Glen McGregor, host: Here in Canada, we’re proud of our cultural touchstones. Hockey. Maple syrup. Tim Hortons coffee. We have a market economy with a robust social safety net for our 40 million residents. The Canadian government employs more than 1% of all working-age Canadians, and public service is considered a dignified, stable career.

But there’s been an ongoing scandal that has affected tens of thousands of people who work in government. They’ve lost their savings, jobs and even their homes. What caused all of this? A new payroll system. In Canada, the Phoenix pay system is infamous. Its botched rollout became national news.

[Soundbite of Question Period in Canada’s House of Commons]

Justin Trudeau: We did not create the Phoenix problem, Mr. Speaker, but we are going to fix it!

McGregor: It started out with good intentions. The old payroll system was rickety at best. Calculations were made using outmoded software. Mistakes were common — late pay, incorrect pay. More often than not, the errors had to be untangled manually by the compensation workers in every department who knew the quirks of the system.

After years of inaction, the government came up with a plan to fix payroll. It would centralize most pay services in one location and replace many staff from across the country with advanced software systems. The initiative to upgrade and consolidate the government’s payroll system was supposed to be a $310 million project that would eventually save about $70 million a year.

The name the government chose for this new pay system was “Phoenix.” And it all went so wrong that the name soon became a verb known throughout the public service. “I don’t want to get Phoenixed.” “I got Phoenixed.” “My paycheque this week was totally Phoenixed” — by that, we mean workers paid incorrectly, and in too many cases, not paid at all.

Jennifer Carr: I am crying in my living room, trying to get anybody just to give me something so that I could pay my bills.

Blair Winger: People lost houses, people had marriage breakdowns.

Colin Cameron: It's become this convoluted, tortuous nightmare.

McGregor: It was embarrassing for the bureaucrats who led a project that was supposed to save money but ended up costing the government billions — with a “B” — to try to fix. And eight years after its launch, it’s still not fixed.

My name is Glen McGregor. I’ve been a political reporter in Ottawa for more than 25 years. This podcast is about what went wrong with Phoenix and why. It’s about the political repercussions of such a massive administrative failure. It’s about the very real consequences felt by thousands of workers who checked their bank accounts on payday and found they’d been shortchanged. And it’s about the lessons for government or other large organizations that try to do the same.

This is Phoenixed: Inside Canada’s payroll disaster, produced by the Global Payroll Association and Storythings.

Monique Boudrias [in a Canadian parliamentary committee meeting]: Many departments are experiencing problems, but the nature and extent of the problems vary from department to department.

Graham Jenkins: The reputational damage should not be underestimated.

Chris Aylward: How can we do this now? What can we do now to make a future pay system better? And not one bargaining agent said, “Let's get rid of the compensation advisors.”

McGregor: Episode 1, “The Best Intentions.” The lunchtime rush is underway in the food court beneath Place du Portage. It’s a sprawling collection of office towers located in Gatineau, Quebec, just across the Ottawa River from the iconic Parliament Buildings where Canada’s elected representatives meet. Thousands of hungry workers are lined up for sushi, spicy Thai stir-fry, Lebanese shawarma and other dishes that reflect the tastes of a multicultural workforce.

[Soundbite of a conversation at Place Du Portage]


Unidentified person #1: “Alright, boss, what would you like on it?”

Unidentified person #2: “Just a little bit of garlic. Everything except for pickles, but extra turnips. With sesame.”

McGregor: Today, more than 10,000 public servants work at Portage, keeping the machinery of government rolling. The patent office is here. So is the Competition Bureau, parts of the foreign service, the government’s IT department and something with the delightful name of “the office of informal conflict management” — they try to resolve minor workplace disputes. It’s a big place, more like a small town than a group of office buildings. And because of the number of public servants who work here, Portage was something like ground zero for the Canadian government’s ill-fated attempts to modernize its payroll system and save millions of taxpayer dollars.

The pay that government workers at Place du Portage and hundreds of thousands of others across the country count on is more than just a financial transaction. It is in many ways a sign of the fundamental trust between employees and employers that makes good on the promise people will be paid correctly and promptly for the work they do. It’s a relationship that those who work in payroll understand and take seriously.

Jenkins: My name is Graham Jenkins. In an early part of my career, I was the global owner of payroll for IBM; and then subsequent to that, the global owner of payroll for BP. And then I started a consulting firm pretty close to London.

McGregor: Although Graham is based in the U.K., his work is global. And he’s very familiar with Phoenix.

McGregor: Have you ever seen anything on this scale go this badly in the pay space?

