Firm ties benefit increases to salary decreases

Lakeside Packers takes unusual approach to costs

With increases in medical and dental benefits quickly outpacing wage increases, many employers have had to grapple with ways to rein in their premium contributions.

The way one employer is doing it — offsetting increases by adjusting salary scales — is raising some eyebrows.

In the first collective agreement between Lakeside Packers of Brooks, Alta., and the United Food and Commercial Workers Local 401, the employer’s benefit contribution is capped such that the “total cost of benefits paid by the employer shall not exceed the total cost paid by the employer in 2004.”

Under the heading, “Benefit Contribution Cap,” the clause further states: “Any increase in the total cost of providing these benefits shall be paid by the employees. Each employee’s share of any such increase shall be met by a direct reduction in the salary scale at the time an increase is implemented.”

The collective agreement has Lakeside Packers shouldering the full cost of the plan premiums. Benefits, which provide for extended health care, long-term disability coverage, dental and vision care, take effect after one year of continuous employment.

Brian McArthur, special assistant to the national director of the UFCW, said while he has seen benefit contribution caps before, this one “is pretty much out of the ordinary.”

He noted that this first collective agreement was born out of a three-week strike that sometimes grew violent, resulting in charges laid against both union leaders and plant managers. “I’m not surprised considering Lakeside Packers’ reputation at the bargaining table.” He added that such a measure is a cause for worry “because once these things get a foot in the door, they set a pattern.”

A spokesperson for Tyson Foods, Lakeside Packers’ parent company in Springdale, Ark., declined to comment. At Local 501, president Doug O’Hallaran also said he doesn’t comment on the collective agreement. Asked about the benefit contribution cap, the union leader said only, “We’re still trying to work that out.” The collective agreement was ratified on Nov. 4 and will take effect through 2009.

“This is like Scrooge taking the cost of coal out of Bob Cratchitt’s salary,” said Gordon Sova, editor of CLV Reports, Carswell newsletters tracking labour relations and collective bargaining across the country.

“This language is unique in my experience,” said Sova, noting that he has seen contracts where individual premium increases would be shared between the company and employees — even if the basic premium fell exclusively on the company — and where they would fall entirely on employees.

“What makes this unique is that it is the overall cost and not just the premium increase that is being passed on, and it is being set off against wage rates rather than premium rates.” Everything that depends on wage rates, including overtime and benefit rates, would be negatively affected. “And, of course, overall cost is increased when plant head count increases, as it would if, for example, a major export market removed its mad cow import restrictions.”

At the Toronto office of Mercer Human Resource Consulting, principal Jayne Bonnett said while some employers are indeed starting to ask employees to pay for increases beyond a capped level, “it would not be related to the salary scale.

“The way it’s worded it’s pretty scary for the union,” said Bonnett. “If (benefit costs) really went haywire you’d be working for nothing. You’d be working for your benefits.”

François Joseph Poirier, senior consultant in group and health care practice at Watson Wyatt, said this type of move raises the question as to who will undertake the task of trying to manage costs.

“The employer could just say, ‘You know what. My costs are fixed now,’ and leave it like that. What’s the incentive for the plan sponsor to fix the program design to make sure it’s efficient?”

In effect, added Poirier, the employer is not just shifting the cost burden of benefits but also the “obligation to make the plan efficient.”

Both Bonnett and Poirier note that they are seeing more and more employers introducing contribution caps for retiree benefits, but even then the employer’s share would be indexed for cost-of-living increases.

Not everyone finds this measure remarkable. At health insurance provider Green Shield Canada, vice-president of sales and marketing Gren MacDonald said that with benefit costs increasing by 12 or 15 per cent a year, employers are forced to find ways to contain costs — whether through flex plans or health spending accounts or the contribution cap.

“Employers are asking employees to take more ownership for their benefits. This is a change in approach. Canadian employees over time have developed somewhat of an entitlement attitude. They’re not generally happy with it, but who’s happy with change?”

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