One possibility in
this area, and a unique way to motivate
employees, is to apply personal values
(social, environmental, etc.) to
investments. Since I’m involved in the
business, my opinion is obviously
biased, but there is plenty of research
that shows this is an area of growing
interest and importance. For example, a
survey released in February 2004 by
GlobeScan found that 84% of Canadian
shareholders believe that the “financial
community should pay more attention to
social and environmental performance
when valuing companies.” In addition,
80% of shareholders are interested (23%
very interested and 57% somewhat
interested) in learning more about the
corporate social responsibility (CSR)
performance of companies in their
investment portfolios.
Even major business
publications are lending support to this
idea. Report on Business magazine ran a
feature story in its March 2004 issue on
“socially responsible investing.” It
introduced the story on a blank, white,
front cover with a line that read, “the
most important issue of the century… so
far.”
Adding to the
importance of getting employees engaged
in their pension planning is the shift
from defined-benefit to
capital-accumulation plans (CAPS—which
include defined contribution plans,
group RRSPs, RESPs and deferred
profit-sharing plans). According to an
April 2004 Hewitt Associates survey, the
number of defined-benefit plans offered
by surveyed companies will drop to 39%
from 49% between 2000 and 2006, while
defined-contribution plans will increase
to 53% from 43% in the same period. CAPS
also necessitate greater employee
engagement due to their often varied
options that employees must choose from.
Hewitt also found wide
disagreement between employees’ and
management’s perceived benefits of their
company pension. Barely half of
employees thought their pension would
provide them with retirement security.
In contrast, over 80% of employers
thought their pension plans provided
retirement security to their employees.
When the study asked retirees what they
would have done differently given the
opportunity, the number one answer was
“to have started contributing to an RRSP
sooner.” The Hewitt survey also noted:
“One of the most frequent anecdotal
comments provided by those [retirees]
who completed the survey was the need
for more information, guidance and
advice about starting early to save for
retirement.”
Evidence from two
other significant studies in 2004 also
support the view that employees should
have RRSPs, etc., in addition to their
employer or union-sponsored plans, as
some of these may not be available for
them upon their retirement. In February,
the C.D. Howe Institute stated that
Canadian workplace pension plans were
underfunded by $180 billion. Then, in
June, the Certified General Accountants
Association of Canada said that “59% of
all defined-benefit pension plans in
Canada are now running deficits that
will require $160 billion to cover the
total shortfall.”
The result of
defined-pension plan failures could be
ugly. Even with CAPS, there is still the
potential for significant problems,
legal and otherwise. One way to reduce
these potential problems—and employee
dissatisfaction—is to actively promote
and offer pension investor education
programmes.
Deborah Lomow, senior
vice-president, corporate pensions,
Scotiabank, says, “I think that,
generally, there is room for employees
and employers to get more engaged in
pensions and retirement planning. I
believe that this has started, and that
the momentum will only build.”
But more comprehensive
employer-sponsored, employee
pension-plan education is needed.
Incorporating an educational component
that shows employees how to include
their personal values—not just material
ones—in their investment choices, could
be used as a way to engage them in their
pension planning. Further, companies
offering such educational programs make
an important positive statement about
their values to their employees and
stakeholders.
