©Copyright 2000 Rogers Media. The following article first appeared in the August 2001 edition of BENEFITS CANADA magazine.

Attraction and retention challenges are forcing employers and consultants to look at pensions and benefits in a new way. The focus is now on total compensation as consultants consider how a variety of rewards will meet both employees' and employers' needs.

By Kathryn Dorrell

Dean Connor, president and chief executive officer of Mercer--the No. 1 firm on the Top 10 list in benefits canada's 25th Annual Pension & Benefits Consultants Report--says this story explains how the pension and benefits consulting business is evolving. "Five years ago, we would have simply asked the employer for details on what type of flex plan they wanted," says Connor. "Today, we ask why the employer wants a flex plan. When the firm said it was hiring for the first time in several years and thought it needed one, we [inquired] about what type of employees it was trying to attract, which lead to a larger discussion on HR strategy, and what an effective rewards strategy would look like for that company."

The name of the game today is total compensation. "Companies are asking: 'How are we going to spend our money on our people?'" says Bruce Near, managing director with Towers Perrin in Toronto. "They are looking at the big picture."

Total compensation has been discussed in consultant and plan sponsor circles over the past few years. Consultants say it is entrenched in most major U.S. organizations. Now, Canadian employers are starting to walk the talk. They are looking at a variety of rewards--pensions, benefits, salary, vacation, bonuses, stock options--and how organizations pay employees in the broadest sense of the word.

"Canadian employers have been aware of the need for a total rewards approach, but now they can't just say it; they have to do something," says Marilynne Madigan, senior vice-president with Aon Consulting in Toronto. "Finally, they are formally articulating it. We are helping employers create a total rewards philosophy."

Total compensation is part of a larger movement, and that's attraction and retention--the buzz-word on the lips of nearly every consultant and organization these days. Jane Paradiso, business leader for recruiting solutions at Watson Wyatt Worldwide in the U.S., who advises large employers on their recruiting strategies, says despite the slowdown in many sectors, employers have new recruiting challenges that may be even more difficult than those experienced during booming economic times. In addition, a new survey by Mercer shows that employee turnover was 15% in 2000--3% higher than in 1999.

Demographic pressures and a strong job market have put employees in the drivers' seat. As a result, employers are turning to consultants to devise programs that will ensure the organization not only has a competitive pension and benefits plan, but more importantly, that it is able to attract and keep top talent.

Total compensation doesn't mean organizations are throwing more money around though. Rather, they are carefully determining how to get the most bang for their buck. "The employer decides how much it wants to spend and works with the consultant to allocate these resources," explains Patrick Longhurst, a senior consultant with Watson Wyatt in Toronto. "It's attraction and retention at the right cost."

Longhurst adds that adopting a total compensation mind-set is a necessity when helping an organization meet the needs of a demographically diverse workforce, which has become increasingly common. "Organizations are concerned about bridging the gap between aging employees [that they want to hold on to] and the new people they want to bring on board." Near adds that employers are discovering that different rewards are attractive to the new people they are hiring.

In particular, employees of all ages want choice, and employers are happy to fill this need. This explains the growth of flex benefits plans, hybrid pension plans and defined contribution plans, says Ron Lloyd, managing partner, Hewitt Associates LLC in Toronto. "Employers are blurring the line between retirement [plans], benefits and pay. They are saying, here's the money, it's your choice, put it into a health spending account or a registered retirement savings plan."

Consulting firms are also designing and implementing more phased-in retirement programs for employers that must address what group insurance benefits, compensation and bonuses these semi-retired individuals will receive, says Longhurst. As well, they are helping organizations restructure their pension plans to accommodate phased retirement. "[We have to] put together an attractive package that meets [everyone's] needs," he adds.

The volume of mergers and acquisitions has also forced consultants and organizations to embrace total compensation. Connor says that when companies restructure, they often want to devise an entirely new compensation package to create a distinct culture for the new enterprise.

Madigan adds that the technology sector, which gained media exposure for attracting high performers with innovative compensation packages, has forced other industries to look at total compensation. While the tech boom has fizzled out, Madigan is confident that the total compensation philosophy is here to stay.

WHAT THE NUMBERS SAY

Benefits, pension and administration revenues among the firms on the Top 10 list are up $76.1 million, or 14.4%, year-over-year to $606.3 million for the period ending Dec. 31, 2000. The strongest performers, in terms of growth, are Eckler Partners Ltd., with a revenue increase of 35.7% in this category, followed by PriceWaterhouseCoopers LLP at 28.9% and new entrant WSG Benefit Consultants Ltd. at 28.8%. WSG takes the place of KPMG Actuarial Benefits and Compensation Inc. on the Top 10 list this year.

KPMG sold its actuarial and benefits business, worth about $9 million, to Watson Wyatt last year. While the firm had $118.9 million in HR and other revenues as of Dec. 31, 2000, it is not releasing any figures for its Canadian business this year. This significantly impacts the industry revenue total, and benefits canada's ability to report on total revenue trends outside of the Top 10 firms.

WSG made it onto the Top 10 list this year, but it is already being challenged by Cowan Wright Beauchamp. That firm is the result of a merger between Cowan Wright Ltd. (formerly Wright Mogg & Associates) of Waterloo, Ont. and Welton Beauchamp, Nixon Inc. of Ottawa, which took place in June. The deal was struck as a means of increasing market share in the large and competitive Ontario market-place. The newly merged company would have had combined pension, benefits and adminstration revenue of $11 million as of Dec. 31, 2000--which makes it a strong contender for the Top 10 ranking next year.

