BOOMTOWN
We all know it’s the economy that makes the world go ’round and it’s spinning fastest in Alberta. With more than $80 billion worth of major oil sands projects under construction, and another $50 billion worth of infrastructure and related spin-off development, Alberta’s economy leads the West in white-hot growth. Virtually every sector of the Alberta economy is currently operating at, or near, full capacity, resulting in a widespread shortage of labour and the highest wage increases in Canada: up 7.4% over last year, according to Statistics Canada. Alberta’s shortage of skilled and unskilled labour is the province’s most pressing economic problem with some businesses operating at reduced hours or having to shut down completely due to lack of workers.
Second only to Alberta in wage growth is British Columbia with a 4% increase over last year. Wages are driving up as B.C. competes with Alberta for talent, ramps up construction for the Winter Olympics, and experiences an up-tick in some areas of the resource sector. Most of the economic growth is fuelled by strong commodity prices in base metals and coal. Labour shortages are not as severe as in Alberta with the exception of skilled trades, such as mining expertise, which are also in demand for oil sands development.
Less high profile, and subsequently often overlooked, is Saskatchewan’s economy. It’s been growing faster than the Canadian average for a few years now due to oil, natural gas, potash and commodities such as uranium, where Saskatchewan ranks as the world’s largest producer. It may be surprising to some to learn that Saskatchewan has recently joined Alberta and Ontario to make up the small group of “have” provinces in Canada. Saskatchewan is also experiencing labour shortages due, in part, to workers migrating to Alberta, but also due to its own economy creating jobs.
Manitoba’s economy is the most diversified of all the western provinces with a mix of agriculture, manufacturing, natural resources and high technology. As a result, recent economic growth has been stable and is not expected to go through boom/bust cycles. Although the unemployment rate is low, labour shortages have been experienced only in certain sectors such as the skilled trades.
COMPENSATION DRIVERS
Canada’s western economies have the lowest unemployment rates in the country. Since the start of the year, Alberta’s employment growth has been 3.9%, almost three times the national average. Saskatchewan is also showing strong employment growth at 2.3% in 2006.
While all of this is great news for the West’s economy, it poses significant challenges for employers trying to recruit the talent they need and to keep the skilled employees they have today. Private and public sector employers are looking at ways of differentiating their work environment relative to others in their province. And employers in neighbouring provinces are trying to keep their employees from moving to Alberta to pursue the “dream.”
Although employers are scrambling to attract new workers, the primary focus is on retaining existing employees. Employers are working hard to hang onto even average performing employees rather than face the potential of long search times for a new candidate, replacements commanding higher compensation, the loss of employer-specific skills and the real possibility that the replacement may not have the skill level of the departing employee.
Retention strategies include creating opportunities for employees to move across departments, enhancing training and development programs, and renewing company efforts to develop performance management programs that better identify and reward high potential and high performing employees. These employees may find themselves being fast tracked, within the succession planning process, to both retain their skills and to fill vacant leadership roles.
Rumours abound of signing bonuses and pay-to-stay awards in sectors that have not traditionally received these extras. Some companies in the construction and oil sands development sectors offer project completion bonuses to incent employees to stay on for the duration of multi-year projects. And on the more creative end of the compensation spectrum, some employers are offering ‘a thousand for a thousand’. It refers to receiving a $1,000 bonus to employees for each 1,000 hours they work. Or if you’re in the oil and gas services industry you may be rewarded with an all-terrain vehicle after three years of faithful service with the same company.
LABOUR PAINS
Across Canada the labour market is shrinking due to the aging population. Trades people in particular are in short supply, not only because of the volume and scale of developments in Alberta and B.C., but also as a result of the lack of focus on the trades in recent years leading to fewer new entrants into these professions.
A problem perhaps unique to Alberta is the working rich. These are people who have achieved financial independence either through stock options or their real estate investments. These workers have the ability to retire earlier and leave the job market. Also many families are no longer dual income as they can afford to live comfortably on a single income. This early retirement of highly skilled workers further shrinks the labour pool.
Employers are becoming increasingly creative in their use of benefits, in addition to compensation, in the race to attract and retain employees. Health and wellness programs such as the provision of health risk appraisals, education on healthy lifestyles and focused disease state management programs seem to be gaining traction not only as a potential differentiator, but also in acknowledgement of the need to look after employees before they get sick.
Increasingly benefit plan sponsors, in both the private and public sectors, are implementing flexible benefits as a way of responding to the diverse needs of their employees. Health spending accounts are becoming a popular means to both introduce flexibility and, from an employer’s perspective, to contain costs.
Some employers, particularly in Alberta, have recently adopted concierge-type benefits such as a service that will pick up an employee’s dry cleaning at the office or walk their dog at lunchtime. Benefits that free up the employee’s time and reduce some of the stress in their busy day are seen as potential differentiators.
Governance has emerged as a key issue grabbing the attention of many benefit plan sponsors. Employers are beginning to look seriously at their benefit obligations to ensure that all plan documentation is properly aligned and that all parties—employees, unions, management and insurers— have a common and complete understanding of the benefits program.
