Reform of Agencies, Boards and Commissions (Post-Secondary Institutions) Compensation Regulation Extended to More Post-Secondary Executives as of April 1, 2021
On March 24, 2021, the Alberta Government passed an amendment to the Reform of Agencies, Boards and Commissions (Post-Secondary Institutions) Compensation Regulation (the “Compensation Regulation”), which is enacted pursuant to the Reform of Agencies, Boards and Commissions Compensation Act. The Act and the Compensation Regulation further evolves the “compensation framework” applicable to presidents, and now to various other senior executives in the post-secondary sector, including changes to the elements of total compensation and establishing caps for total permissible compensation.
More Positions Are Now Subject to the Regulation
Where previously the Compensation Regulation only applied to presidents of Post-Secondary Institutions (“PSI”), significantly, the amendments have extended the application of the Regulation to include positions up to two levels below the position of president. These are referred to as Tier A and Tier B positions:
- Tier A includes positions exercising managerial functions that report directly to the president, and
- Tier B includes positions exercising managerial functions reporting directly to a Tier A position (excluding unionized employees).
All of these positions are now “designated executives” within the meaning of the Regulation.
Given the definitions for Tier A and Tier B positions, deans appear to fit under Tier B. In fact, the amendment has added “dean” as a defined term in the Regulation, echoing the definition for “dean” in section 21 of the Post-Secondary Learning Act:
A dean of a faculty has general supervision over and direction of the academic work and instructional staff of the faculty and of the officers and employees employed in connection with that work, and has the other powers, duties and functions that are assigned to the dean by the president.
The impact of deans being brought under the Compensation Regulation is that they, along with other Tier A and Tier B positions, are now subject to caps on their Total Remuneration.
Salary and Total Remuneration Caps
Previously, the Compensation Regulation only outlined a range for the president’s base salary and various benefits (the base salary model and ranges have not changed). An addition has now been made to Schedule 2 to place caps on the “total remuneration” paid to the president and Schedule 3 has been added to place caps on the “total remuneration” paid to Tier A and Tier B positions.
“Total remuneration” is defined in the Regulation as the amount of base salary plus certain benefits (paid, payable or provided annually), excluding administrative leave, reimbursement of expenses, leave days, relocation expenses, severance pay and northern allowance. To determine the applicable caps, a PSI must examine which “position level” the PSI occupies in Schedule 2 (from levels 1 through 5), and then the corresponding position level cap in Schedule 3 (for Tier A and Tier B) will apply.
While deans fall under Tier B, the amendments provide an option to Boards of Governors to compensate deans as if they are Tier A employees. Doing so does not mean that the dean is reclassified as a Tier A position and their direct reports are then elevated to a Tier B level – that is expressly precluded. Notably, the authorization to compensate a dean as a Tier A position is subject to “any guiding principles established by the Minister” however the guidelines have yet to be published on the Minister’s website. PSIs will want to keep an eye on further Ministerial Guidelines as these will clearly be important in determining the ease with which a PSI could treat a dean as a Tier A position. Nonetheless, this aspect of the legislation does provide some likely welcome flexibility in dealing with deans who are currently more highly compensated.
New Parameters on Benefits
Previously, the Compensation Regulation contained a list of which benefits could be offered in addition to base salary and the Ministerial Guideline prohibited any additional benefits not expressly provided for. That list has been removed leaving a more general provision that the PSI may provide benefits (or pay in lieu) to a designated executive, so long as it is consistent with Ministerial guidelines or the PSI’s policy that has been approved by the responsible Minister.
The Ministerial Guideline currently provides direction on how the following benefits are provided (but it does not require that the PSI actually provide the outlined benefits): health benefits (or payment in lieu); retirement benefits (or payment in lieu); vehicle usage or vehicle allowance; and use of accommodation, residence or housing. The Ministerial Guidelines now also permits the PSI to provide designated executives with any other benefit (however, the cost will be included for the purposes of the 35% Calculation discussed below).
The amendment has introduced a new provision that the cost of the benefits provided by the PSI cannot exceed 35% of the designated executive’s total remuneration (the “35% Calculation”). The Ministerial Guidelines require the following benefits, if provided, must be included in the 35% Calculation:
- Health benefits (or payment in lieu)
- Retirement benefits (for funded plans – employer contribution rates; for unfunded plans – cost to the PSI if the employee were a participant in the Management Employees Pension Plan)
- Vehicle usage (in the amount of the assessed value of the vehicle divided by 5) or vehicle allowance (the actual allowance amount)
- Use of accommodation, residence or housing (actual cost or fair market value)
- Other benefits (actual cost or fair market value)
The following benefits (or pay in lieu) are not included in the 35% Calculation:
- Administrative Leave
- Reimbursement of expenses (in accordance with Treasury Board Directive #1/2015)
- Leave Days (includes illness leave, family illness leave, bereavement leave, personal leave, maternity, parental or adoption leave, and leave for attendance at a court or tribunal)
- Vacation Leave
- Relocation Expenses
- Severance Pay
- Northern Allowance
- Paid Holidays
PSIs at position levels 3 to 5 may now automatically provide designated executives with administrative leave. PSIs at levels 1 and 2 may still provide designated executives with administrative leave so long as the PSI also offers administrative leave to any non-bargaining unit employee as of April 1, 2021.
