Management and executive employees at the Crown corporation responsible for Muskrat Falls were — and continue to be — paid thousands more than equivalent government employees, according to the second half of a report by Newfoundland and Labrador’s auditor general.
Executives at Nalcor were paid as much as $271,327 more than equivalent government executives at the top of their pay scale, while managers were paid as much as $116,782 more than equivalent government managers, according to the report, released Wednesday.
“We could not determine any business reason for this variance,” reads the report, which covers the period from 2013 to 2018.
According to the report, Nalcor executive and management positions had the same accountability, problem-solving and know-how ratings of equivalent government positions, but the corporation’s employees were paid more.
“I am disappointed to see that two positions that are equal — independently assessed as being equal — are paid significantly differently,” Auditor General Denise Hanrahan said Wednesday, speaking to reporters.
Between 2013 and 2018, Nalcor’s board of directors allowed executives to exceed the top of their pay scale by more than 20 per cent and approved a management salary structure with fewer classifications and broader pay ranges, allowing employees to exceed base salaries by more than 10 per cent.
“For context, these changes happened when provincial government employees were under a pay freeze,” notes the report.
In 2018 — a year described by then finance minister Tom Osborne as a “tough phase” for the province’s wallet — Nalcor sent $180.5 million on employee compensation, including $90.9 million for 950 management employees, $84.8 million for bargaining unit employees and $4.8 million for 17 executives.
All 35 positions examined in the report were paid significantly more than government counterparts, Hanrahan said. According to the report, the audit included input from a job evaluation consultant who verified that Nalcor and the provincial government used the same job evaluation criteria.
Crown corporations are usually required to pay employees according to position classification and government compensation policies, but Nalcor was exempted from the rule by a government order in council.
“We would expect them to use that exemption prudently, when there was an obvious business need,” she said.
In 2018, compensation was 63 per cent of Nalcor’s annual operating costs.
108 days of leave, $12,740 car allowance
According to the report, each from 2013 to 2018, 15 executive employees were each given an average of $46,000 incentive payments, while 70 senior managers were given an average of $16,000 in lieu of bonuses. Senior managers at the top of their pay scale were paid about $1.5 million in bonuses.
Nalcor executives and management received a more lucrative bonus package than equivalent government employees, including up to 108 days of paid leave and a $12,740 vehicle allowance for executives.
Nalcor employees also recieved a four per cent annual cost-of-living adjustment until 2016. Though general economic increases ceased in 2016, staff still received increases to salary levels, pay scales, bonuses and incentives.
In 2017, Nalcor’s board of directors approved pay scale changes that increased ranges for some positions by as much as $30,000 above the lowest contracted salary for the previous year. Later that year, the board approved a further 14.5 per cent increase to pay scales, which came into effect in April 2018.
In April 2018, John MacIsaac, Nalcor’s executive vice-president of power supply, was paid $440,200 annually — more than double the compensation of comparable positions, according to the report. MacIsaac departed the Crown corporation in 2019.
Similarly, Nalcor managers were eligible for annual performance bonuses from 2013 to 2018. During that period, Nalcor spent $1,493,265 on management bonuses. In 2018, Nalcor eliminated the bonuses but adopted a new pay scale that allowed management to progress beyond the top of the pay scale by as much as 10 per cent, according to the report.
“This change also meant that high performers would have higher pensionable earnings available at retirement, as the bonuses paid previously were not pensionable,” wrote the report.
The report also found base executive and management salaries were above industry benchmarks. According to the auditor general, executives salaries were “at the high end” of the range for Canadian industry, while management salaries were above Nalcor’s benchmark of the Atlantic Canada electric utlities market.
AG disappointed by lack of change
In a statement, Nalcor CEO Jennifer Williams highlighted several changes to Nalcor compensation policies and organizational structure.
“We are committed to meeting our legislated mandate while also balancing fiscal responsibility,” she said.
In May 2021, following a provincial government order-in-council, Nalcor eliminated incentive payments for senior management and executives. By last month, N.L. Hydro had reduced executive positions to nine, with salaries for the eight vice-presidents ranging from $210,000 to $285,000. Employees now pay higher insurance premiums, while other perks, like vehicle allowances, have been changed or eliminated.
However, Hanrahan said there continue to be “sizable” differences in compensation between Nalcor employees and comparable government positions.
The report recommends Nalcor re-evaluate its compensation policies and practices to ensure better use of public funds, including alignment with government pay scales. In its response, N.L. Hydro acknowledges that its policies and practices should ensure best use of public funds but it does not commit to implementing the recommendation.
Formed in 2007, Nalcor oversaw the Muskrat Falls hydroelectric project, which is billions over budget and years behind schedule. The Crown corporation was folded into N.L. Hydro in 2021, following a lengthy public inquiry that concluded in 2020.
In an interview, Industry, Energy and Technology Minister Andrew Parsons said he wasn’t surprised by the report, and he cast blame on the previous administration.
“The reality is Nalcor and their top officials were given free rein by the government of the day. They were left to do what they want, they were unchecked, and that’s what led to the situations we have,” he said.
Interim PC Leader David Brazil pointed the finger at the current government, saying he wants more checks and balances for Crown corporations like Nalcor.
“People are answerable here. We’re going to ask the minister what the intent is here and how they’re going to rectify this,” he said.
In October, the first part of the auditor general’s report found Nalcor consistently overspent on employee perks and contractors.