The war for workers

The public sector is all the rage these days. How can the private sector compete?

The war for workersJacob Gamache never thought he’d end up in the public sector. “There is a stereotype that the government of Canada is very slow,” he says. Seeking a faster-paced, more competitive environment, Gamache used his master’s degree in sports administration to land a job in 2005 with a private, non-profit organization in Ottawa. Though officially the manager of communications and events, Gamache, now 28, says he was somewhat of a “jack of all trades,” creating pamphlets, updating the website, and offering tech support to his co-workers. “I got an opportunity to learn a lot,” he says of the job, which required plenty of overtime. “You come in in the morning at 7:30 or eight, and you’re not too sure when you’ll go home at night. When you do, the laptop comes with you. And the cellphone.”

By the fall of 2007, Gamache was ready for “something a bit more stable.” On a friend’s suggestion, he applied to the Canadian Institutes of Health Research (CIHR), a federal funding agency—and one of Canada’s Top 100 Employers this year. He took a job with the agency in May 2008 and hasn’t looked back. On top of solid benefits, an enviable pension and a higher salary, he says there’s plenty of opportunity to advance. (Despite his misgivings about the limits of bureaucracy, he’s already been promoted to project officer in a little more than a year.) What’s more: while the recent economic downturn has seen hundreds of thousands of Canadians lose their jobs, he’s had “no worries” about holding on to his. When asked whether he would consider returning to the private sector, Gamache says, “It would be a very tough sell.”

Gamache is not the only one discovering that a career in the civil service isn’t so bad after all. In 2000, when Richard Yerema, managing editor of Mediacorp, first compiled Canada’s Top 100 Employers, “the focus was still on big-bonus share options,” he says. “The private sector had the flashy and splashy stuff that caught everybody’s attention.” Today, following what could be the worst economic crisis since the Great Depression, “the shine is off,” he says. The hallmarks of public-sector employment—job security, benefits and a pension safe from the market fluctuations that decimated nest eggs the world over—are all the rage. Add in wage premiums, which many public sector workers are now said to enjoy over their private sector counterparts, and it looks like government has become a formidable competitor in the war for talent. Could Gamache’s conversion from company man to civil servant be a harbinger of things to come? Many private-sector companies aren’t waiting to find out. Instead, they’re trying to capitalize on their unique strengths to ensure that their best and brightest have every incentive to stay put.

That better benefits are generally found in the public sector is nothing new. Compared to private-sector offerings, says Doug Hyatt, a labour economist at the University of Toronto’s Rotman School of Management, “the gap has always been there and it’s always been substantial.” Thanks to hard-fought collective bargaining agreements, most government workers enjoy a package that looks something like what’s in place at CIHR: maternity top-up benefits equivalent to 93 per cent of salary for 52 weeks (35 weeks for new dads), a flexible health plan that includes paid coverage for retired employees, and a defined benefit pension plan, which often pays out to the tune of 60 or 70 per cent of final salary. By contrast, private companies have historically offered less when it comes to health benefits, often skipping or skimping on dental and extended coverage, and are slower to adopt maternity (and paternity) top-ups. When businesses provide pensions, they are commonly of the defined contribution variety, where payouts depend on how much is invested and how well those investments perform. When private companies do offer defined benefit plans, says Toronto-based pension lawyer James Pierlot, they “rarely pay out benefits [as] generous” as those offered by government.

Don Drummond, senior vice-president and chief economist at TD Bank Financial Group, says that between 1995 and 2005, jobs without benefits grew five times as fast as those with benefits. Nowhere is the divide more obvious, he says, than when it comes to pensions. Many companies have grown reluctant to assume the risk of traditional pensions, which they are required to back even if markets fluctuate or interest rates drop. (These plans have wreaked havoc on the finances of the Big Three automakers, which have had to beg for government bailouts in order to fulfill their obligations to employees.) While 80 per cent of public sector employees enjoy the traditional defined benefit plan, the proportion of workers in the private sector with any employee-sponsored plan has sunk to 23 per cent. “We’re almost moving to a point,” says Drummond, “where civil servants and politicians will be the only people with defined benefit plans.”

That might not be as big of a deal if private-sector workers were allowed to sock more away. But as Pierlot detailed in a report for the C.D. Howe Institute last year, under the current tax laws workers with defined contribution plans and RSPs can set aside a maximum of 18 per cent of their annual income. Meanwhile, what government workers and their employers put aside can potentially add up to 30 per cent of yearly pay. “You’re ending up with two classes of workers,” says Drummond, “public sector and private sector.”