And while benefit plan cost containment is always a focus, it does not seem to be a top priority for many plan sponsors at the present time as they scramble to fill positions and keep key staff. The one notable exception is post-retirement and postemployment benefits. For organizations with these liabilities, there is a significant push to reduce these obligations within the context of the new accounting standards requiring them to be recognized on the balance sheet. A number of plan sponsors are either reducing, eliminating or repositioning post-retirement benefits for future retirees to minimize future balance sheet implications associated with the provision of these benefits.
SHIFTING LANDSCAPE
The critical labour shortage in many parts of Western Canada is fuelling some interesting pension dilemmas. In previous decades, employers were looking at ways to entice their older workers to leave, often offering early retirement programs and bridging to retirement. In the 1990s, employers moved to reduce their exposure to volatile defined benefit(DB)pension plans, with many converting to defined contribution(DC)plans.
Jump forward to 2006 and we see low interest rates, volatile financial markets, people living longer, and baby boomers growing concerned that they may not have adequate retirement income. Add to this a labour shortage and employers are asking, “How can the pension plan help to attract and retain employees?” In a hot labour market it’s all about doing everything you can to keep the employees you have.
Although Western employers remain concerned with the cost, volatility and risk exposure inherent in DB pension plans, many are choosing to maintain their existing DB plans as an important employee retention and attraction tool. For some, the DB pension plan is seen as a way to recognize and reward employees who stay with the organization over the long term. Alberta has not seen as many conversions from DB to DC recently compared with other parts of the country, as employers may not be willing to risk a negative employee reaction to the change.
The first Canadian DC to DB conversion on record is Alberta’s TransCanada. This year a major B.C.-based employer announced a change to a DB plan for service starting January 2007.Some other large employers in the West are also exploring extending DB plan benefits to their employees.
Some employers are reviewing their early retirement incentives with an eye to retaining their older workers. Changes being considered include increasing early retirement reductions, eliminating bridge benefits and increasing the age at which a member can receive an unreduced pension.
There have been many new DC pension plans registered for companies setting up operations in the West. These employers are finding it difficult to attract employees without a pension or savings plan, and are not comfortable with simply providing cash bonuses in lieu of these benefits.
Some DC plan sponsors have recently been considering the impact of lower interest rates and longer life expectancies on retirement savings. Like the DB pension plan, a DC pension plan design that was appropriate for the 1990s may not fit with today’s economic environment, leading employers to reassess the adequacy of the contribution rate.
PRICE OF PROSPERITY
As the Western economy continues to heat up, labour shortages will intensify and the demand for skills will continue to drive up wages. In true Western fashion, this modern day ‘gold rush’ will spur not just competition, but also ingenuity. Expect to see more employee fast-tracking, signing bonuses, spot awards, concierge-style perks, education on healthy lifestyles, and changes to pension benefits. Without a doubt employers will adapt and respond with innovation and resourcefulness.
WHERE DOES HEALTHCARE FIT IN? How will the governments change provincial healthcare? Most provinces in Canada are struggling with the increasing demand for healthcare services and the related cost of providing such services. And the Western provinces are no different, including cash rich Alberta. In fact, Alberta has been the most vocal about the need to implement radical reform, yet relatively little has changed to date. Alberta’s “third way” initiative was ambitious and clearly pushed the envelope in terms of the Canada Health Act with respect to the involvement of the private sector in the delivery of health care services. In the end, Alberta’s most controversal proposals were put on hold in light of Premier Klein’s decision to retire. It remains to be seen how his successor might pursue health care reform. Employers are still keenly interested in how governments might change the health care systems in the future and what impacts, if any, these changes might have on providing supplementary health benefits to their employees and dependents. |
HR at CV With an expansion in the U.S. imminent, CV Technologies has finally hired their first vice-president of human resources. By Leigh Doyle Cold-FX is one of the top-selling supplements in Canada for fighting colds and the flu. The company that makes Cold-FX, CV Technologies(CV), is an Edmonton-based enterprise that has 10 times the employees it did five years ago. This presents a challenge for any organization, but CV has an added difficulty. No one with a human resources(HR)background has ever worked there. Also, CV is launching Cold- FX in the United States this fall. In the meantime, the new vice-president of HR and administration, Paul Bokenfohr, has to make the company’s benefits program more sophisticated and render it more attractive for potential employees. Bokenfohr inherited a typical pension and benefits plan. There is a defined contribution pension plan and the company matches contributions dollar for dollar up to 3% of salary. “It’s a very reasonable plan for a young company,” says Bokenfohr. The benefits package is also traditional. There is the standard coverage for long and shortterm disability, accidental death and dismemberment, life insurance, major and professional medical coverage as well as dental and vision. “What we haven’t done yet is go to a flexible benefits plan,” he says. CV outsources all of the production and distribution of Cold-FX, so it only employs professionals in areas such as finance and accounting, scientific