Thursday, June 9, 2016

When Clients Take a Long Time To Pay

If you’re a business owner or independent contractor, you’ve probably dealt with clients who fail to remunerate you in a timely manner. It can be awkward.

Of course, you’d like your late-paying client to expedite the payment you’ve earned. On the other hand, you don’t want to alienate someone who might otherwise have been inclined to retain your services again in the future, and perhaps tell h/er friends and associates how exemplary your work was.

How can you encourage clients to make timelier payments without sounding overly pushy, souring a professional relationship, and potentially undermining your reputation?

Agree in advance on a payments system that is convenient for the client.

You’ll probably find that different clients have their own preferences with respect to payment methods. Some may favour writing cheques, others may be more comfortable with PayPal, bank transfers, credit card, or even in-person cash transactions.

Set up accounts with multiple secure payment processing services and through your bank. If the client can choose among several payment options, s/he is likely to find one that is convenient for h/er.

Expect to receive payments late, and plan ahead.

As a general rule, you shouldn’t depend on timely payments from invoiced clients. Instead, try to keep a fairly robust cash reserve on hand to cover your own short- and medium-term expenses.

Although you want to encourage all clients to pay on time, realistically you’ll almost certainly encounter laggards here and there. One way to compensate for this is to request payment on a date well in advance of the time when you actually need the money—if possible, leave a margin of at least ten days.

Remember: you’re unlikely to suffer significantly negative consequences from being paid earlier than you expected.

Be clear and specific about when you expect to be compensated.

“Payment on this invoice is due within 20 days” as opposed to “Payment due upon receipt.” (In the latter case, your client could invoke the phony excuse that s/he received your invoice late.)

The clearer and more comprehensible the instructions, the less of an excuse the client has for failing to follow them.

Consider an early-bird discount.

No one enjoys wasting money, and by offering your client a slight discount for early payment, you introduce a direct economic incentive in favour of timelier compensation. Even a discount of one or two percent can provide your client sufficient impetus to get the ball rolling sooner.

Alternatively, you could institute a penalty of one or two percent for late payment.

Send cordial reminders.

If a week or more has passed since the deadline you originally established for payment, it’s reasonable to send the lagging client a gentle reminder, indicating that you would appreciate being compensated for your work as soon as reasonably possible.

Withholding of services is a drastic, but sometimes necessary, step.

You won’t need to resort to withholding services in the vast majority of cases. However, you may encounter a handful of situations in your career where there is simply no reasonable alternative. Your client has failed to pay up despite numerous polite reminders, and you need to draw a line in the sand. 

Your skills have value in the marketplace, you can’t afford to work for free, and you don’t want to garner a reputation for being overly lax on clients who refuse to keep their end of the bargain.

Wednesday, May 25, 2016

How To Ensure Your Business Remains Innovative As It Grows

As companies get larger, there is a tendency for them to lose some of the innovative edge and versatility that defined them as start-ups and young enterprises. Several factors common to larger firms contribute to this, including increased bureaucracy and more rigid, hierarchical command structures.

Accordingly, one of the challenges that growing businesses face involves keeping the company nimble, and ensuring that the workforce and leadership alike continue to adapt to technology and changing market conditions.

Encourage experimentation, with some margin for error.

All businesses strive to offer products and services that are commercially viable, and for larger firms in particular, a preoccupation with maximizing shareholder value can intensify those commercial pressures. Unfortunately, a drive for immediate windfalls can undermine more sophisticated forms of innovation that require time and capital investment to develop.

Major innovations cannot happen without experimentation, and experimentation is inherently risky. Many successful businesses have invested in products and technologies that never really took off. (Think of Google Glass, or QR codes, for example.) To genuinely innovate, managers must be willing to take risks on novel concepts that may not always pan out.

Consider the potential, and not just past achievements, of job candidates.

In applying for a position at your company, job candidates will typically emphasize their past experience and achievements that are relevant to the role—and well they should. But in looking to hire and promote, don’t get so fixated on the past successes of a candidate that you overlook the potential of applicants to grow as individuals and expand their skill sets.

In the recruitment stage, in interviews, and in personality surveys, try to incorporate questions that will reveal whether a candidate is curious, open to new approaches to old problems, and believes in h/er own potential to cultivate new skills.