Though top CEOs still bring home the richest paycheques, for everyone else, say some experts, government may be where it’s at. After Drummond left the Department of Finance in 2000 to join TD, he says he “got calls from so many former colleagues asking me to help them get a big, fat job in Toronto.” But even back then, he says, “there were very few jobs that actually paid what they were making in Ottawa, never mind getting them a big, fat one.”

According to the Canadian Federation of Independent Business, the salary divide has since expanded. In a report published last year, CFIB found that in 2006, federal government employees earned an average of 17.3 per cent more than their private sector counterparts, up from 15.1 per cent in 2000. Those numbers, however, have been hotly contested—unions point to CFIB’s vested interest and methodology (primarily low- to mid-range workers are included) as evidence of a skew. Ottawa has yet to weigh in. The spokesman for the Treasury Board of Canada Secretariat told Maclean’s that the department did not have enough time to comment on CFIB’s data prior to publication. But he cites as proof of fiscal responsibility recent legislation limiting annual wage increases for federal government employees to 1.5 per cent until 2011-2012. When determining salaries, he says, “policy is for compensation to be competitive with, but not lead, that provided for similar work in relevant labour markets.”

Of course, part of the reason the public sector has been looking especially sweet these days is that, unlike the private sector, government finances are not as directly linked to the economy. The most significant constraint on the public sector, says Hyatt, is political. While the effect of public anger over an unbalanced budget can also “be very strong,” he says, “it may come with a bit of a lag.” And during the recent economic meltdown, civil servants have fared pretty well—thanks, at least in part, to the strength of their collective bargaining power. In the wake of the crash, says Benjamin Tal, senior economist at CIBC World Markets, “we’re seeing the diminishing power of private sector unions, and we haven’t seen any of this diminishing power in the public sector.” Whereas auto workers were forced to endure layoffs and make significant pension concessions so their companies could stay in business, Toronto city workers walked the picket line for more than a month, demanding a 12 per cent raise over three years and a continuation of a controversial sick-day bank that allowed some members to cash in for up to six months pay upon retirement. They returned with their heads held high: members won a 5.6 per cent raise and the ability to cash in unused sick days or save them for later—despite the $450-million price tag.

But to what extent is public-sector envy netting new recruits? Aviva Levy started to consider a career in government, somewhat ironically, due to an advertising campaign launched by one of the country’s major banks. The ad featured two people with very different retirements. The tag line, says the 22-year-old Torontonian, read something like this: “Sarah thought about her pension at 20 years old. Bob thought about his pension at 35 years old.” It didn’t take long for Levy to do the math. “Even though I may not know the intricacies of the pension plan at the civil service, I know the reputation,” says Levy, who is now an intern at Queen’s Park. “These added benefits are priceless.”

According to Howard Levitt, a Toronto-based labour lawyer, the draw is significant. His clients, he says, are “losing people to the public sector and they weren’t before.” The migration is being felt “especially at junior levels,” in positions like human resources, accounting and administration, he says. And while the competition has slowed a bit during the recession due to high unemployment, it was humming along “at a fever pitch” right before the downturn, says CFIB president and CEO Catherine Swift. She has “no doubt that this is going to be very intense again in a very short period of time,” she adds.

In the meantime, there is plenty that businesses can do—and lessons they can learn from Canada’s Top 100. According to Mediacorp’s Yerema, a major advantage of private companies is their “nimbleness and flexibility,” which, he says, allows them to try out new programs “without running into bureaucratic stumbling blocks.” And while the perception may be that only government can offer generous benefits, “a savvy self-employer can start to look at the numbers methodically,” says Yerema. “They might be surprised that they can afford these things.”

Many businesses have already made strides to catch up with the generous maternity-leave offerings in the public sector: Top 100 company Trican Well Service Ltd. in Calgary provides new moms with a 100 per cent top up on their salaries for 52 weeks (new dads get 36 weeks at full pay). Another winner, Toyota Motor Manufacturing Canada Inc., offers workers flexible health benefits that extend into retirement, with no age limit. When it comes to vacation, it’s almost become a matter of course for companies to start workers off at three weeks—and top employers allow them to quickly earn more. After just two years at Agrium Inc., a wholesale fertilizer manufacturer in Calgary, employees get four weeks off.

Improving benefits, however, is only the beginning. According to Anil Verma, director of Rotman’s Centre for Industrial Relations and HR, the biggest hurdle the private sector must overcome is distrust. In the past, workers who joined a company in their 20s could expect to remain there until retirement, offering hard work and loyalty in return. But after rounds of layoffs and a marked shift from full-time jobs to contract work, “that connection is broken,” he says. “Young people don’t believe that companies are interested in their long-term career.” They think of their jobs as “more like a date than a marriage,” he says. Verma’s advice: if companies truly want to retain talent, they must “show through their actions and through their words that they are offering careers and not just a job.”

