Employers across Canada are increasingly concerned about two critical factors: attraction and retention. The tight labour market is pushing up compensation across the country and employers are devising alternative strategies to keep their people.

This year’s round of salary surveys revealed Canadians can expect the best salary increases in five years. For instance, Morneau Sobeco’s Compensation Trends and Projections report said the average increase in Canada is 3.4% and Hewitt’s Canada Salary Increase Survey pegged the average increase at 3.6% for this year and 3.7% for next. The greatest increase for 2006 is, not surprisingly, in Calgary at 5.3%.

Both surveys indicated employers’ hot topic for 2007 is how to attract talent and keep it. “Even though five years ago we knew [the baby boom] was coming, now people are starting to think more about it,” says Andre Suave, partner at Morneau Sobeco’s Montreal office. In his firm’s report, 75% of the 350 organizations surveyed stated that attracting and retaining quality talent was a priority for the coming year. “Hot implies that it will eventually cool off and I don’t think that’s the case,” says John Tompkins, a principal in Hewitt’s Toronto benefits consulting group. “I think we’re just starting to wake up to this issue now and the demographics are working against us.” A recent Hewitt Associates’ survey, titled Attracting and Retaining the New Workforce 2006, revealed that more than 75% of the 232 participants said they were having difficulty recruiting and/or keeping employees.

These problems are in their infancy. Morneau Sobeco reported that 41% of companies are concerned with the aging workforce. On average, respondents to Hewitt’s workforce survey indicated that 43% of their current workforce aged 50 or older would retire before 65. Another 15% expect to reduce the hours older employees’ work and only 11% expect employees to work past 65. “Unless the tide of older workers rushing to retirement is stemmed and/or employers are able to attract younger workers, many companies could find themselves with too much work and too few workers,” the report said.

An immediate way for employers to tackle this challenge, according to both Hewitt and Morneau Sobeco, is through communication of total compensation. “More than 50% of large organizations feel the communication of total rewards is a key issue,” says Suave. “The purpose is to make sure employees are fully aware of all of the benefits that their employment gives them.” Tompkins agrees. “You need to really understand what your promise is and make sure you have it articulated and communicated.”

OMERS wants infrastructure

Government is hampering infrastructure projects because politicians have a hard time dealing with projects that are long-term and capital intensive, said Paul Haggis, president and chief executive offcier of the Ontario Municipal Employees Retirement System(OMERS), at the Toronto Board of Trade.

The costs are adding up and Canada currently has an infrastructure deficit of about $125 billion, said Haggis. That deficit could have a negative effect on the economy. “What we have to do is figure out how to take [infrastructure] out of the election cycle and put it in the hands of those who have a view as long as the life of the asset.”

In 2003, OMERS announced plans to invest 15% of its assets in infrastructure and intends on holding onto them for a number of decades. The pension fund also needs to adjust to find new investment opportunities that fulfill its long-term obligations, noted Haggis. As pensioners live longer, OMERS needs to find assets that meet its liabilities. He added that infrastructure is a perfect match in that regard and it is a steady producer of income.

The fund already has a number of investments in infrastructure, including Associated British Ports, the Confederation Bridge, the Detroit River Rail Tunnel, Express Pipeline System and many others.

“The idea that a vital asset is tied to an election cycle is wrong,” Haggis said. He does think government is coming around to the conclusion there can be better ways of doing things. “We need to work for change. I think we’ll get there and I think the basic premise is Canada needs this asset, that is, we need good infrastructure.” —Craig Sebastiano

 

WORLDVIEW

Farewell DB
A new national survey from Wells Fargo in San Francisco shows more evidence of the trend away from defined benefit(DB)plans. Of the 450 U.S. employers who responded, 93% have a 401(k)or similar plan, and four out of five employers view it as the primary vehicle for their employees’ retirement security. One-third provide a DB plan but that will decline as 20% intend to close it to new employees, 14% will replace DB with a 401(k), and 5% plan to terminate their DB plan within the next 12 months.

Migrating pensions
The European government is planning a comparative study of immigration laws in the 25 EU Member States that will include looking for cooperative solutions for pension issues with developing countries. Under review are proposals to enable migrants who have worked in a Member State and returned to their home country to access the social security and pension rights paid to them during their stay in Europe. The challenge, admits the government, is defining a common policy among 25 states.

Benchmark boost
In an attempt to make plans more transparent, the Mexican private pension fund industry created customized portfolio benchmarks that indicate what managers expect to make and provide a broad breakdown of their funds’ actual holdings. Investors have speculated that bonds and stock indices, like Mexico’s IPC index, could get a boost by including benchmarks. The industry’s largest pension fund has no Mexican stock exposure, but reports indicate it will commit 2% of its assets to the local market. A competing pension fund plans to eliminate its 1% investment in local stocks and raise foreign equity indices to 12%.

 

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