Without rent assistance, wage subsidy 'won't stop doors from shutting' on employees: CIBC's Tal
Companies making use of the Canada Emergency Wage Subsidy program should be weighing not only the long-term viability of their business and wellbeing of their employees, but also the impact on their reputations and stakeholder trust if they choose to not top up staff wages, according to corporate governance experts.
The federal program covers up to 75 per cent of employee wages for eligible companies of all sizes. However, topping up the remaining 25 per cent of the wage is not a requirement and the Ministry of Finance merely stipulates it’s an “expectation” employers make their best effort to bring employees’ pay to 100 per cent of pre-crisis levels.
“If you want to retain the trust of your employee base, which is absolutely critical; if you want to retain trust and reputation with your customers and your shareholders, it’s important to think about the long-term implications of not topping it up,” said Rahul Bhardwaj, chief executive officer of the Institute of Corporate Directors, in a phone interview.
He said the first step boards or management should do is to map out various financial forecasts. After that, it becomes a question of “doing the right thing”, Bhardwaj said.
“I think a responsible board would be looking at availability of financial support from the government to maintain support for their employee base, knowing revenues are tanking and to be able to keep people on board, they want to avail themselves to these wage subsidies. And of course these wage subsidies are coming with light conditions to them such as the expectation companies will top them up,” he said.
York University governance, law and ethics professor Richard Leblanc agrees that companies’ treatment of employees during this economic downturn will have an impact on its reputation and future employee relations.
“Optics are critical right now,” he said in an email to BNN Bloomberg.
“Boards should lead by example and if they cannot or will not fund the top-up, then total director and management pay should be cut by 25 per cent in parallel."
Leblanc noted the government could have provided more of an incentive for companies to top up the subsidy, such as mandating a top up in order to receive any funds from Ottawa.
Suncor Energy Inc., CAE Inc., Indigo Books and Music Inc. and most Canadian airlines are among the thousands of firms that applied for the subsidy.
For Transat A.T. Inc, not topping up the subsidy was a difficult but necessary decision.
“Our flights and activities as a tour operator have come to a temporary, but complete, stop. We therefore need to take all possible measures to preserve our cash, and that was one of them. It was the best way to maximize our chances to be able to offer [employees] their jobs back at some point,” said Christophe Hennebelle, vice president of human resources and corporate affairs at Transat, in an email to BNN Bloomberg.
Hennebelle added the wage subsidy gives more financial support than the Canada Emergency Response Benefit and Employment Insurance. He also points out Transat executives and directors have taken a voluntary pay cut.
The wage subsidy is legislated through the Income Tax Act so Canada Revenue Agency will have its regular enforcement tools at its disposal to catch any fraudulent claims by companies.
The federal government has also introduced a new, separate financial penalty of up to 225 per cent of the money received and up to five years in prison for companies caught artificially reducing their revenue in order to qualify for the program.
“The fact that the government is not policing actively and heavily right now is because they want to focus on the outcome with keeping people working as opposed to going out there and tracking down offending companies,” Bhardwaj said.
“If there are some outliers or bad actors out there, there is going to be potential downside, but we’re going to settle that on the other side of the equation when we get there.”