TORONTO -- The Ontario government has signed off on a new executive pay plan set out by Hydro One Ltd.

Under the proposed framework, the utility will pay its chief executive a maximum of $1.5 million a year in direct compensation, with a base salary of no more than $500,000.

Short-term and long-term incentives are limited to $1 million.

Under legislation the government passed last year, Ontario can issue a formal, legal directive to the utility on pay.

The province had rejected an earlier plan that would have capped the CEO's compensation at nearly $2.8 million.

Performance targets under the pay plan will include the CEO's contributions to reductions in transmission and distribution costs.

Pay for other executives at the utility will be capped at 75 per cent of the CEO's total direct compensation.