How Canadian Tire connects retirement to profits

Canadian Tire Corp. was an early adopter of profit sharing as a way to include all of its employees in the success of the company, but a big feature of the program that sets it apart is its use as a retirement savings account that automatically registers employees.

“We do believe we have quite a competitive advantage and a differentiator in the market in terms of this kind of a retirement vehicle because it is an automatic opt in,” says Olga Giovanniello, senior vice-president of human resources.

“It’s part of our Canadian Tire heritage and legacy,” she adds in reference to the program’s 48-year history.

“It was quite innovative, if not the first of its kind, in Canada in terms of this type of a program and a plan for employees. And it really underscored [company founder] A.J. Billes’ belief that we should treat all of our employees as partners in the firm and that they had a vested interest in the rewards and the business performance.

“And by having them connected to our organization through the sharing of profits, they, too, would feel much more engaged and connected to the organization, and it was an inventive and innovative way at that time for employees to save for their retirement.”

Read: IMAX expands long-term incentive plan to all staff

The company bases its profit-sharing plan on its net profit and pays it annually as a percentage of the employee’s earnings. “Historically, over the last five years, that award has been just over 10 per cent of employees’ earnings” given a base award of six per cent and the excess awards paid above that, says Eva Tentere de Metz, Canadian Tire’s manager of retirement savings and benefits.

During the past three years, that total has been closer to 12 per cent. With the company having done well in recent years, employees have consistently earned the base award every year in addition to the excess awards.

The base award goes into a deferred profit-sharing account. “It really means that employees have no access to those funds for as long as they work for Canadian Tire,” says Tentere de Metz.

Of the base award, they must reinvest 10 per cent into the company through the Canadian Tire share fund, a unitized fund comprised of Canadian Tire Class A non-voting shares, Canadian Tire common shares, and a small component in cash. There’s a range of investment options for the employees to choose from for the remaining 90 per cent, including the share fund, with new options added as they become available on the market.

Read: 3 ways to engage younger employees in group retirement

Employees also have a choice over how they receive the excess award. Those options include taxable cash, putting it back into the plan to defer taxes, a group registered retirement savings plan or a tax-free savings account.

Canadian Tire’s profit-sharing plan by the numbers


Year the company introduced the plan


Number of corporate employees the plan is available to


The base award as a percentage of employees’ salary


The average award in the last three years as a percentage of employees’ salary


The percentage of the base award employees must reinvest into the Canadian Tire share fund

More than 5,000 corporate employees are in the profit-sharing plan, and some of the company’s franchises offer a similar plan to retail staff. In that case, the award is a fixed dollar amount rather than a percentage. According to the company, retail employees at 92 per cent of its dealer stores participate in a profit-sharing plan sponsored jointly by Canadian Tire and the dealers.

‘Unique’ linke to retirement, profits

Canadian Tire’s profit-sharing program is different from others in a number of ways, says Karen Burnett, Willis Towers Watson’s defined contribution team leader for Canada. “The fact that they have a savings or retirement plan based on the profits of the company is unique,” she adds.

Basing a plan to help workers save for retirement strictly on profit can mean some volatility, says Burnett. Some companies use a bonus system instead of profit sharing, but because bonuses tend to be based on performance, they, too, can be variable.

Read: American Airlines brings back profit-sharing plan

Canadian Tire’s performance has been consistently good, and its profit-sharing plan hasn’t dipped below 10 per cent of employees’ income in many years. That, too, is significantly higher than a typical employer contribution of five to six percent to a defined contribution pension or other savings plan, says Burnett.

While that may be more expensive for the employer, many companies recognize the benefits of helping workers save for their retirement. “It can be very expensive to have people in their 60s and 70s still working for the company simply because they can’t afford to retire,” says Burnett.

Taking full advantage

Many companies, of course, offer some form of profit sharing to employees. Almost 10 per cent of the money Sun Life Financial invests for employers across Canada — including Canadian Tire — is in profit-sharing plans. “Deferred profit- sharing plans tend to be used in large corporations,” says Tom Reid, Sun Life’s senior vice-president for group retirement services.

But there are some aspects of the Canadian Tire plan that make it stand out, he notes. “It is also somewhat unique in its flexibility in terms of how plan members can invest their funds, and I think that kind of puts it into a unique category,” he says.

In fact, Canadian Tire provides its employees with other savings options as well. Besides the profit-sharing plan, it offers an opt-in savings program that allows employees to contribute up to five per cent of their income with a company match. Employees can use the money for their retirement or choose to put it towards a big purchase, such as a house. Tentere de Metz says the program, when combined with the profit-sharing plan, allows employees to save 20 per cent of their earnings in an average year.

Read: Healthcare company ordered to repay US$1.7 million to profit-sharing plan

But despite the automatic registration in the deferred profit-sharing program, some Canadian Tire employees still weren’t taking full advantage of all of the options available to them through, for example, the savings program.

The sense that employees were leaving money on the table led to Eckler Ltd.’s involvement to help engage Canadian Tire staff. Paul Harrietha, principal and head of the communications and engagement practice at Eckler, says the problem was the two plans seemed complex in terms of how they flowed together and the various tax implications. “The plan is extremely generous . . . so much so that it exceeds the tax limits,” he says.

Eckler’s solution was to illustrate the value of the program and help employees understand their options through a communications effort that included a web-based tool and an animated video to make it all look easy. “Basically, you have to turn these people from members into financial planners,” says Harrietha.

Read: New tools, approaches improves DC plan participation

Marg. Bruineman is a freelance writer based in Barrie, Ont.

Get a PDF of this article.