Culture of Perks Is Exploding
Sometime next spring, 15 lucky employees of Ceridian Canada will win a one-week holiday in Peru. "Totally company paid, first class all the way," says John Cardella, Ceridian's head of HR, or as his official title states, "chief people officer." Leave it to a company whose business is all about human resources to know how to motivate its workers. The winners are picked from a hat filled with names of deserving employees nominated by their peers throughout the year. The trip is just one of the flashier perks the HR services company offers its 1,500 employees. Beyond the basic benefits, like a health plan and generous maternity and paternity leaves, there's also the $300 fitness subsidy, which workers can use on anything they want, from a gym membership to new golf clubs. Then there's the year-end bonus, in which five per cent of the company's annual profit is divvied up and given to employees. Last year, everybody received $1,900. And for the pet-loving employees, there's even a heavily discounted pet insurance program - something that dozens of Ceridian's employees take advantage of, says Cardella.
It used to be that there were two things that really mattered about a job: the pay and the pension. Throw in a few weeks of vacation, and that was about all anybody expected. Not so anymore. The perks culture now permeates every level of Canada's labour market - from the ranks of white-collar professionals, to the legions of hourly workers; from the boardroom to the company cafeteria. Not only have benefits become more common, but in the past decade they've come to represent a larger and larger share of overall compensation. Wages may have just barely kept pace with the cost of living in recent years, but it's in the perks where most employees have really made gains, says Richard Kelly, a senior economist with TD Bank. In a report last month, Kelly noted that in the United States since 2000, the growth in benefits has been three to four times greater than wages. That has ensured that overall compensation has indeed kept up with economic growth. "It's definitely an increasing trend," he says.
The perks boom has its roots in the hyper-competitive information technology sector of the late 1990s - and most noticeably in booming Silicon Valley, where high-tech firms engaged in wild games of one-upmanship to woo workers. This was where extravagant perks, once confined to the boardroom, began to spread to the plebes. "It was asinine what you needed to do" to avoid staff shortages, says James Popel, who used to work in the industry and is now the vice-president of human resources at Wardrop Engineering in Winnipeg. "I remember at one point a group of employees coming in and saying, 'we want a pool table or we'll resign.'" That culture survived the tech bust of 2001, and human resources experts say that across the economy there's still heated competition for qualified employees - something they expect will worsen as baby boomers continue to retire, even if there is an economic downturn. "There's a war for talent going on," says Cardella.
The result is a workplace that aims to do more than just make space for life alongside the drudgery of work. It's about breaking down the barrier between the two and eliminating the notion that a job is something you do 40 hours a week so you can afford to do things you enjoy the rest of the time. That has meant the spread of luxury cafeterias, fully equipped health clubs, and on-site daycare, to name just a few examples. Arcis Corporation, a geotechnical services company in Calgary, for example, employs an in-house chef who cooks up lunch and breakfast for employees each day. Even the traditional benefits have been upped substantially among top employers. Three weeks paid vacation for first-year employees is increasingly common. Many also provide top-up pay for maternity and adoption leave. And many offer looser summer hours, and give employees more Fridays off for a jump on long weekends.
The rise in this kind of non-wage compensation can be explained in part by rising incomes and the prevalence of two-income families. "Other things become more valuable than that extra dollar of pay that you get," says Kelly. "Businesses that are competing for employees are competing with wages, and they're also trying to market themselves by having better benefits than each other."
But the spoils of the boom in perk culture haven't been distributed very evenly across the workforce. As always, the greatest, and most expensive bonuses and rewards, are reserved for those on the executive floors. This year, the new CEO of Qwest Communications, Ed Mueller, took perks to a whole new level when he secured approval for his family to use the corporate jet to fly between California, where the company is based, and Denver, where his stepdaughter goes to school. A U.S. study by the Institute for Policy Studies and the think tank United for a Fair Economy found the top 386 executives in the United States took home on average $438,342 worth of perks. The study notes that a minimum-wage worker would have to toil for 36 years to earn that much.
Along with free rides on the corporate jet, many executives also take home perks like car leases and golf club memberships. Although they are rarely fully disclosed - typically, they're buried in the microscopic print of management proxies - they can add up to some impressive dollar figures. Donald Guloien, the chief investment officer at Manulife Financial, received $82,310 for "personal expenditures, including car payments and club memberships" last year. Along with a $5-million bonus last year, Royal Bank head Gordon Nixon received $77,963 for car leases.
All this has raised some important questions about just what the culture of perks is accomplishing, and for whom. Most North Americans are well aware of the exploding gap in executive salaries compared to wages for the rank and file. And as focus shifts onto fringe benefits, a similar gap is developing. At large public Canadian companies, more than 50 per cent of an executive's compensation now comes in the form of benefits like bonuses, retirement plans and stock options, says Shamsud Chowdhury, a business professor at Dalhousie University who studies executive compensation. "It's increasing more and more," he says.
A glance at the pay of executives at some of Canada's largest public companies shows just how significant it can be. Gregory Wilkins, the president and CEO of Barrick Gold Corp., earned $1.2 million last year. His bonus was $3 million. Gerald Schwartz, the CEO of Onex Corporation, took home $755,950 in salary last year. His bonus was $12.9 million. Many public companies now also carry liabilities worth tens of millions of dollars to cover growing company-funded executive pension plans, not to mention severance guarantees that can add up to several years' worth of salary and bonus.
In the U.S., this executive largesse has begun to harden into a political issue. Earlier this year, Barack Obama introduced a measure in the U.S. House of Representatives that would let shareholders vote on executive pay packages. The Securities and Exchange Commission has also recently pushed for more disclosure over executive pay and perks. Critics say the big rise in bonus pay versus salary is merely an ugly tax loophole. But increasingly, companies are under pressure to award executive compensation that is more clearly tied to performance, says Chowdhury. Stock options, for instance, although widely abused, are a benefit with real value only when a company's stock price goes up. So long as a company's profits and share price are on the rise, investors have generally been willing to swallow the enormous compensation packages paid to executives.
There's no sign that the gap between wildly inflated executive perks and the average employee's perks will narrow anytime soon. But there is evidence that aspects of executive pay are slowly trickling down the corporate ladder. "The increased focus on the link between pay and performance is something boards are demanding, and a lot of companies are reinforcing that message down through the organization," says Iain Morris, a principal with Mercer Human Resource Consulting. Wardrop, the engineering firm in Winnipeg, is moving this year to make all of its employees eligible for bonuses that would be directly tied to performance, says Popel. Currently, about 500 out of 920 employees are paid bonuses worth as much as 45 per cent of their salary. The company paid out over $1 million in bonuses last year. "We want to overcompensate top performers," says Popel. "It's taking executive compensation systems and pushing them downwards, trying to even the playing field." This is what it takes to win employees in this day and age, adds Popel. "There are staff shortages and it's going to get worse. If companies don't respond in creative ways they will lose the war."
And that's what many employees might not quite understand when they take advantage of that latest share accumulation plan or apply for a company-funded tuition subsidy to upgrade their skills. If business is a war, then talented workers are the troops and desertion, with all the loss of institutional memory and wasted investments in training, is costly. Many forward-thinking HR types have come to realize that in the effort to keep restless employees happy, and striving for that next perk, creativity is key. Get it right and you'll create boundless loyalty. Screw up and you'll create jealousy and resentment. And as time goes by, the expectations, right from the boardroom to the call centre, only seem to be going up.
Maclean's October 15, 2007