That explains why Bob Meggy, president and CEO of Vancouver’s Great Little Box Company Ltd., is so proud of the fact that his first employee, hired 27 years ago, “is still here.” Turnover rates at the Top 100 company, which employs 172 people, are well below one per cent. For Meggy, forging long-term relationships with his staff starts with the hiring process—which typically requires candidates to make it through eight or nine interviews. “We’re trying to find out what a person is really like,” he says. “The biggest thing we’re after is fit.” Once they’re on board, Meggy encourages his staff to feel part of the team, offering a bonus of up to $1,500 to those who refer new hires. He’s kept the company’s books open, and even taught workers to read the financials. “We want people to understand how we do,” he says. And although he anticipates that this year will be the company’s first in the red, “we’ll still give everybody raises.”

A surefire way to show workers you care about career development is through education. Despite the downturn, many top businesses are continuing to offer subsidies that approach what’s available to many public-sector employees. Great Little Box covers tuition for college and university courses. At Golder Associates Ltd., an engineering consulting firm in Burnaby, B.C., one per cent of net revenue is earmarked for training, and money is contributed to a scholarship fund. Employees at the Toronto-based public relations firm Hill & Knowlton Canada receive cash rewards of up to $1,000 upon the completion of certain courses and accreditations. According to Gord Johnston, vice-president of human relations at Bayer Inc., a pharmaceutical manufacturing company located in the Toronto area, leadership training remained intact when the recession hit last year. Instead, “we cut back on traditional things like travel,” he says. His hope: “People see that by coming to Bayer they can develop their skills. Bayer’s going to invest in them.”

Instead of attempting to match the eight-hour workday that defines many civil servant jobs, private businesses are giving employees the freedom to set their own schedules. A typical example of the “alternative work options” offered by many of the Top 100 winners are those at Johnson Inc., an insurance and benefits provider in St. John’s, Nfld., where employees can also work from home or take a 35-hour week at full pay. Karen Wensley, a people team leader at the accounting firm Ernst & Young LLP, says these programs let employees know that work-life balance is respected. But just putting the initiative in place, she says, is not enough. When the Top 100 firm first instituted flex time several years ago, she says the culture was such that “if somebody was leaving early to go to their child’s soccer practice, they probably said, ‘I’m going to a meeting,’ because that wasn’t perceived as dedicated enough.” So, she says, the company “encouraged our most senior people to tell everybody when they were leaving the office for a reason outside of work.” Though it took some time before employees felt like they weren’t being judged, today, she says, “we’re really there.”

Now more than ever, says Yerema, businesses should be tapping into their unique strengths to foster loyalty among workers in ways “that no public-sector employer can.” Even in tough times, “there’s something about ownership that appeals,” he says. Share-purchase plans, like the one in place at Telus Corporation, a Top 100 Employer with a staff of nearly 26,000, are “about connecting with your people and making them part of the project that is your business,” he says. Meanwhile, PCL Constructors Inc., a company of just over 2,000 in Edmonton, is 100 per cent employee-owned. Small companies can foster ownership, too. Digital Extremes, an interactive software developer in London, Ont., that employs just 96, offers workers a profit-sharing plan.

While the public sector is in good shape right now, don’t count the private sector out just yet in the war for workers. While changing demographics will touch all employers, CIBC’s Tal says that nowhere will the coming wave of retirements be as deeply felt as in the public sector, which is bracing for what he describes as “a huge, huge exodus.” While government may fill junior positions with ease, Tal says that in order to attract senior managers, “they will have to make the environment much more inviting, beyond the money.”

To be sure, the government agencies and Crown corporations on the Top 100 list didn’t get there on compensation alone. According to Jessica McDonald, deputy minister and head of the B.C. Public Service, for the majority of applicants, whose numbers have doubled in recent years, “salary and benefits are not the main attraction.” Instead, she credits “robust career-path planning” and involving employees in tough decisions. After budget cuts this year, the province’s public service applied vacancies from recent retirements across ministries to reduce 900 jobs with only 200 layoffs. “Our focus was very much on retaining a trust in our employees,” says McDonald. Gamache describes CIHR as having “all the benefits of working for the government” while being “run like a corporation.” On top of the standard salary bump for inflation, hard work can be rewarded with a boost in pay—which, he says, “gives us the extra motivation.”

Ultimately, whether an employee chooses public or private often comes down to personal preference. “People I’ve tended to hire have had very precise reasons for why they wanted to work here as opposed to the public sector,” says Drummond. “I’m not getting them because I’m offering more money.” By the same token, a common thread that binds many in the Ontario Public Service, says deputy minister Ron McKerlie, is “a public service ethos.” But as Gamache’s experience suggests, when faced with a good enough offer, a change of heart can come easier than one might expect.