Jenkins: No, never, no. The sheer scale of the Canadian project, of course, is — you know, staggering. It's been talked about in informed circles, let's say, in payroll circles, for 5

years, let's say. I think the problems are project management, totally unrealistic expectations and an unwillingness to do the hard yards upstream. And maybe, just maybe, some people thought payroll was simple. And it just is not.

McGregor: People in payroll know that it’s a mission-critical job.

Jenkins: The biggest focus for payroll is you can't get it nearly right. So it has to be on time. It has to be accurate. So there's very little room for manoeuvre. It's very dynamic, very unforgiving. Huge reputational damage at risk here, I think, and it's the same with small, medium, large corporations — the reputational damage should not be underestimated in any way.

McGregor: Now, before I became a journalist in Ottawa, I worked as a summer student here in Place du Portage. I was hired by what was then called the Department of Supply and Services. Today, it’s part of Public Services and Procurement Canada — or PSPC, as it’s most commonly known. It’s a huge department that buys stuff for the rest of the federal government, kind of like a big quartermaster. Office furniture, scientific equipment, consulting services, ammunition for the military and even new F-35 fighter jets currently on order all have to be bought through PSPC. We’ll be hearing a lot about the department in this podcast, because one of the things it had to buy for the government was a new payroll system.

And that summer in 1986, I worked with about a dozen other students in cubicles, behind beige room dividers that blocked our view out the windows. Every morning, our managers would bring out big stacks of forms and drop them on our desks. These were called P-A-Y-Es — payables at year-end. They are an accounting instrument meant to tie off loose ends in departmental budgets at the end of a fiscal year.

The summer students spent all day manually verifying the numbers on these forms. It was agonisingly dull, the worst kind of clerical work. And the only thing that kept me going through that summer was the paycheque. Every two weeks, our manager would bring out a box with the cheques and hand them out to the students; this was long before automatic deposits became common in Canada. Tearing open the envelope, we’d find a summary of our pay: the hours worked, the hourly rate, the deductions for income taxes, unemployment insurance and our contributions to the federal pension plan. It was the net amount of the pay that of course interested me the most.

But never once during that summer did I think about what was involved in tabulating those totals correctly, printing the right amount on the cheque and sending it to me on payday, on time, every two weeks. I didn’t know anything about the thousands of rules and conditions that had to be considered when payroll calculations were made for each one of the hundreds of thousands of others who then worked in the public service across the country:

The bureaucrats like my bosses at supply and services, but also the sailors in the Canadian Coast Guard, who spent long stretches at sea that had to be considered in their pay calculations...

Members of the Royal Canadian Mounted Police, who regularly ran up overtime patrolling remote communities in western Canada and the far north...

The diplomats in embassies and high commissions abroad, some posted in developing countries that made them eligible for varying rates of hardship pay...

And the soldiers in the Canadian Armed Forces—their calculations had to factor in additional danger pay if they were deployed to a conflict zone...

And then, the summer students like me who would work for only a few months before dropping off the payroll altogether.

Now, a lot of these factors are complexities that are added through the larger human resources system — some the result of terms negotiated in collective agreements with labour unions. Graham Jenkins says those complications — those 80,000 rules used to generate pay for the Canadian government workforce — have to be considered in what he calls box one. In the larger process of calculating pay, box one represents the preparation and receipt of payroll-related data.

Jenkins: Box one is the lifecycle of every employee. So I get recruited; I get hired, onboarded; I get given a reference salary; I get promoted; I do overtime; I have absences; I get relocated; I get awards; I elect benefits.

McGregor: That is to say, the actual issuing of pay, with the legally required deductions, should be relatively straightforward using any number of commercial software packages — but only once all those factors are worked out.

Jenkins: In any company that I've worked with — and I've worked with many large companies, IBM, BP and many clients — box one, it's where the failure is, it's where the cost is, it’s where the errors are. So that box one is typically the box that's completely ignored in most outsourcing projects: number one, regionalization projects, number two, offshoring projects or centralization.

Executives, as intuitive and smart as they are, often have the view that this — paying people — just happens and everything reaches the payroll department ready to press a button and calculate. And they grossly underestimate the complexity of getting that data to payroll.

McGregor: Was a failure to recognize this distinction part of the Phoenix problem?

Jenkins: My hypothesis: at the heart of the issues that the Phoenix project had is that the lifecycle of employees — all of the things that I listed, which are box one — have not been sufficiently addressed prior to centralization of payroll.

