As the Canadian economy sluggishly moves past the recent recession, employers will have to quickly pull their heads out of the sand when it comes to the impending demographic crunch. The rapid loss of skilled workers to retirement is a fundamental issue that many employers are still not prepared for. The issue was temporarily swept under the rug during the recession as unemployment went up and potential retirees hung on while their retirement portfolios recovered.
Some employers took the focus off retention strategies because of the recession but recent numbers suggest this was a misstep. The Bank of Canada recently suggested that the actual impact of the recession on the demographic crunch will be minimal. They anticipate the retirement rate will only go down by 0.1% or 0.2% as a result of the sluggish economy and this reduction should only last for 1 to 3 years.
Add to that the recent Statistics Canada figures suggesting wage pressure is up and all employers need to revisit strategic compensation. From August 2009 through August 2010, the weekly earnings of non-farm payroll employees went up 4.4%. This marked the fifth consecutive month of year-over-year increases as we see employees demanding more compensation with the economy getting back on track.
What does this all mean? It tells us skilled employees are still going to be retiring in droves and that wage pressure is already being felt across the country. It means that Canadian employers don’t have a free pass and will very soon be faced with the same shrinking labour pool and competition for skilled workers that has been talked about for the last decade.
In order to remain competitive in the battle for skilled employees, employers are increasingly going to have to be flexible. Whether it is battling to entice the new wave of employees entering the workforce, convincing mature workers to stay on a few more years or finding and securing the immigrant workers, employers are going to be faced with the challenge of addressing many different demands.
In Canada, many employers continue to use a mixture of salary, fixed holidays, healthcare and perhaps some form of retirement savings to compete for employees. They benchmark the cost against peers and continuously wonder why these tools seem to be less and less effective over time. Employers that continue to offer static compensation programs while asking for life commitments from employees are going to be disappointed.
Starting in the late 1980s many western nations started to flirt with the concept of flexible benefit programs. Progressive employers in Canada were no different and Canada Revenue Agency was soon pushed to publish their position on such programs in the document IT-529. Flexible benefit programs are not defined in the Income Tax Act, but are an administrative privilege that allows employers to offer a menu of choices to employees without disrupting the taxation of each benefits offered.
A skillfully designed flexible benefits program can be the differentiator in any competitive environment. It can clearly define a company’s culture, create an environment that attracts a specific type of employee and perhaps most importantly, address the needs of different generations.
The term “Flex Benefits” is overused and it confuses many employers. A truly flexible benefit plan is one that provides employees opportunity to select their benefits from a menu of options. Pairing traditional group benefits with flexible spending account credits allows the age old expectations to be met while creating room for the diversity demanded by today’s workforce. Traditional or core benefits provide a foundation of coverage while flexible credits could be spent in areas as diverse as volunteerism, charitable giving, mortgage interest, proactive wellness or professional development. These are the kind of progressive benefits that can set employers apart through a sense of culture and connection far beyond the traditional approach.
Flexible benefit plans have a number of other administrative and practical considerations. One opportunity with flexible benefit plans is that they allow for variable credit amounts and can be determined based on employee performance. This can push a traditional benefit into a more contemporary setting by tying performance objectives to tax-smart compensation.
The Silvacom Group, a full spectrum natural resource consultancy based in Edmonton, made the transition to a flexible benefit program in 2009. After 27 years in business and many years of a traditional program, they decided that it was time to enhance their core insured benefit plan to take a leadership role in their demographic. The new flexible benefits have been “a key addition to our overall compensation and retention strategy,” says Tim Onciul, chief financial officer for The Silvacom Group.
The transition, however, was not without challenges as the changes were so new in concept that some employees assumed that the company was working to reduce benefits. Carefully working to include the employees in the design of the program was a key to the execution. With a year of flexible benefits under his belt, Onciul says “our employees are starting to understand how to tailor their benefit selections to their own individual life situations, and are realizing the maximum value possible from the programs.”
Flexible benefits programs that innovate, encourage a positive organizational culture and offer an array of options to address different generations or cultures will be critical to thriving in the once-again looming demographic crunch.