One question that may reveal all of these attributes is: “What new skills or knowledge have you gained in the past year, and what did the learning process involve?” Alternatively, the common interview question “Do you have any questions for me?” can help bring out the curiosity, level of engagement, and preparedness of the candidate. Consider giving job candidates an assignment that will test their skills and approach to problem-solving.

Personal accountability matters.

One of the most important attributes of strong leaders is a capacity to assume responsibility when something goes wrong. In other words, they believe the locus of control is primarily internal rather than external. These are the types of individuals you should seek to hire and promote.

Personal responsibility is important from the perspective of organizational growth. Individuals who are willing to assume primary responsibility for their own shortcomings are more likely to learn from them and modify their approach. By contrast, those who convince themselves that their errors are entirely attributable to bad luck or circumstances beyond their control risk missing the lesson.

Reflect on your performance.

It’s not enough to merely work harder or put in longer hours when your business faces a challenge: you need a plan to help steer your efforts in a productive direction. Real learning requires not only hard work and persistence, but also active mental engagement.

One practice that can help is daily reflection—over the course of the work day, what did you do well, what would you have done differently if offered a second chance, and where do you see room for improvement? To facilitate this kind of reflection, you can encourage staff to keep a work journal, and set aside time (10-15 minutes of the workday) for entry-writing.

Wednesday, May 18, 2016

Getting The Most Out Of Focus Groups

Large organizations, including corporations, academic institutions, and government agencies, have recruited focus groups for decades to help them gain insight into the wants, needs, and behaviour of the public. For businesses, it’s useful to ascertain what current and potential customers and clients are looking for, and the focus group can be a cost-effective and highly revelatory source of information.

Consider the following points when you’re planning to recruit focus groups, so that you can separate the signal from the noise and ultimately derive useful data from the sessions.

The overall composition of the groups should accurately reflect your target demographic.

While this principle seems like common sense, its importance is difficult to overstate. A series of focus groups whose composition substantially differs from that of the target demographic won’t necessarily yield helpful data.

What age are your prospective clients or customers? Gender? Marital circumstances? Ethnicity, or mix of ethnicities? What language(s) do they speak? Where and in what circumstances do they live?

The better you can form a mental picture of your customer/client base before you begin recruitment, the more informative your focus group sessions are likely to be.

Stay on track.

One the of purposes of a focus group is to enable participants to share their own thoughts and feelings in an open, accepting environment, and in relative spontaneity. But whenever you gather strangers or acquaintances together and encourage them to converse spontaneously, the discussion is likely to wander off topic. This is where the skill set of a competent moderator becomes essential.

Attributes you should look for in a moderator include patience, firmness, articulacy, strong organization skills, the ability to appear neutral and impartial over the course of the discussion, and ideally some credible previous experience in the field. A moderator will also occasionally need to call on participants who haven’t said anything in a while, to encourage their input.

Would Goldilocks approve of the size of your group?

A focus group that is too small will tend to be stilted and fail to generate rich discussion. On the other hand, when the group is overly large, it will tend to segment into several smaller cliques, or a core group will form that excludes participants on the periphery.

Ideally, the scale of your group should be six to 10—not too big, not too small, but just the right size to facilitate an inclusive, respectful, productive exchange of ideas.

Ask the right questions.

To design effective questions for a focus group, you must begin by posing one to yourself: What exactly do you want to know? Until you can narrow down what you’re looking for, you’ll find it difficult to design questions that are specific enough to meet your needs.

You’ll also want to limit the number of questions to a manageable level. A good rule of thumb is that the number of questions (except for clarifying queries that the moderator may inject once in a while) should be roughly equal to the number of participants.

One of the main advantages of a focus group over a survey is the opportunity for participants to modify their views during the discussion. It’s common for a focus group participant to end the session with an opinion significantly different from the one s/he started with.

Conduct at least three or four unique group sessions.

This is likely the minimum you’ll require in order to generate valid, applicable results.

Each session should last anywhere from 45 to 90 minutes. Beyond that point, group productivity tends to stall, and you’ll probably have covered all of your questions anyway.

You’ll know when you’ve reached the “saturation point”.

When new focus group sessions aren’t generating many new ideas, you’ve probably retrieved about as much data as you can reasonably expect from the focus group endeavour. It’s time to wrap up and analyze what you’ve collected.

