Top workplace trends for 2007*

A list of the issues that will dominate the Canadian workplace in 2007, in the area of pensions, employee health and executive compensation

*This is an expanded version of a summary that appeared in the April 2007 issue of CAmagazine.

Pension liabilities, health care consumerism, executive compensation reporting: these are just some of the themes that are expected to top the workplace agenda this year, according to Watson Wyatt. Here are some of the consulting company’s predictions.

Pensions
Unfunded pension fund liabilities will remain the norm, despite gains made in 2006. Healthy pension fund returns in 2006, combined with large employer contributions and higher long-term bond yields over the year, should result in improved funded ratios in all measures (going-concern funding, solvency and accounting disclosures). Pension plans will also continue to receive some relief from low long-term interest rates. To try to prolong the benefit of these trends, plan sponsors will seek a greater match in the movement of plan assets and liabilities. But despite these improving conditions, many CFOs remain concerned about the risks pension plans pose to shareholders and the potential volatility in costs.

The trend toward "mark-to-market" accounting will continue. The CICA was expected to announce changes in the first quarter of 2007 to parallel those made to US pension and other post-retirement benefit accounting rules. This will have an impact on the net worth of companies offering post-retirement defined benefit plans as they begin to recognize the funded status of their plans on the balance sheet as early as the end of 2007. Companies might also consider whether pensions should be mark-to-market in corporate financial statements, whether pension assets and liabilities should be recorded separately, and whether gains and losses should be included directly in operating earnings.

Pension plans will continue expanding their exposure to alterative assets. With the increased correlation of equity markets and the prospect of modest equity returns ahead (about 8% for developed markets), many plan sponsors are seeking to diversify their return sources and reduce risk through greater exposure to alternative assets. Plan sponsors will remain interested in real assets – real estate and infrastructure – as an inflation hedge and risk diversifier. Hedge funds will continue to attract interest and dollars, though not at the same pace as in previous years. Meanwhile, private equity investment will gain in popularity.

Health & wellness
Governments will continue to gradually shift some of the financial responsibility for health care to employers. This will encourage organizations to move toward health care ‘consumerism’ – i.e., to manage the extra costs, they will start to implement benefits programs that make employees more active consumers in the process.

Stress, anxiety and depression will continue to affect workforce health in 2007. To manage their disability costs and loss of productivity, organizations will improve their organizational practices and culture to influence workforce health (prevention, plan design and total absence management).

Executive compensation
Canadian companies will review and adjust their executive compensation practices with a view to more transparent disclosure reporting. On the heels of new reporting requirements released by the Securities & Exchange Commission in the US, Canadian securities regulators were expected to distribute new draft rules for executive compensation disclosure early in 2007. Employers will spend much of 2007 responding to these rule changes and examining executive compensation practices.