However, the Regulation requires that administrative leave must be provided in a manner consistent with the Ministerial Guidelines. The new Ministerial Guidelines clarifies that where the PSI offers administrative leave to non-bargaining unit employees as of April 1, 2021, it may provide administrative leave to a designated executive but only if the executive will return to or be otherwise employed in a faculty member position following the expiration of their contract or term of appointment.
The requirement for the executive to be employed in a faculty member position after their contract or term of appointment is new. This means that anyone who is not academic staff who may have an administrative leave entitlement may lose that in their next contract.
The set administrative leave accrual rate of not more than 10.4 weeks per year of service to a maximum of 52 weeks has not changed from the prior regulation. However, a significant change facing PSIs is the fact that the administrative leave provisions will apply to Tier A and Tier B executives, particularly deans. This likely represents a marked change in their previous leave entitlements – specifically, the maximum of 52 weeks administrative leave and the requirement under the Ministerial Guidelines that, in order to take administrative leave, the executive must return to or otherwise be employed in a faculty member position after their contract or term of appointment. Not only does this represent a new maximum leave, but the Guidelines effectively prohibit the practice of taking administrative leave before retirement as the executive will not be able to fulfil the requirement of returning to a faculty position after their appointment ends. No further guidance has been given as to what the exact expectations are regarding this “return to faculty” requirement. How long are they expected to return? Can they change their minds at some stage? This aspect will surely see further scrutiny and evolution.
Deans (and other Tier A and B executives) do not come under the Regulation until the two year transition period has elapsed (March 31, 2023) or until their contract is amended, renewed or extended, whichever comes first. Before this, current terms of administrative leave are still binding.
It is further notable that there is no mention of the 52 week maximum applying to a specific period of time. A plain reading of this suggests that the accrual rate and maximum of 52 weeks leave applies once, preventing the ability to defer administrative leave and combine it with other accrued leave in order to take a longer total period. However, this may be subject to argument. Finally, the amendments do not remove the restriction against providing pay in lieu of administrative leave unless it is being provided in a without cause termination (and only payment for administrative leave accrued up to the date of termination to a maximum of 52 weeks).
Minor Modifications to Severance Pay for Without Cause Terminations
The amendments have made modifications to specify the maximum severance pay for the president is the greater of: maximum 26 weeks of base salary or 4 weeks base salary or each full year of continuous service to a maximum of 52 weeks. Tier A and Tier B executives may receive severance pay in an amount not exceeding 4 weeks base salary for each full year of continuous service to a maximum of 52 weeks.
Compensation for benefits on termination remains the same as in the prior Regulation. Designated executives will receive an amount equal to the cost to the employer for 4 weeks of the benefits the designated executive was receiving before termination, for each completed year of continuous service with the employer, to a maximum of an amount equal to 16% of the severance pay (referred to above). This excludes administrative leave, reimbursement of expenses, leave days, relocation expenses, severance pay and northern allowance. Executives are also entitled to payment in lieu of administrative leave that has been accrued to the date of termination to a maximum of 52 weeks.
The pension benefit provisions previously applicable only to the president now apply to Tier A and Tier B executives. These benefits must be in compliance with the Ministerial Guidelines, which requires:
- For defined benefit retirement plans – the benefit formula must not result in a benefit that exceeds the benefit under the benefit formula for the Management Employees Pension Plan (MEPP) established by the Public Sector Pension Plans Act (2% x highest five year average pensionable salary up to the maximum allowed under the Income Tax Act (Canada) x years of pensionable service); and
- For supplementary defined benefit retirement plan – the benefit formula must not result in a benefit that exceeds the benefit under the benefit formula for the Supplementary Retirement Plan for Public Service Managers (2% x highest five year average pensionable salary in excess of the highest five year average salary provided under MEPP x years of pensionable service).
Finally, the term limit of 5 years for the president remains unchanged but is now applicable to Tier A or B positions and variable pay (i.e. bonuses or incentive pay) remains prohibited for the president and now Tier A and Tier B positions.
Timeline for the Changes
The amendments come into effect April 1, 2021 and will therefore govern any new hires or appointees.
Anyone who is already a designated executive will be subject to a transition period during which the current/existing compensation plans for the designated executive may remain in place. The transition period for currently-appointed designated executives is the earlier of: 2 years from the effective date [i.e. March 31, 2023] or until a designated executive’s employment contract, employment or agreement is extended, amended or renewed.
There will inevitably be various challenges to post-secondary institutions in managing compliance with this new, somewhat unexpected legislation; particularly given the certain aspects that remain unclear or subject to argument and further requirements. Field Law’s Post-Secondary Education group will be pleased to assist institutions and their administrators as they navigate this legislation in these challenging times.