Wednesday, May 11, 2016

Dealing With an Unproductive Colleague

Among the most common complaints that employees of large organizations and co-founders of businesses express, involve a colleague or associate who doesn’t seem to pull h/er own weight.

This situation can become especially awkward if the aggrieved party and the espied slacker share equal authority within an organization. The reason for this is straightforward: bosses have the authority to keep under-performers in line, and to dismiss them if the problem persists. But staff members and associates who occupy the same position in the organizational hierarchy as an alleged slacker don’t have this luxury, and face a multifaceted dilemma.

Is it better to confront the offending party, or try to ignore the issue? Face to face, or by reporting the problem to superiors or other colleagues? What about the risk of being labeled a tattle-tale, the potential strain on interpersonal relationships, or even the prospect of retaliation? What if it becomes one person’s word against another’s?

How does the perceived slacker’s underperformance affect you?

The answer to this question will determine whether it’s worth your time and energy to actively address the problem.

If the behaviour of the alleged slacker affects your work and professional relationships very little, or not at all, then you’re better off minding your own business. On the other hand, if your ability to complete job tasks and/or your rapport with colleagues and superiors suffers due to an unproductive colleague, then you have a legitimate concern and should take action.

Once you resolve to act, your first step (barring extraordinary circumstances) should be to address the matter directly with the perceived slacker.

Start by favouring diplomacy over confrontation.

Even if you suspect your colleague’s lack of productivity owes to laziness, don’t assume that. Your colleague may be experiencing a legitimate mental health issue, may be distracted by difficult conditions in h/er personal life that are beyond h/er control, or may have an easily resoluble gap in h/er skill set that is slowing h/er down.
Instead of adopting a confrontational tone, try approaching the issue tactfully at first—e.g. “Is everything OK? I’ve noticed that you seem less engaged with this task than you normally are.” Then ask if there’s anything you can do to help. The “slacker” may call your attention to a factor you hadn’t considered that changes your perception of the problem. Be prepared to afford h/er the benefit of the doubt.

This exchange also gives you an opportunity to clarify exactly what you expect from your underperforming colleague, and ensure that you’re both on the same page.

Use impersonal, non-accusatory language, and cite specific examples.

Outward hostility on your part can cause your interlocutor to shut down or become defensive; you’ll effectively sabotage the conversation right at the outset. Pay close attention to the language and tone you use.

Instead of leading with “When you do (or fail to do) X, it makes me Y,” go with something like “Last week, this (specific event) happened, and consequently I had to remain at work late in order to complete some unfinished tasks. That experience was frustrating and unpleasant for me.”

Don’t make the conversation any more personal than it needs to be. Ultimately, the issue is not your colleague’s personality or character; it is h/er behaviour, which consists of identifiable actions and omissions. Keep a documentary record of these, and of your own efforts to improve the situation, so you can be accountable and transparent.

Don’t involve your boss or higher authorities unless you have to.

The capacity to deal with relatively minor, day-to-day differences of opinion in a constructive manner is a valuable skill. If you are an employee or middle-manager, don’t involve higher-ups in a “slacker” case unless you believe the problem is too serious for you to solve on your own.

Addressing a colleague’s underperformance directly with that person has two big advantages over reporting to higher authorities right away: 1) it is friendlier and more conducive to an amicable working relationship moving forward; 2) it shows that you are prepared to take initiative and demonstrate leadership in dealing with interpersonal conflict at work.

If you and the “slacker” are joint founders of a business, it is even more essential for you to confront the issue head-on rather than let it fester.

Thursday, May 5, 2016

Finding Your Calling

Nearly everyone wants a career that is emotionally, spiritually, and financially rewarding. But unfortunately, a lot of people never find that professional sweet spot—either because their passion
doesn’t happen to pay well, or because they feel stuck at a job they dislike for the sake of a steady paycheque.

To achieve a fulfilling career, think about how you can find synergy between your professional endeavours and your personal affinities, values, and strengths.

Let your character and values be your compass.
Consider your basic personality traits. Are you typically organized or disorganized? Are you patient and deliberate, or do you prefer to see results quickly? Extroverted, or introverted? Analytical, or intuitive?

Most importantly, what are the principles you believe in most strongly?

We can all imagine blatant examples of career mismatches: people who are vegetarians and vegans for ethical reasons shouldn’t become butchers; innumerate individuals are unlikely to thrive as accountants.