McGregor: When you really look at all of the rules and systems involved in getting people paid, it's kind of amazing the system doesn't fail more often. So why did it happen here, to the Canadian government? To really understand why Phoenix failed, we need to put it into its political context, because the decision to implement it was, at its heart, political.

We’ll go all the way back to January 2006. At the end of an unusually long election campaign, Canada’s Liberal Party was voted out of power after 12 years in government. Canadians chose a new leader.

[Soundbite of election night speech]

Harper: Thank you, merci beaucoup. Tonight, friends, our great country has voted for change.

McGregor: Stephen Harper was an economist by training and a fiscal hawk who represented a district in Calgary, in the deeply conservative province of Alberta. He and his Conservative Party had run an election campaign promising sound financial management with a strong focus on restoring ethics to government.

[Soundbite of election night speech]

Harper: We will do this because shuffling the deck in Ottawa is not good enough. We need to change the system, and we will change the system to strengthen our institutions and make them more accountable to you, the Canadian taxpayers.

McGregor: His first two years as prime minister were largely uneventful and his Conservatives were re-elected in 2008. But by then, the world’s economy was in turmoil.

[Soundbite of U.S. government commission meeting]

Nestor Dominguez: These losses occurred as a result of cataclysmic and unprecedented market events not seen since the Great Depression.

McGregor: The global economic crisis began in the United States, triggered by subprime mortgages that pushed banks to the brink of collapse. The crisis spread to Wall Street, taking down giant investment firms like Lehman Brothers and Bear Stearns.

An old expression in Canadian politics holds that if the United States sneezes, Canada catches a cold. And soon, the economic distress spread north. The slumping global economy dragged down world oil prices. For an energy exporter like Canada, that meant a drop in oil revenues, which bring in billions of tax dollars. The government’s finances were suddenly headed into the red, putting Canada on pace to run a huge deficit — a deeply unappealing position for a party and leader who made it an act of faith to balance the books.

With revenues falling, Harper looked to the expense side of the government ledger. He had spent much of his political career railing against what he saw as excessive government spending. His party often denounced bureaucrats as Ottawa fat cats who lived high off the public hog. So when Harper and his cabinet ministers searched for new ways to cut spending, one idea they landed on was cutting the cost of running their payroll systems.

I say “systems,” plural, because there was no one centralized body for processing pay government-wide. Departments and agencies had their own internal compensation units, their own payroll staff. The Canadian government called them compensation advisors. They knew the peculiarities of their local pay rules.

Now, often, these rules had been put in place through negotiations with labour unions who represented public service workers, with dozens of different bargaining units across the entire government all reaching their own collective agreements that governed things like overtime, sick leave, parental leaves and pension contributions. The compensation advisors in each department knew the specific rules that would apply to

their employees. That meant that if there was a problem with a paycheque, workers could ride the elevator up and talk to one of them, to try to get it resolved.

What the government then called the regional pay system was in reality a patchwork of different technology and procedures, customized for the unique needs of each department or agency. And what worked for the coast guard wouldn’t necessarily work for Health Canada, or for customs agents posted at border crossings to the U.S., or for the government veterinarians who inspected livestock for export.

Although the regional pay system had a long track record, it was sometimes finicky and prone to mistakes that required humans to correct. Humans that, to the Harper government, were expensive. In the second year of Harper’s mandate, the payroll issue came up before a committee of elected members of Parliament.

[Soundbite of Canadian parliamentary committee meeting]
Diane Marleau: I will call the meeting to order. We’re already a little bit late.

McGregor: Now, hearings before Parliament’s government operations committee usually don’t get much media attention. The subject matter is relentlessly dry. And no one was paying much attention in December of 2007 when the committee began a study of what it called the federal employee compensation delivery system — a title that sounds like it was meant to be boring.

[Soundbite of Canadian parliamentary committee meeting]

Marleau: We have before us today a number of witnesses, and these are people that have come before us to address the compensation issue and the challenges.

McGregor: Among the witnesses appearing at the hearings was Monique Boudrias. She was the executive vice president of the Canada Public Service Agency, which was a federal body that made sure government workers were hired fairly and treated properly on the job. And she told the MPs that they had an issue.

[Soundbite of Canadian parliamentary committee meeting]

Boudrias: Some public servants have indicated that their paycheques are late or are inaccurate. The preliminary information we received confirms that many departments are experiencing problems, but that the nature and extent of the problems vary from department to department.

McGregor: The problems that would eventually confound the new system were already on the government’s radar.

