While Canadian employers move aggressively to contain costs and manage risk, they are also making a concerted effort to minimize the impact on employees, a recent survey reveals.
Certain areas of Canada’s economy have been hit hard by the recession, such as manufacturing, finance and banking, but many employers have managed to avoid the drastic measures they were prepared to take, according to Mercer’s latest Leading Through Unprecedented Times global survey of more than 2,100 organizations in various countries.
Canada vs the world
Canadian organizations have been more likely to freeze pay levels or defer pay increases than to implement pay cuts, according to the survey. In the past six months, 51% froze salaries at 2008 pay levels for at least part of their employee population—including 29% that froze pay enterprise-wide—while 10% decreased salaries from 2008 levels. Organizations in the durable manufacturing industry were twice as likely to freeze pay (62 %) company-wide.
Canadian employers are almost equally divided on whether their 2009 base pay budgets will be more than their 2008 budgets (32 %), equal to 2008 budgets (33%) or less than 2008 budgets (35 %). Six in ten respondents say that annual bonus payments were cut in 2009 (based on 2008 performance) compared to the previous year, which is in line with global respondents. However, 20% awarded higher bonus payments in 2009 compared to 2008, mostly in the high tech and telecom sectors, while employers in the manufacturing, retail and energy were sectors trimmed back bonus pay.
“Employers should be sure to avoid a death by a thousand cuts,” says Audrey O’Connell, a principal in Mercer’s human capital business. “While they are taking prudent measures when it comes to compensation, the cumulative impact of salary freezes, delayed salary increases, and lower bonuses can push top performers to look elsewhere. Although the employment market overall is soft, good employees can still find options elsewhere, so employers should not lose sight of their total rewards offer.”
Most Canadian employers feel their employees have little or moderate levels of concern regarding the impact of the economic turmoil on the cost of their healthcare, likely due to the fact that very few employers (less than 5%) took or plan to take drastic measures such as eliminating group benefits to control health and benefit costs. This compares to 14% of employers who said they were likely to do so in the November 2008 results. Companies are instead taking action to mitigate risk rather than implement sweeping program change.
Looking ahead
Many employers indicated they expected to continue with cost containment and risk mitigation plans, and almost half have or plan to adjust their financial assumptions about their projected health and benefit costs.
“Past experience has shown spikes in health, dental and disability plan utilization are common during difficult economic times,” says Fatima DiBiase, a principal in Mercer’s health and benefits business.
Also, nearly 30% have or plan to conduct an audit to confirm eligibility of dependents covered under their health and benefit programs.
“Employers can still do more to manage their benefit costs with little impact on employees, but can result in meaningful improvements on plan governance,” adds DiBiase. “Employers should conduct audits to ensure that claims are only being paid to those who are eligible, and for those drugs and/or services provided for within the plan.
When it comes to health benefits, 60% of Canadian employers said they have or plan to implement a wellness program this year, while nearly 30% have or plan to introduce programs to improve complex illness, such as absence and disability management initiatives.
Employers with defined benefit pension plans are looking to mitigate risk, with 60% of Canadian respondents having taken or are very likely to take actions to deal with risk in 2009, across all industries.
“Canadian employers are looking at ways to mitigate risks and at the same time address employees’ concerns in both their defined benefit and defined contribution plans,” says Paul Forestell, worldwide partner, retirement, risk and finance. “Employers that review retirement plans in a holistic way will identify and maintain the optimal balance between financial risk and costs for plan participants and plan sponsors.”
The survey also revealed that 78% of Canadian employers have indicated that their employees are significantly or moderately concerned about the impact of economic turmoil on their retirement plan investments. As a result, 61% of Canadian employers with defined contribution plans have taken actions or are very likely to take actions in 2009 to ensure that members of the plans better understand their investment choices, options and long-term savings objectives.
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