But there are many more subtle instances of career misalignment as well. If you like to keep moving and spend much of your time outdoors, a sedentary office job may wear you down. And if you have an artistic flair, you may desire significant creative autonomy, and feel frustrated if your career path doesn’t offer that.

Perseverance and resiliency are essential.

The main difference between a dream and a goal, is that a goal revolves around a concrete and achievable plan. But there is another important distinction: dreams occupy the realm of fantasy, while goals must contend with reality. In dreams, you can envision your own triumphs, but not necessarily the barriers that stand in the way.

In the real world, meaningful success rarely happens overnight—in fact, it often requires years, if not decades. You might have an extraordinary passion for something, but you’ll also be competing against many other individuals and organizations that share your enthusiasm. Almost invariably, you will encounter a great deal of rejection and shortfalls before you experience the thrill of victory. To bring your vision to fruition, you’ll need to remain committed to your goals through thick and thin.

An alternative mental approach to failure or rejection is to remember that your disappointments needn’t define you or even necessarily set you back. You can instead look at them as stepping stones that bring your closer to your final goal by affording you valuable lessons and experience.

Instead of “work-life balance”, think about your life’s work.

Of course, human beings are social animals, and it’s important to make time for family and friends outside of work hours. Your physical and mental health also depend on a healthy diet and regular exercise.

However, the optimal career path for you should bring you enough satisfaction that you believe your time on the job is beneficial to you, and that your work is fully integrated into the life you want. This is one reason why the concept of “work-life balance” is flawed: it implies that a firewall should separate your profession from the rest of your existence, and not that your career endeavours are a vital component of your life.

Instead of trying to achieve equilibrium between work and “life”, consider instead what you’d like to accomplish during your lifetime, and why. If you can’t identify how your current professional trajectory is helping you achieve the long-term goals you’ve set for yourself, then it’s time to contemplate a career change.

Wednesday, April 27, 2016

The Benefits Of A Work Journal

The classic to-do list can be useful tool to facilitate productivity, but it’s not without shortcomings.

For instance, assignments on your list may involve a series of interconnected tasks, or require multiple steps that you can’t easily describe in list format. Sometimes in the midst of carrying out one duty, you’ll identify other issues that require attention, but which you don’t necessarily have time for right now. Instead of crossing out items on your to-do list, you may find yourself modifying and even extending it as the hours march on.

For these reasons, you may find it useful to keep a work journal, to either supplement or substitute for your to-do list.


By simply taking the time to write down your goals, lessons, and experiences you draw from each day, and any feelings or thoughts you have about them, you afford yourself a chance to troubleshoot, and engage your self-awareness and critical thinking skills.

Have you been avoiding, procrastinating over, or struggling with a task? If so, your difficulties may owe to an emotional obstacle, such as the fear of failure, an unwillingness to check your ego and ask for help, or confusion over the next steps in the process. Journalling forces you to put these barriers to success into words.

Paper or digital?

Of course, this is a matter of personal preference. A digital version offers the advantages of searchability and easy modifiability. A paper (book) version helps to reduce your daily screen time, and you won’t risk losing your journal entries due to a computer malfunction or virus.

Regardless of the medium you choose for your journal, organization is key: each entry should be clearly dated and easily retrievable. You may also benefit from headlining each entry with two or three main themes, for purposes of future reference. For example, “Order confirmation for Mrs. Jafari; keyboard shortcuts”.

Honesty and confidentiality

Like a personal diary, your work journal should be a safe forum for you to express thoughts and concerns related to your job, including the state of interpersonal relationships at the workplace. For this reason, confidentiality is important.

If you believe there’s a risk that another person will discover your journal, and that this discovery may affect your relationships with colleagues or superiors, you’ll censor yourself. The more extensively you engage in self-censorship, the less meaningful your journalling will be to you, especially as the passage of time places distance between your present state of mind and the content of older entries.

Learning from experience

By writing down observations about your own performance, new information you encounter, and lessons you learn from day to day, you’ll stand a better chance of recalling those items when you need them. For example, if an IT technologist at the office shows you a nifty trick for accessing files on a database more quickly, your journal is a great place to record the steps involved. Journalling can also help you learn from your mistakes by noting both the specific details of an error, and the reason(s) why it occurred.

Consider making two daily entries.

