What Workers Want

During a time of high inflation, surprisingly, it’s not just all about wage increases

By Andrew Regnerus, Representative, Ontario Construction Coordinator

“Pension or pay raise: do employers know what their employees want?” This was the headline of a recent  Canadian Press article based on the 2023 Canadian Employer Pension Survey from Hospitals of Ontario Pension Plan and Angus Reid Group. This new survey shows that more employers are offering retirement benefits, while those that don’t may be falling behind.

First, a word on pension plans. There are two types: defined contribution (DC) and defined benefit (DB). The end retirement benefit an employee receives is defined by either the contributions made leading to retirement (DC plan) or is defined by the benefit received when eligible to retire (DB plan).

A key difference between the two plans is where the risk lies. In a DC plan, your pile of retirement money is determined by your contributions plus what the market brought in returns over the years for the amount you invested. In a DB plan, the amount of your retirement benefit is determined by the plan, and it is up to the plan administrators to fund the plan to meet the benefit targets.

DB plans are rare and valuable because the onus is on the employer. However, the failure rate of DB plans must also be considered. It is not unusual for funds to fall short and thus be able to cover only a prorated portion of the full benefit defined in the plan documents.

Now, back to the Canadian Press article.

Reacting to inflationary pressures, the survey found that employers tended to enhance the paycheque over providing retirement benefits. When employers see worker stress caused by high interest rates and runaway inflation, they want to fix that with more money in employees’ pockets. Intuitively, that makes sense.

But those that did so risked falling behind rival firms that offered solid wages plus benefits and retirement benefits in their compensation mix.

Further, the article says these employers could be out of step with what Canadian workers want. While 77 percent of the employers surveyed believed their employees preferred a higher salary, the survey showed that only 61 percent actually preferred a pension over a wage hike. Workers are often thinking more long term than their bosses account for.

Pension dollars have the added benefit of being cheaper to offer while giving workers more. A $1 increase to retirement savings costs $1. But a $1 increase to wages costs the employer more like $1.20 or more with payroll costs and government remittances while leaving workers with only 75¢ (give or take) after deductions.

In short, pension dollars are more efficient. The argument is so persuasive that in bargaining in unionized settings, employers can be convinced to offer additional pension dollars on a voluntary matching basis.

While retirement dollar increases are more efficient, employers cannot allocate the entire increase into pensions. People still need to eat and live somewhere. CLAC brings strong democracy to negotiations by soliciting contract proposals from members. We ask them what they want and prioritize proposals on this basis.

The survey also found that a growing number of employers were increasing benefits, including retirement savings, not bigger paycheques as a way to improve retention and productivity—a key concern in a tightening labour market. And it found that 58 percent of employers that recently improved retirement benefits saw better productivity. It also found that 64 percent of employers offered pensions to improve retention and 59 percent to increase success in recruitment.

The survey makes it clear that providing retirement benefits during a time of high inflation is just as important as providing solid wage increases. Retirement benefits give workers what they want—long term security in a changing economy—while helping employers improve recruitment, retention, and productivity.