$800K handshake for Manitoba Hydro VP 'makes no sense,' expert says

Hefty payouts to Manitoba Hydro executives as the Crown corporation cut its workforce — as much as $800,000 for one vice-president — just don't add up, says an instructor at the Asper School of Business.

"I don't understand the formula to get someone to $800,000. That makes no sense, or even to be up to more than double their salary, that again makes no sense," said Sean MacDonald, who studies labour negotiations, unions, contracts and human resources at the University of Manitoba business school.

Multiple employees at Manitoba Hydro earned multiple times their 2016 pay in 2017, as the Crown corporation offered packages to employees to entice hundreds to leave to cut the bottom line and meet a provincial government-ordered 30 per cent reduction in executive positions.

Lloyd Kuczek, one of three vice-presidents who left in 2017, was paid just over $805,000 that year after earning a little less than $219,000 in 2016.

Vice-president Brent Reed was paid $568,000 after earning $235,000 in 2016, while vice-president Darren Rainkie was paid $395,000 after getting $234,000 in 2016.

President and CEO Kelvin Shepherd, who remains at Manitoba Hydro, got $410 more in 2017 than in 2016; both years he earned a little over $466,000.

The numbers are in Manitoba Hydro's compensation disclosure documents for those years; the annual reports are required by the provincial Public Sector Compensation Disclosure Act.

"Employees who voluntarily left the company received a financial incentive," Manitoba Hydro spokesman Bruce Owen said in an email.

They were eligible for two weeks of their base pay for each completed year of service, up to a maximum of 30 weeks, Owen says.

"Employee costs represent close to 80 per cent of our operating budget. To lower our costs, we needed to reduce our workforce," he wrote in the email.

MacDonald can't understand how the formula adds up to taking home well over three times a person's base pay, even when unused vacation time is included in the amount.

"Some of these positions are multiple times their base salaries. I don't know how they came up with that. That seems to be negotiated and, candidly, it seems excessive," MacDonald said.

'Critical information missing'

The formula cited by Owen is reasonable, but it wouldn't lead to these numbers, MacDonald says.

"There's some critical information that we seem to be missing here."

Unused vacation time could add five to eight weeks, but unless people are getting unused sick time paid out, the math doesn't add up, he says.

Owen says Manitoba Hydro doesn't pay out sick leave benefits, but there is a process called "vesting" that does end with a payout. If an employee goes 246 days without any sick leave, that person begins to "vest" 6.5 days of sick time a year, which is paid out, he said. If the employee takes a sick day, vesting ends and the worker has to go another 246 days without sick leave before beginning to get vested time again.

Paying out sick time is rarely done in the private sector, MacDonald says.

Occasionally, top private sector leaders negotiate a "golden parachute" with boards of directors, resulting in payouts many times their base salaries, but that's the only time such payouts happen in private companies, MacDonald says.

"In essence, what we're looking at at Hydro for a lot of these positions is really a golden parachute," he said.

The news of the high payouts stunned MacDonald.

"This is a public organization that has experienced extreme financial challenges and to, in some ways, reward the senior managers with this generous departure severance was surprising, because if it was performance based, they'd have some questions to answer, and given that it's public money, they also have some real questions to answer."

Approximately 820 employees left the company from June 2017 and January 2018, Owen said. The January severance will be reflected in the 2018 disclosure.

Manitoba Hydro expects to save about $90 million in salary and benefits through the voluntary disclosure payment program, he says.

Here are the five top paid Manitoba Hydro employees in 2017, with the amount they were paid that year, and how much they earned in 2016 in brackets:

• Lloyd Kuczek, vice-president customer care and energy conservation — $805.015.83 ($218,716.59).
• G Brent Reed, vice-president customer service and distribution — $568,322.68 ($234,999.96).
• Kelvin Shepherd, president and CEO — $466,629.92 ($466,219.92).
• Free Larter, Selkirk Generating Station department manager — $437,218.20 ($142,389.15).
• Darren Rainkie, vice-president finance and regulatory and chief financial officer — $395,499.95 ($234,109.46).