A morning entry allows you to envision the day ahead, and draw up your game plan. A second, follow-up entry in the evening allows you to handicap your performance and hold yourself accountable.

Did you accomplish all of the goals you had set for that day? If not, why not? Did you exceed your own expectations? If so, what were the keys to your success?

Thursday, April 21, 2016

Overcoming Writer’s Block At Work

We’ve all had the experience of sitting down to pen a new article, marketing e-mail, or blog post, and struggling to get the words out. Even professional authors find that writing can be either simple and straightforward or slow and cumbersome. The first sentence is often the hardest.

A bout of writer’s block is frustrating regardless of the circumstances. But it’s especially annoying when you’re at work, time is of the essence, and you have a lot of other assignments to complete.

If you find that the writing process is challenging or stalled completely, try the following tactics to get yourself back on track.

Make a list of essential items you plan to mention in the piece

This will help to guide and constrain your train of thought. You can also use the items on the list as “seeds” for your paragraphs—start from each individual point, then elaborate upon it in full sentences.

Begin at the end

In writing, as in many other endeavours, it sometimes helps to reorient yourself, or approach the problem from a different angle, when you find yourself stuck. To defeat what I call the first-sentence blues, try starting your written composition at the end—with the last sentence or paragraph. Rather than obsessing about how you want to lead off, think about how you plan to wrap up.

Alternatively, you can simply pretend the first sentence doesn’t exist, write the rest of the article without it, and then add a “first” sentence once 99 percent of the task is already complete.

If time permits, step away and engage yourself in something else

Your writer’s block may be partly attributable to a mental block, which you can remedy by either stimulating your creativity and problem-solving skills, working on a different task for a while, immersing yourself in fresh air, and/or improving circulation of blood and oxygen to your brain.

If you have time for a break, devote a few minutes to a pleasurable activity—like reading, ping-pong, a full-body stretch, or a walk around the neighbourhood. Ideas may occur to you more readily upon your return.


This is exactly what it sounds like: just jot down whatever pops into your head.

Freewriting offers numerous advantages: it helps you structure sentences and express yourself in imaginative ways, enables you to purge distracting or tangential thoughts, and temporarily quiets your inner critic. It can also help you develop a feel for and ease with writing, and furnish ideas that can inspire future articles and posts.

Change your environment

Creativity is among the most complex and mysterious of all human attributes, and surroundings that are conducive to exceptional creativity for some writers are like intellectual deserts for others. For example, at a busy coffee shop, you may be stimulated by the ambient noise, or distracted by conversations at neghbouring tables, order-taking, and the grinding, whistling, and gurgling sounds continually emitted by the machines.

Sometimes our subconscious is acutely aware of barriers to creativity in a particular environment, even when our conscious mind is not. If you find yourself unable to get writing done in one place, try moving somewhere else.

If you don’t need the internet right now, disconnect

The internet is the most powerful informational resource that human beings have ever created, but also arguably the greatest single purveyor of distractions—e-mails, social media, news headlines, celebrity gossip, funny videos of animals doing zany things, to name just a few. This is why Zadie Smith and many other wordsmiths advocate writing on a computer that is disconnected from the internet.

Wednesday, April 13, 2016

Confronting Attacks On Your Reputation Online

Anyone who has dealt with online attacks on either their own or their business’ reputation knows how unpleasant it can be—especially when the criticism is disproportionate, inaccurate, or unfair. You may feel inclined to respond to unflattering comments and reviews on your own, to set the record straight. But you’re still busy trying to keep the day-to-day operations of your business running smoothly, and realistically, you just don’t have time to answer every critic. Worse, you know that what gets written online stays online for a long time.

So, what should you do when you’re being trashed on the web? How can you salvage your reputation from haters with seemingly unlimited time on their hands?

Prioritize the most prominent or most commonly recurring negative opinions

You may find that many commenters are highlighting similar themes in their negative reviews. Maybe they’ve all had a comparable experience, or maybe they’ve been influenced by a particularly outspoken seed-planter. Regardless, you’ll save yourself valuable time and energy by locating the original or most prominent exponent of a particular derogatory view. Address that person directly, and try to be diplomatic if you reasonably can.

If a misconception about you or your business is very prevalent in public discourse, or there is a significant issue affecting your organization that requires explanation or clarification, an open letter or public announcement would be more effective than trying to address individuals’ concerns one at a time.