Not surprisingly, the large consulting firms dominate the market when it comes to total compensation solutions--a trend reflected in this year's numbers. While the Top 10 firms have slipped in terms of the hold they have on the pension, benefits and administration market--from 94% last year to 92.6% in this year's report--these same firms have virtually all (98.1%) of the HR and other market sewn up. This is a healthy increase from 88% of market share last year.

This year's Top 10 hold $179.5 million in HR and other business--up 40% from $128.6 million last year. The consulting firms with the biggest gain in this area are Buck Consultants Ltd. with a 39.1% increase, along with Watson Wyatt at 29.7% and PriceWaterhouseCoopers LLP at 23.6%.

The Top 10 dominance in this category reflects these firms' HR strategy work with clients. "We are investing a lot into the growth of our HR practice," says Connor. "This is an area to watch."

Again this year, Towers Perrin did not provide a breakdown of its revenue in pensions, benefits, HR and other. Morneau Sobeco estimated its figures for the pension and administrative categories. Both firms maintain the breakdowns are no longer relevant given the nature of consulting work these days.

Meanwhile, consulting fees have risen more over the past year than in any other year since 1995. The average consultant rate is now $154 per hour and a senior consultant costs $217 per hour, compared to $147 and $208 last year.

IMPACT ON CONSULTANTS

Total compensation is presenting a new set of challenges to pension and benefits consulting firms, which have traditionally operated along distinct business lines. Madigan says the change is forcing the pension and benefits industry to be far more creative in terms of plan design and to know the business of its clients intimately.

"Employers want providers to have a better understanding of their business. We spend a lot more time on this now," adds John Jackson, a senior consultant with Watson Wyatt in Toronto who came over to the firm when it acquired the compensation and actuarial practice of KPMG last summer.

Jackson adds that Watson Wyatt is expanding its research capabilities (a task assisted by the acquisition of KPMG business), such as benchmarking studies for pension and benefits plans and reports on how employers can keep their workforce engaged in the business. "It's our sense that employers are looking for more of this type of information," says Jackson.

The shift to total compensation means that consulting firms are also looking at new strategies to market their broader capabilities, adds Jackson. Connor says that Mercer is strengthening the role of its client managers and training its employees across disciplines to ensure it is a leader in total compensation.

Fortunately, flexible benefits and defined contribution (DC) plans, where employees are required to make choices, have given consultants a wealth of data that allows them to do more sophisticated analysis of employees' needs than ever before, says Bill Morneau, president and chief operating officer of Morneau Sobeco in Toronto. He says one of the reasons why DC and flex benefits plans remain popular is because it is easy for both employers and employees to define their value.

Another one of the challenges of total compensation is that employers need "extremely strong administration and communications" to support their programs, particularly if they involve flex, DC and hybrid pension plans, says Lloyd of Hewitt Associates. This is another job for the consultants.

Consultants aren't immune to the reality of the tight labour market. Ironically they are facing attraction and retention challenges of their own, at a time when they are competing for employees with diverse skills to meet other organization's total compensation needs. This challenge was expressed by several of the top 10 firms this year.

"We are planning to hire 1,000 people over the next five years in Canada to meet our goals for growth," says Connor. "It's becoming a challenge. Talented people coming out of school have many options today." Evidently, the total compensation strategies winning consultants new business will come into good use on the home front. BC

THE INDEPENDENTS

Smaller consulting firms are alive and well in Canada, taking advantage of their size to serve niche markets.

By Deanna Rosolen

Over the past two years, benefits canada has explored the issue of whether small pension and benefits consulting operations can survive in this era of big firms. This year, a survey of several small consulting firms reveals the answer is a resounding 'yes.'

The small firms are well aware that the Top 10 firms hold 92% of the business--but that's besides the point, they say. "It's important to understand that most small consulting firms' goal is not industry dominance, rather it is to specialize in a specific area of business," says David Krieger, president of Krieger & Associates in Toronto.

David McFarlane, president of McFarlane Amerlee Consulting Ltd. in Calgary, says that a small consulting firm "is fooling itself" if it thinks it can provide a wide range of services. Small firms are more effective if they channel personnel and financial investments into "developing superior ways to service selected niches," McFarlane says. Small firms can also fill in the gaps left by the larger, national firms. "In any region, the national consulting firm is only as strong as the local office," says McFarlane. The advantage a small firm has is picking up where the local office falls behind. Because the smaller players tend to be specialists in one area, they're often called upon by their large counterparts for their expertise.

Pam Krenzel and Kathryn Salamanchuk, both principles at Core Values Ltd. in Calgary, say because absence and disability management is their firm's specialty, they are more up to date on research and trends in this area than the larger firms. "[Larger] firms say, 'we can do total compensation,' but when it comes to grass roots managing your (disability) cases--here is the firm to use,'" says Krenzel. One other advantage small firs maintain they have over larger players is service. The Bradford Group of Companies is one of Campbell & Company Insurance Consultants Ltd.'s clients. Both firms are based in London, Ont. Shirley McCallan, manager of human resources at The Bradford Group, which has 42 employees, doesn't think her company would be given any priority if it worked with a large firm.

"We get more personal contact with Campbell, and it's easier to contact them," says McCallan. "With a big company, our size and our kind of problems and issues wouldn't be of great importance."

The Romanow Commission has released its final report on the future of healthcare in Canada.

For Commissioner Romanow's recommendations, click here.

Click here for Senator Michael Kirby's report, "The Health of Canadians – The Federal Role: Recommendations for Reform."