[Soundbite of Canadian parliamentary committee meeting]

Boudrias: The issues are: the complexity of collective agreements and web of rules; the business processes differ from department to department; the antiquated technology causes duplication of data entry by departments, data integrity issues at government level and uneven levels of service.

McGregor: The other concern was that the government was losing the trained professionals who ran payroll to demographic factors. Compensation advisors were, on

average, older than other public servants. The baby boomers among them were hitting retirement age, heading off to enjoy those luxurious government pensions envied by workers in the private sector and taking all their institutional knowledge with them. But the government had a plan.

[Soundbite of Canadian parliamentary committee meeting]

Boudrias: On recruitment, the plan was to hire a minimum of 100 compensation advisors for 2007 and ‘8. Up to now, we have hired 109 new compensation advisors: 49 to date via a public service capacity-building collective staffing initiative.

McGregor: So, a small hiring blitz followed by extensive training — about 18 to 24 months to get each new advisor up to speed. When the government officials sat down with the labour unions that represented workers, they found an audience that was at least receptive to the idea of upgrading and improving the way employees get paid. The unions knew from their members that there were problems.

Aylward: It had glitches. Especially if you're, for example, a ship's crew, and you have lay days, right? So depending on the number of days you spend at sea, you have X amount of lay days when you come back from sea. That was really a specific issue. There was other glitches with it as well, around — sometimes — overtime: “I put in overtime and the system is not capturing it.”

McGregor: One of the union reps at the table was a public servant from Newfoundland who would later go on to lead the largest union representing Canadian federal workers.

Aylward: Chris Aylward, national president, Public Service Alliance of Canada. As much as it was old and it was antiquated, it worked — it had good features to it for sure. And then, as I said, yes, the government started looking at, okay, do we need to modernize the pay system?

McGregor: So, a rare moment when government managers and the union were on the same page. Payroll, they agreed, needed an overhaul.

Aylward: Back then, it was like, yes, we are moving to a new pay system, but the emphasis were really on how can we do this now. What can we do now to make a future pay system better? And of course, you know, bargaining agents were at that table and not one bargaining agent said, “Let's get rid of the compensation advisors.”

McGregor: Now, unions by definition never want to see the size of their membership trimmed. It reduces their clout and also the membership dues that they collect. But this would become a crucial point in the transformation of payroll — cutting staff and replacing them with new technology. Public servants and the unions generally agreed that more compensation advisors were needed to keep the system running. The government had other plans.

Aylward: Quite frankly, the bargaining agents weren’t being listened to. And it was a gradual thing for the first couple of years, and then all of a sudden, it's like, boom, all of the compensation advisors were gone.

McGregor: A payroll transformation project of this size is always a gargantuan task. Experts describe upgrading payroll while still trying to get people paid as like doing

maintenance on a plane while it’s in flight. And this isn’t a little commuter jet. Canada has more than 350,000 public servants on board. A private company that undertakes this kind of project and messes up so royally would never have to tell the public a thing about their payroll problems. The fact that this happened to a government using public funds means that we have a rare opportunity to see inside a payroll transformation project gone wrong. Really wrong. Over the course of this series, you'll hear from people who had their livelihoods taken away by Phoenix.

Carr: I don’t know how I survived. I think I played the credit card game. McGregor: People who fought for answers.

Roxane Merrill Young: I said I came all the way here to see the prime minister and I’m going to see the prime minister.

McGregor: And politicians who tried to avoid blame.


[Soundbite of media scrum]


Judy Foote: When you’re talking about technology, there are bound to be challenges.

McGregor: How did this payroll transition go so wrong? And why is it still not sorted out eight years later? In the next episode, I'll look for answers in the small Maritime community that found itself at the centre of it all.

‍

• Government of Canada: Phoenix News and Updates
• Government of Canada: The Phoenix Pay Problem: Working Toward a Solution
• Government of Canada: Lessons Learned from the Transformation of Pay Administration Initiative

• Government of Canada: Presentation on the Transformation of Pay Administration Initiative
• The Ottawa Citizen: The seeds of the tortured Phoenix pay project were planted three decades ago
• The Ottawa Citizen: A timeline of the Phoenix pay debacle: 29 years and counting
• Public Service Alliance of Canada: State of Phoenix: eight years of the pay debacle
• CPAC (video): Question Period, Dec. 13, 2017
• Government of Canada (video): Parliamentary committee on government operations meeting, Dec. 12, 2007
• CBC (video): 2006 Canadian election night coverage
• Rogers TV (video): Minister Judy Foote visits Miramichi Pay Center in 2016