Resist the knee-jerk temptation to become defensive

Defensiveness is a natural reaction when one feels under attack. But a defensive tone can easily invite escalation. Many disgruntled-sounding customers will become more reasonable and even-handed once they’ve calmed down. By contrast, the more heated and argumentative an online discussion gets, the lower the probability of a mutually satisfactory outcome.

A good first step in many cases is to express regret over the unpleasant experience the complainer has had—“I’m sorry that this happened to you.”

Often, you’ll find it’s not difficult to identify the source of the individual’s discontent and possible solutions.

Try to set things right

Does the complainer have a legitimate gripe? Did you or your company do something that caused offense or dissatisfaction? Can the problem be rectified, or at least mitigated? Was it within your control?

Be honest with yourself as you contemplate these questions, and think about ways that you can offer a legitimately dissatisfied customer, client, or stakeholder some consolation. Would a partial or total refund be appropriate? Or a free session or product?

Don’t waste time on lewd or scurrilous comments

You’ve undoubtedly come across the phrase “Don’t feed the trolls”. Indeed, not all critics  are fair, civil, or reasonable, and it’s okay to be discerning about the ones you choose to engage.

Online harassment remains a very serious problem in our society, and the ability to offer opinions anonymously online brings out the worst in certain people. Unfortunately, even in 2016, women and girls in the public eye are still regularly subjected to degrading, misogynistic diatribes. Abusive language and character assassination aren’t justified by any error or misjudgement on your part, and you needn’t feel obliged to put up with such behaviour.

Online fora and social media platforms typically have content management policies, including harassment protocols. If someone is either harassing you directly or spreading hateful innuendo about you or your organization, don’t hesitate to report it to the site’s administrators.

Keep your eye on the ball

While you can’t always dissuade people from making negative comments about you or your business, you can focus on your present and future clients and customers. If you continually learn from your mistakes and do your job responsibly and effectively, you should receive plenty of positive reviews to offset the nasty ones—especially if you make a point of soliciting and incentivizing feedback.

Thursday, April 7, 2016

On Canadian Banks and “Bail-ins”

Over the last four decades, financial institutions in many countries have grown to an unprecedented
scale and degree of concentration. In the 2008-09 financial crisis, a wholesale collapse of the dominant banks might have portended a freeze of credit and capital markets—without which a modern economy cannot function. Rather than entertain that risk, policymakers in countries like the U.S., U.K., and continental Europe used a combination of public funds and liquidity created by central banks to rescue several major financial corporations. In other words, these institutions were “bailed out”; the costs of their errors have since been transferred in different forms to various stakeholders, including salary-earners in both the public and private sectors, savers and pensioners, debtors, and taxpayers.

The “bail-in” alternative

On the small island nation of Cyprus, in 2013, uninsured depositors and pensioners at the country’s two largest banks faced the choice of either sacrificing a substantial portion of their savings to keep the financial institutions afloat, or losing a much greater amount in the event of a bank collapse. This is arguably the most (in)famous contemporary example of a “bail-in”—the rescue of an ailing financial institution by its own creditors.

That same year, Canada’s Conservative government proposed a “bail-in” regime for Canadian banks as part of the 2013 federal budget. In its 2016 budget, the current Liberal government offered a virtually identical proposal, and even promised a concrete policy framework to follow. On page 223:

“To protect Canadian taxpayers in the unlikely event of a large bank failure, the Government is proposing to implement a bail-in regime that would reinforce that bank shareholders and creditors are responsible for the bank’s risks—not taxpayers. This would allow authorities to convert eligible long-term debt of a failing systemically important bank into common shares to recapitalize the bank and allow it to remain open and operating. Such a measure is in line with international efforts to address the potential risks to the financial system and broader economy of institutions perceived as ‘too-big-to-fail’.”

A few key details are worthy of note here:

1.    The word “creditors” is ambiguous; it may encompass not only investors and bondholders, but depositors too.

2.    Canada is not Cyprus. Unlike the Eurozone states, our country has its own sovereign currency and central bank, which means our government needn’t go cap-in-hand to a foreign central bank to borrow in its own currency. This enables potential policy alternatives to the kind of “bail-in” that Cypriots endured. For example, the Bank of Canada could theoretically pump liquidity into insolvent banks by acting as the buyer of last resort for those banks’ bonds.

