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© Copyright 2000 Rogers Media. The following article first appeared in the January 2000 edition of
BENEFITS CANADA magazine.
Insights
Contrarian views, news and international intrigue
By Andrea Davis
Who wants to be a millionaire?
Winning big bucks on game shows might appeal to some of your plan members as a good way to earn a little
extra cash. But many employees can look to a more reliable method of earning more money in the new
year--their paycheques.
Canadian employees can expect an average 3.3% increase in their take-home pay this year, according to
Compensation Planning Outlook 2000, The Conference Board of Canada's annual compensation survey.
1999 was the fifth consecutive year that base pay increases outpaced inflation. Overall increases for 1999
were 3.6%, the highest average increase experienced by Canadian employees this decade.
A compensation survey conducted by William M. Mercer Limited reveals similar results. It forecasts salary
increases in the private sector of 3.5%. Not surprisingly, technology-related fields are predicting higher
salary increases than other industries. The highest salary increase was reported by the computer software
industry, which projected a 6.3% salary increase.
"While average or overall increases are useful barometers, they are probably less meaningful to individual
employees than in the past," says Jim Delaney, a consultant with Mercer's performance and rewards practice.
"More than ever companies are directing higher pay increases to the highest valued employees rather than
giving average increases to everyone."
Putting people first
Your company's bottom line depends on how it treats employees, says a new study from Watson Wyatt
Worldwide. The year-long study analysed human resource practices at over 400 publicly traded North American
companies, about 10% of them Canadian. Each had at least three years of total returns to shareholders and a
minimum of $100 million in revenue or market value. The survey data was then matched to objective financial
measures of a company's value, including market value, three- and five-year total returns to shareholders
and ability to create economic value beyond physical assets. Each company was assigned a human capital
index on a scale of one to 100.
The study showed a strong relationship between human capital and shareholder value over both the short and
long term. Over a five-year period, total returns to shareholders were nearly twice as high for companies
that scored well on the index as for companies that scored low. Over a six-month period, companies that
scored high on the index reported total returns to shareholders of 28%, versus -6% for companies that
scored low on the index.
Reining in the drug plan
With blockbuster drugs putting pressure on benefits plans, employers are looking at several cost
containment strategies. In a survey of 326 employers in the Greater Toronto area, 9% said they plan on
introducing a drug card this year as a way to contain costs.
SOURCE: The Toronto Board of Trade
VIEWPOINT
Accounting for people
Financial reporting systems need to account for people
By Ginny Jones
Whether it's training, wellness programs or employee satisfaction surveys, the issue of proving bottom line
worth remains an ongoing struggle for human resources (HR) executives.
Why is one required to make the business case for something we intrinsically know is important to financial
performance?
Perhaps it's because the ways and means available to us--our financial reporting systems--are based on
antiquated models in which only tangible assets have an allocated value.
A quick look at your organization's balance sheet shows that there is no entry for people. Whether it's the
knowledge your employees possess or the value of the relationships they maintain with your customers,
shareholders and regulators, we need some innovative thinking and language to allow for dialogue with our
financial officers.
The information age is here to stay. Yet our understanding of its influence is limited. In the knowledge
economy, human capital--defined here as the capacity to innovate based on skill sets and mind sets--will
dominate.
Why, then, do we retain both our industrial age management models-- in which tasks, control and production
of product lines dominate--and our outdated financial reporting structures? Neither support nor even fit
with contemporary commercial demands.
Last year, the International Accounting Standards Committee (IASC) published its long-awaited standard on
Intangible Assets (IAS 38). It applies, among other things, to expenditures on advertising, training, start
up and research and development.
A media announcement issued upon release of the standard stated that "investment in, and awareness of, the
importance of intangible assets have increased significantly in the last two decades." While the standard
is expected to have no direct impact on how Canadian chartered accountancy firms report and file (unless
the client is a multinational firm with offices in countries required to comply with IASC standards), it
does give a global definition to intangibles.
During the third World Congress on Intellectual Capital, held in Hamilton, Ont. last year, Beverley
Brennan, chair of the Canadian Institute of Chartered Accountants (CICA), cautioned the intellectual
capital management community (ICM) to allow for time for experimentation and best practices to emerge.
She called for researchers to team up with practitioners to create the knowledge base required for "the
development of a whole new measurement system for value creation, one that would operate in parallel with
the existing value realization measurement system."
In the meantime, the CICA is establishing the Canadian Performance Reporting Initiative Board. Among its
duties will be to "advance knowledge in ICM and other areas critical to performance measurement."
