would provide the government with the authority to establish compensation frameworks, including hard caps.
The frameworks would be established based on consultation and research, including labour market and jurisdictional analysis, and will cover all aspects of compensation, including severance arrangements - not just salaries and bonuses.
The government has already frozen salaries for executives at hospitals, universities, colleges, school boards and provincially owned electricity companies. All aspects of compensation plans are currently frozen, and base salaries cannot be increased.
Making Electricity Sector Pension Plans Affordable and Sustainable
As part of the government's commitment to making electricity sector pension plans more affordable to Ontarians, Charles Sousa, Minister of Finance, has asked Jim Leech, the outgoing head of the Ontario Teachers' Pension Plan, to recommend ways to make these plans more sustainable and affordable. Mr. Leech will focus on the single employer pension plans at Hydro One, Ontario Power Generation, the Independent Electricity System Operator and the Electrical Safety Authority. Mr. Leech will meet with employers and employee representatives on issues facing pensions at these agencies.
Mr. Leech has been tasked with assessing:
- Equal cost-sharing between employers and employees for ongoing contributions.
- Joint governance by employers and plan members, with joint responsibility for the sustainability of plans.
- More affordable pension benefits, such as conditional prospective benefits.
Mr. Leech will also consider the potential for pooling assets of the plans, as part of the government's broader initiative to develop a pooled asset management framework for broader public sector pension plans.
Compared to other public sector pension plans, electricity sector plans generally require a lower share of contributions from employees, while providing generous benefits. As a result, electricity sector employers are responsible for a large amount and share of pension contributions. This imbalance in cost sharing is borne by electricity ratepayers.
Ensuring smart management of broader public sector compensation is part of the government's plan to invest in people, build modern infrastructure and support a dynamic and innovative business climate.
- In June 2013, the Budget was passed, which removed a legislative barrier to electricity sector pension plans moving to a jointly sponsored pension plan.
- As outgoing head of the Ontario Teachers’ Pension Plan, Mr. Leech has extensive experience in pension fund management and administration. He has gained recognition for his expertise and leadership in the private equity industry and as CEO of several public companies.
- The four pension plans to be examined have about 18,000 active members and about 19,000 retirees and deferred vested pensioners.
- Provisions of the plans, including contribution rates and benefit levels, are negotiated through collective bargaining. Members are generally represented by the Power Workers’ Union or the Society of Energy Professionals.
- Members of Provincial Parliament continue to see their wages frozen — bringing the total length of the current freeze to five years.
“We are taking action to ensure public sector pensions are fair and affordable. I am pleased to appoint Jim Leech as the Special Advisor, Electricity Sector Pension Sustainability. This builds on the steps we’ve been taking to make these plans more sustainable.”
“Managing public sector compensation is an important part of our government's plan to control costs and protect the front-line services that Ontario families rely on.”