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Perspectives

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21 juin 2019

Proposed Changes to School Board Executive Compensation

For the past decade, executive compensation at school boards has been constrained and complicated by legislation and regulations. Passed on May 29, 2019, Bill 100, part of the Ontario government’s budget, signals more changes to the Broader Public Sector Executive Compensation Act, 2014 (BPSECA). While the substantive changes will likely come in the form of regulations, the proposed changes to the BPSECA in Bill 100 provide a preview – including more government involvement, pay adjustments based primarily on performance, and limits on compensation increases.

Background

Compensation for directors of education, supervisory officers and other executives at school boards and other broader public sector organizations has been restricted in various ways under a series of laws and regulations since 2010. The restraint provisions in the Public Sector Compensation Restraint to Protect Public Services Act, 2010 and then in the Broader Public Sector Accountability Act, 2010  effectively prohibited increases to compensation for school board executives except in limited circumstances. This legislation has significantly affected the past earnings and future pensions for these essential senior administrators.

In 2016, these strict freezes were replaced with a somewhat more nuanced approach under BPSECA’s Regulation 304/16. In compliance with Regulation 304/16, school boards worked with their trustee associations, consulting firm Mercer, the Council for Ontario Directors of Education, and legal counsel to collaboratively develop comprehensive executive compensation programs, salary grids and performance-pay envelopes. These programs were reviewed by the Ministry of Education, posted for public consultation, revised, and submitted for final Ministry approval, to be effective retroactively commencing in the 2017-2018 school year.

As we previously reported, on August 13, 2018, however, the newly-elected government replaced Regulation 304/16 with a strict freeze under Regulation 406/18. The government committed to reviewing Regulation 406/18 by June 7, 2019. Bill 100 appears to position the government to amend or replace Regulation 406/18, on schedule.

Proposed Amendments under Bill 100

In its budget document, the Ontario government describes its “new approach” as follows:

The review [of public sector leadership compensation] determined that existing practices in the public sector allowed for automatic adjustments to executive compensation regardless of the results achieved.This system does nothing to reward excellence or improve public services.

The government is now moving forward with an approach that ends automatic pay increases for public sector leaders. Under the new framework, pay‐for‐performance may only be provided to those leaders who achieve the bold outcomes the Province needs. Compensation adjustments would be controlled, and only executives who deliver on priority driven outcomes would be eligible.

To this end, Bill 100 proposes the following amendments to the BPSECA:

  • Regulations under BPSECA may authorize the Management Board of Cabinet to “establish rules governing a designated employer’s use of performance assessment indicators in determining a designated executive’s compensation”. This means that the government may dictate the priorities and metrics for which achievement-based pay may be provided.
  • Regulations may also authorize the Management Board of Cabinet to limit salary and performance-based pay increases, including by limiting the number of designated executives who may receive increases, and the time period for which a designated employer may provide increases. While the budget document referred to “ending automatic pay increases”, this proposal suggests that salary increases will still be available, but in a more limited form.
  • Newly-created designated employers may not hire permanent executives without government approval (or written exemption) of the executive’s compensation plan.
  • The government may exempt employers from requirements set out in the compensation framework found in the Regulation.
  • The transition provisions in section 9 of BPSECA are clarified to confirm that existing executives may only be grandfathered until August 13, 2021,i.e.,three years following the introduction of Regulation 406/18. The president of the Treasury Board, however, may bring that date forward to an earlier date, or exempt an employer until a specified date. The anti-avoidance provision found in section 9 has been removed.
  • Finally, the proposed amendments formally repeal Part II.1 of the Broader Public Sector Accountability Act, 2010 and the Public Sector Compensation Restraint to Protect Public Services Act, 2010. The compensation restraint measures in these statutes, however, had already expired or were inapplicable given the introduction of BPSECA.

Implications

Executive compensation restraint legislation has challenged many school boards for years, hampering their ability to recruit, retain and reward the leaders they need. The proposed amendments to BPSECA, along with announced consultations to review public sector collective bargaining and compensation, are consistent with the government’s actions and stated priorities to date – primarily, implementing constraint measures to find efficiencies. Bill 100 sets the stage for another change to the BPSECA Regulation, in which the government will provide further detail on the powers it intends to exercise in respect of broader public sector executive compensation.

We will provide further updates once these amendments are proclaimed into force, and if any new regulations are issued thereafter, upon completion of the government’s review.