For years, HR personnel have struggled to become "strategic business partners." This is a golden
opportunity for HR leaders to work together with the CICA and the ICM to ensure that people count.
Ginny Jones is president and chief executive officer of Acuity Options, a corporate cultural change and
systemic communications firm in Ancaster, Ont.
Investing in Canada
Canadian companies are attracting more U.S. investors. This despite a feeling among U.S. fund managers that
Canadian corporate managers are not as sensitive to issues of shareholder value as their American
counterparts.
U.S. portfolio managers said that shareholder value takes a back seat in Canada because of this country's
high tax structure, infrequent use of stock options, a less competitive business environment and a greater
need to include consideration of social issues in making business decisions. The results are part of a
survey by New York-based Broadgate Consultants, Inc.
But Canadian companies can't be doing too poorly--all of the investors surveyed intend to maintain or
increase their positions in Canadian equities over the next 12 months.
Taking risks
Canadian pension funds need to focus more on risk assessment, says a new report from Greenwich Associates.
Greenwich's recent survey of 280 Canadian pension funds reveals that 37% of pension funds conducted risk
assessment studies in the past year. Just under 50% conduct risk assessment studies every few years or not
at all.
The situation is especially worrisome at the smallest pension funds, where only 19% of those with assets
under $100 million have done risk assessments in the past year, and 33% do them infrequently or not at all.
THE TALK
"Our aging population is putting pressure on the health system that could bankrupt us if we don't open our
minds to new methods for delivering services, particularly for ailments associated with older patients."
Alberta premier Ralph Klein, defending his proposal that would allow private clinics to contract with
regional health authorities for surgical procedures that require overnight stays. As reported in Time
magazine.
IN FACT
Percentage of Canadian investors who don't know that the foreign content limit for registered retirement
savings plans is 20%:
39%
Percentage who have less than 20% foreign content in their portfolios:
49%
***
Percentage of Canadian men surveyed who said they would consult their physician if they experienced
erectile dysfunction:
78%
Percentage of Canadian men who actually seek treatment for the condition:
10%
** *
Number of prescriptions dispensed for the anti-obesity drug Xenical in the first three months of its
availability:
78,200
Cost:
$10.6 million
***
Percentage of Canadians who say their confidence in the healthcare system is falling:
55%
Percentage who say that if timely access to healthcare is not available they would be willing to use their
own resources to seek private care:
73%
***
Sources: Trimark Investment Management Inc./Decima Research; Pfizer Canada Inc.; IMS Health; Pollara/The
Coalition of National Voluntary Organizations/Merck Frosst Canada & Co.
Road to retirement is paved
with good intentions
More Canadians plan to contribute more money to their registered retirement savings plans (RRSP) than ever
before.
A survey from the Royal Bank Financial Group says that 52% of Canadians intend to contribute to an RRSP
this year. The average contribution, according to the survey, will be $5,051, up from $4,266 in 1998.
But experience shows that despite Canadians' good intentions, the money may not end up in their RRSPs. Last
year's Royal Bank survey said that 44% of Canadians were planning on contributing to their plans but
Statistics Canada recently reported that only 29% of tax filers did so in 1998. The amount of contributions
was down as well. Canadians contributed $26.6 billion in 1998, down 3.8% from the record high $27.7 billion
total in 1997.
Remarkably, the Royal Bank survey shows that 77% of Canadians are confident they will be able to retire
with enough income to live comfortably even though 48% believe they are behind in saving for their
retirement and 56% say they are worried about how financially secure they will be in retirement.
Eldercare alert
With the number of senior citizens on the rise in Canada, employees could increasingly be faced with having
to arrange care for elderly parents or relatives. A recent study from Statistics Canada reveals that more
than two million Canadians looked after older family members or friends with a long-term health problem in
1996. Over two-thirds of these caregivers were in the paid workforce in 1996, the year the study was
conducted.
"As far as the traditional benefits programs, there aren't any pragmatic solutions," says Sandra Dudley, a
consultant with Eckler Partners in Toronto. Most employers, she says, address the issue by embedding an
eldercare referral program into their employee assistance program (EAP).
But eldercare services offered by EAPs are evolving, says Shelly Gorchynski, vice-president of operations
at Warren Shepell in Toronto. Historically, eldercare services were viewed as a referral service for
retirement homes. "Certainly, those are things programs still do but services now involve very thorough
assessment of eldercare needs, including the level of involvement the family member currently has and
education around how their involvement may grow over time," she says.
BUZZWORD
A person living in a relationship of some permanence with emotional, economic and sexual aspects.
(Canada's federal Justice Department definition of same-sex spouse)
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