Salary budgets indicative of ‘new normal’

Average raise in base pay 2.8 per cent in 2016: Survey
|hrreporter.com|Last Updated: 09/10/2015

Faced with economic challenges and the decline in commodity prices such as oil and gas, Canadian organizations continue to be cautious with salary increases in 2016, according to Mercer’s 2015/2016 Canada Compensation Planning Survey.

Almost two-thirds (62 per cent) of organizations report the overall economic climate as the primary factor influencing compensation planning decisions. As a result, salary budgets have remained flat, and the average raise in base pay is expected to be 2.8 per cent.

“Organizations are proceeding with caution as they look to the year ahead,” said Gordon Frost, market business leader for the Canada talent business. “As base pay increases remain flat, organizations are recognizing that the days of big pay raises may be a thing of the past. As they struggle to do more with less, they are focusing on other types of rewards like training and career development.”

Despite base salary increases remaining flat, employers are continuing to reward through short-term incentives. In 2015, 84 per cent of organizations had short-term incentive programs in place for at least one segment of their employee population, according to Mercer’s survey of almost 600 organizations.

“Employers are recognizing that annual bonuses (short-term incentives) are an effective way of aligning performance with rewards without increasing fixed costs,” said Frost. “Additionally, they are finding ways to deliver pay increases through other means like promotions, reflecting the growing trend of focusing on careers and sustained performance, rather than a one-year snapshot and reward.”

Differentiation by performance

As organizations strive to balance reward programs and work within the confines of limited salary increase budgets, they are segmenting their workforce and focusing on identifying and recognizing high potential employees, said Mercer. As a result, companies are still rewarding top-performers with greater than average increases, widening the gap between these employees and those in the lower-performing categories.

The highest-performing employees (seven per cent of the workforce) received average base pay increases of 4.6 per cent in 2015 compared to 2.6 per cent for average performers (57 per cent of the workforce) and 0.2 per cent for the weakest performers (three per cent of the workforce), found the survey.

“Greater differentiation of top performers allows employers to allocate limited resources to those employees that will contribute most to the company’s success,” said Frost.

Differentiation by sectors

In addition to differentiation among employee performance groups, variations exist among industry sectors. Compared to the average projected pay increase of 2.8 per cent in 2015, organizations within high-performing industries plan to grant higher increases in 2016.

The high-tech industry is among the highest with projected average pay increases of three per cent followed by the life sciences and consumer goods industry at 2.9 per cent. In contrast, other industries expect to award less next year than they have in the past, including energy at 2.9 per cent and other non-durable goods manufacturing at 2.7 per cent.

Salary freezes

Eight per cent of organizations froze salaries for all employees in 2015, founder Mercer. However, for 2016, this is projected to drop substantially with about three per cent of organizations projecting they will freeze salaries across all employee groups next year.

Certain sectors will fare worse than others in terms of salary freezes. The energy sector reported the highest percentage of salary freezes with 37 per cent of organizations reporting a salary freeze for at least one employee group thus far in 2015.

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