Hydro One’s retiring CEO Mayo Schmidt can get a cash payment of more than $8-million to compensate him for stock awards he’d otherwise lose, plus bonus and pension payments approaching an additional $1-million, according to a Globe and Mail analysis of company documents.
The compensation is in addition to the $400,000 payment Hydro One announced Wednesday. Had the utility’s leader resigned rather than retired, he would have needed to walk away from the company’s lucrative stock-based compensation plans. The distinction illustrates the importance of the terms of departure in the modern CEO’s contract – and undercuts the current narrative that Mr. Schmidt is leaving with that $400,000 payment and “will not be entitled to severance,” according to Hydro One’s Wednesday statement.
The agreement struck between the province of Ontario and Hydro One says the company is allowed to pay Mr. Schmidt cash for his past stock awards, plus pay him half of his 2018 “target bonus.” 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. At the rate Mr. Schmidt added to his pension in 2017, that number now could top $200,000.
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 $5.6-million, the bulk of which was in long-term stock awards.
Hydro One has 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 roughly $4-million in total. The company did not disclose those awards in the company’s 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 during his time at Hydro One. As is typical, the company awards the shares, but the executives cannot turn around and sell them in the open market. Instead, they “vest,” or become fully owned and saleable, when the executives continue their employment, or hit certain performance requirements.
Only 50,000 of Mr. Schmidt’s stock awards had “vested;” the rest, the unvested shares, depended on continued employment or Hydro One meeting certain performance goals by the end of 2018, or later. By retiring, Mr. Schmidt would be able to retain the stock awards and watch them vest on their original schedules and terms, according to Hydro One’s circular.
The 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 that, at Wednesday’s close of $20.17, would be worth $8.2-million. (This total doesn’t include another 50,042 shares that had already vested, but of which Mr. Schmidt had not yet taken ownership.) Hydro One cancelled Mr. Schmidt’s stock options as part of the agreement. They were estimated to be worth about $866,000 in March when they were granted, but Hydro One’s declining share price Thursday cut nearly 30 per cent of their value, The Globe estimates.