Pensions in Peril

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When companies go out of business, the extent of loss is significant. Sears Canada is yet another large retail provider that has made (or been forced to make) the unfortunate decision to close all of its services due to a lack of economic sustainability.

Along with all of the negative media exposure that came with Sears Canada’s inability to pay its employees their rightful severance and notice provisions, their existing pension plans are also in deep trouble.

According to a recent news item reported through Global News, Sears Canada had a Defined Benefits plan for its employees. What has come to light is the lack of funding on the part of the employer for that plan. The employer was obligated to provide financial support for the plan in order to ensure that the level of defined benefit would be available as required for employees once they moved into retirement and accessed their guaranteed pension funds.

This funding is not in place. What is more alarming, according to this news story, is that 30 % of companies in Ontario and an undetermined number in Quebec are in the same unfunded condition.

Click here to access the news story.

The article states that a defined pension plan provides for a set amount of funds to the retired employee, ‘at least in theory’. What we must learn from this example is that pension plans cannot be theoretical. The need is real for ongoing economic support, once employees make the decision to live on the income they think they have been promised, from their long-term employer.

There is another harsh lesson learned from this particular case. It reinforces the need for solid compensation planning, monitoring and adaptability on the part of the employer. Would the former employees of Sears Canada be better off if their employer had communicated the risks of the unfunded pension plan? Could some different decisions have been made before it was too late for those employees who envisioned a retirement plan based on a guaranteed level of income?

These are indeed theoretical questions that do little to help those employees facing poverty in retirement. This is a case of much too little, much too late.

Discussion Questions:

  1. How would you communicate the risks of a Defined Benefits Plan to employees in your organization?
  2. What steps could you put into place as a Compensation Manager to ensure that employee pensions are not in jeopardy?
  3. Identify the differences between a Defined Benefits Plan and a Defined Contributions Plan in order to convince your current employer to implement the one that is best for your organization.

$49,000 vs. $7.8 million

Mind the gap!

Concept image for greedy corporate business people. CEO is eating a burger stuffed with currency. He is at his desk in his office, wearing a black suit and tie.

HR has to start considering the gap: the wage disparity gap, that is. What should HR do about income disparity in organizations?

These numbers represent the state of wage disparity in Canada: the average Canadian worker earns $49,000 per year and the average salary for a CEO in Canada is $7.8 million. A CEO earns 159 times the wage of the average worker, but it is much worse in the United States where the average CEO’s salary is over 300 times that of the average worker.

Click here to watch a short video from the Huffington Post on this issue.

The issue of excessive executive pay is at the heart of an organization compensation management system and may be causing organizational and social problems. According to the Organization for Economic Cooperation and Development (OECD), “Income inequality in OECD countries is at its highest level for the past half century.” And, “The average income of the richest 10% of the population is about nine times that of the poorest 10% across the OECD, up from seven times 25 years ago.”

Click here to see the OECD report.

Prime Minister Justine Trudeau believes that it is this income inequality that is a leading factor in the political populism that is spreading throughout the world. It is a complicated global issue that has many social, economic and political causes, but one must recognize that income inequality is a factor.

Some politicians such as UK Labour leader Jeremy Corbyn believes the government should address this issue of excessive executive pay and “suggested a wage cap which would prevent people from earning “ridiculous” amounts.”

Click here to read the HRM CANADA article.

In the United States, soon all publicly traded companies will have to disclose worker to CEO pay ratios. Currently, regulations in Canada do not require this disclosure. Should Canada follow the United States and make CEO-worker wage ratios public information? How would this affect an organization’s compensation system? It is definitely something HR needs to think about.

Discussion Questions

  1. Discuss the benefits and the negatives with forced disclosure of CEO-worker pay ratios.
  2. Research to determine if there are any benefits for an organization’s compensation system to be disclosed to all workers in the organizations?

Compensation Cuts in Alberta

Word Reward against the red falling graph. 3D illustration picture

In late February, the Alberta government announced the implementation of significant compensation cuts for individuals holding senior executive positions in public sector agencies, boards, and commissions.

On the face of it, these cuts are significant.

Click here to read the Globe & Mail’s assessment of this change.

Click here to read the CBC’s reporting on this change.

The compensation decreases come as a result of a long term review of compensation levels for these positions which are paid for by the taxpayer. There is no doubt that the individuals holding executive-level positions are just as dedicated to their work as any other Canadian committed to a life of public service. On the other hand, is the value of the work performed at the executive level limitless? Do the performance requirements match the rewards that include housing allowances, golf course memberships and hundreds of thousands of dollars in salaries?

In isolation, the answer to these questions would be that the levels are excessive. Of course, the Albert government’s actions to implement these drastic cuts appear reasonable for these types of positions where the compensation levels seem to be excessively rewarding.

However, nothing linked to compensation exists in isolation.

Alberta has gone through an extreme economic change that has impacted all levels of industries and services across the province. When the economic times were good in Alberta, they were exceptionally good for everyone. All compensation levels were high. It would make sense that any executive-level position was paid equitably in comparison between the public and private sector markets. As the Alberta economy has dropped, so too have the opportunities and compensation levels for everyone. In order to compete in the market place, everything must adjust to current economic realities.

Rather than seeing this compensation adjustment as a reduction of individual proportions, we have to consider the context that is part of a larger economic cycle which ebbs and flows based on what the market, and the taxpayer, will bear.

Discussion Questions:

  1. What is the difference between public service and civil service?
  2. What are the risks associated with capping severance pay for other senior executive positions across Canada as a result of this change in Alberta?
  3. From a Human Resources perspective, what are the challenges that these public sector organizations will face into the future?
  4. If you were one of the executives facing a $500,000 salary cut that reduced your earnings from $900,000 to $400,000 per year, how would you react?