research, marketing, and communications. Even though he has not heard any complaints about the current plan, Bokenfohr believes the employees would prefer a flexible benefit plan. “It becomes more suitable to them than a one-size-fits-all plan,” he says, adding, “The environment we want to create here is one where the employee chooses what suits them best.” So far in his career he has introduced three flexible plans to organizations of varying size. Since CV is so small, he intends to do a lot of face-to-face communication with employees when the flex plan rolls out. But even before a redesign plan is drawn up, Bokenfohr has some basic grass roots HR work to do. His immediate challenge is to bring consistency to the HR experience at CV. In the past employees went to department heads for HR assistance. They were not given adequate support and it created discrepancies in how they were treated. He also wants to introduce ways to help employees engage and manage their HR needs themselves. For example, he is planning an online portal to provide employees with access to their personal information and plan details. Another factor for a youthful, growing company in Alberta is skills training. “Education and development is going to play heavily in retention,” says Bokenfohr, who has already heard employees want to learn new skills to be competitive candidates for internal job openings. “Because we’re growing there are lots of opportunities to move up in the organization.” In the long-term, recruitment and retention are the main concerns for CV. “Recruitment because we are growing,” he says, “and retention because it is Alberta.” That’s another area where the flexible benefit plan will help CV. Bokenfohr believes it will give CV some competitive edge. “Benefits are an important part of the decision when people start moving around. If people have been exposed to a flex plan before, it becomes a pretty big factor for them.” As CV prepares to move into the U.S. market and Alberta continues to heat up, Bokenfohr will need to keep his Cold-FX within reach. He can’t afford a sick day. |
PIONEERING CHANGE TransAlta’s unconventional ideas for employee retention sparked a trend in Alberta’s energy industry. By Leigh Doyle For eight weeks a TransAlta facilities manager took art lessons in the Mexican mountains all the while receiving 50% of her salary. Another office worker traveled to Africa to volunteer for his congregation. These employees were not cashing out banked vacation time, they were participating in a sought after perk that may now be the best way to attract and retain employees in Alberta: the paid sabbatical. The demand for workers in the energy industry out West is so intense and the capital so great, that money is no longer the deciding factor for job hunters. Most employers now recognize it’s the perks that will get them to sign on. Six years ago TransAlta, a power generation and energy marketing company, saw what the future was bringing and they started to prepare. The Calgary-based company employs over 2,700 people. In 2001, when the Alberta office deregulated from a government run utility, human resources(HR)undertook a restructuring of the pension and benefit programs to position TransAlta as a competitive player in the future market. Prior to the benefit overhaul, vacation time at TransAlta was based on seniority. Shandra Russell, who is now director of human resources operations, was having a problem with senior employees banking their vacation days. Russell decided it was time for a radical change. The proposition to senior management—which they enthusiastically supported from the start—was to offer all employees four weeks vacation time plus five floater days. To prevent them from banking time and, in a forward-thinking move, Russell proposed a sabbatical program for the non-union workers, which make up just over half of the employee base. Every four years employees are allowed to take an eight-week break at 50% of their pay with full health coverage. They can even add their vacation time to the end of the sabbatical. “It’s a benefit the company pays for and you don’t have to do any salary planning for it,” says Russell. An eight-week, or even 12-week, break is not long enough to warrant a temporary employee to cover the workload. “For the eight-week period, the business generally does not hire replacement staff,” she says. “Therefore there is no extra cost to the company.” Most employees stay at home in the summer months to relax and recharge. “It has been a competitive edge for us,” she says. “It’s a nice attraction and retention piece because people love sabbaticals.” However, TransAlta’s program may no longer be enough. Companies in Calgary often offer generous signing bonuses, which is typically not TransAlta’s style. “We try to do other things to differentiate us,” she says. “We don’t want to compete [on cash]. It doesn’t work for the long-term.” If the generous sabbatical wasn’t enough to keep an employee committed, TransAlta offers a non-contributory, defined-contribution pension plan that is based on 10% of employees’ base salary plus bonus. The rest of the benefits package is comparable to competitors’ offers. “After [the deregulation] we redesigned the benefits to be competitive in the market and to reflect demographic trends at that time,” says Russell, “which are still current today.” The Alberta energy industry shows no signs of relenting. Competitors are now catching up to TransAlta with plans to offer sabbaticals. “All of us understand that it is just beginning,” she says. “There is going to be huge long-term demand as oil sands continue to build.” Many companies have approached Russell in recent months for info about the program. Surprisingly, she has no problem sharing the details with them. “In Calgary there is a lot of collaboration and sharing.” What she’s not sharing, though, are her plans for the next round of pioneering changes at TransAlta. |
Brian Lindenberg is national partner, Scott Munn is national partner, Sarah Fitzmaurice is principal and Carole Richards is senior associate with Mercer Human Resource Consulting. brian.lindenberg@mercer.com; scott.munn@mercer.com; Fitzmaurice@mercer.com; carole.richards@mercer.com
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