3.    Canada has an insurance program covering various categories of deposits up to $100,000 through the Canada Deposit Insurance Corporation (CDIC). But the CDIC’s total holdings amount to a small fraction of the total value of insured deposits across Canada. In the CDIC’s 2015 annual report, the ratio was $3.044 billion in cash and investments held by the agency, plus a $20 billion borrowing limit, to $684 billion in insured deposits.

4.    The government’s “bail-in” proposal doesn’t actually rectify the too-big-to-fail problem—in fact, it doesn’t even purport to do so. Rather, the stated goal of the policy is to keep “systemically important” (i.e. too-big-to-fail) institutions “open and operating”, and transfer the costs of doing so from taxpayers to bank creditors.

Assuming the proposed “bail-in” regime takes effect, would the full value of your deposits in Canada’s major banks be safe in the event of another 2008-magnitude crash?

Maybe, but not certainly. At the very least, if you have a bank account in excess of $100,000 in any of the big Canadian banks, it might be a good idea to split it so that all of your deposits remain below the CDIC-insured limit.

Wednesday, March 30, 2016

Why many tech startups are cheering a broken Liberal campaign promise

On March 22, Prime Minister Trudeau’s Liberal government unveiled its first federal budget since capturing a parliamentary majority in the 2015 election. Among the components of the budget that have attracted attention in the press are the fiscal stimulus measures, infrastructure investments, and a deficit projection of close to $30 billion. But the budget is also notable because of something it does not contain: changes to the taxation of stock options.

In general, Canadians who are likelier to receive compensation in the form of stock options tend to be at the high end of the earnings scale. Large firms often reward their executives with stock options in lieu of salary, partly because stock option gains benefit from preferential tax treatment, and partly because ownership of claims on their own company’s stock provides a material incentive for corporate executives to optimize that stock’s performance.

The Liberals’ original proposal was to place a cap of $100,000 per year on gains from exercised stock options that can qualify for a tax deduction. (Under the current rules, only half of gains from cashing in stock options are subject to taxation, and there is no cap.)

Why didn’t the government follow through on its pledge? And what are some of the implications of this non-change?

Startup compensation a concern

“As I was out on pre-budget consultations I heard from many small firms and innovators that they use stock options as a legitimate form of compensation for their employees, so we decided not to put that in the budget,” said Finance Minister Bill Morneau. Indeed, startups typically do not enjoy the kind of cash flow that large, profitable, established firms generate. Thus, it is common for startups, particularly in the tech sector, to try to lure talent away from major players by offering stock options as compensation. This practice has allowed some startups to attract highly skilled personnel who might otherwise have accepted a more immediately lucrative position at a reputable, old-guard company.

The Liberals were not the only federal political party to float a proposal for altering the preferential tax treatment accorded stock options in the run-up to last year’s election. Thomas Mulcair’s New Democrats actually went a step further, advocating wholesale elimination of the special deduction. But tech entrepreneurs pushed back; Hootsuite Media founder Ryan Holmes even predicted that the NDP plan would “kill the Canadian startup ecosystem.”

At a time when Canada’s economy is experiencing lacklustre growth and job creation, many leading politicians understandably don’t want to be seen as undermining one of the country’s most vibrant growth industries. Moreover, the Liberals have marketed themselves as a party that plans to green the economy through technology and innovation; a policy change to the detriment of the tech startup sector would seem out of step with that brand image.

The downside: loss of federal revenue

Of course, incumbents in many industries would be delighted to receive special subsidies, protections, and preferential tax treatment, and can mount convincing arguments in their own favour. Every policy yields costs and benefits, and it’s the task of policymakers to weigh these in order to identify the most socially beneficial option.

Preferential treatment for stock options imposes a cost on Canadian taxpayers by undercutting the amount of revenue that makes its way into federal coffers. In turn, this compromises the government’s ability to offer public services and invest in infrastructural upgrades and innovation—all of which can lower the cost of doing business and boost productivity—without increasing the deficit. Even relatively conservative tax specialists, like Jack Mintz of the University of Calgary, have argued that the status quo around stock option taxation is inefficient, and unfairly favours employees who receive stock options as compensation.

Trudeau and Morneau broke their promise because they have calculated that the status quo delivers more benefits for startups than costs for Canadians who don’t hold stock options. For now at least, a lot of tech startups will breathe a sigh of relief.