Salary surveys forecast base pay increases between 3.2 and 3.4 per cent
Employers are cautiously optimistic that the Canadian economy is improving, according to the most recent round of salary and compensation surveys that predict Canada-wide base salary increases averaging from 3.2 to 3.4 per cent in 2006.
The Watson Wyatt Worldwide survey, which included 422 organizations, found that after three years of declining salary increases, the average raise in 2005 was up slightly from 2004’s 3.2-per-cent increase. However, this is still below the 2001 average increase of 4.1 per cent. The survey predicts that next year’s increase will be 3.3 per cent.
“As the economy continues to improve and the competition for high performing individuals intensifies, employers will face increasing pressure to raise salaries at a faster rate to attract and retain talented employees,” said Graham Dodd, national practice director of Watson Wyatt’s human capital group.
Projected salary increases vary geographically, between industries and job levels. Western provinces, and Alberta in particular, are expected to have the highest increases (from 3.4 to four per cent) because of the oil boom. The Hay Group, which surveyed 482 employers, predicts that Atlantic Canada and Saskatchewan will be significantly below the national average with just 2.4- and 2.8-per-cent increases respectively.
The oil and gas industry is expected to have the highest salary increases next year with Mercer Human Resources Consulting and Morneau Sobeco predicting a 4.6-per-cent increase and the Hay Group predicting a 4.5-per-cent increase.
Both Mercer, which surveyed 384 organizations, and Morneau Sobeco, which surveyed 300, forecast higher increases for executives next year (3.6 and 3.3 per cent, respectively) compared to hourly workers (3.3 and 2.7 per cent).
While nearly every survey shows that employers expect next year’s average salary increases to be in line with the past few years, more companies are giving more employees raises than in recent years.
Organizations surveyed by WorldatWork reported giving a base salary increase to an average of 91 per cent of all employees in 2005, up from 86 per cent in 2004.
The Hay Group found that 88 per cent of 482 organizations surveyed are planning base salary increases for 2006. This survey also reported the largest projected salary increase difference between 2005 and 2006 — 2.6 versus 3.3 per cent.
“Over the past year, we’ve been witness to many different turn of events,” said Karl Aboud, national director, reward management at the Hay Group. “But on balance there is enough optimism that the forecasted salary increases are showing stronger growth than they have in the recent past.”
This optimism is also reflected in workforce planning, according to Mercer’s principal Marc Chartrand.
“More than one-quarter of employers surveyed said they expect to add head count in 2006,” said Chartrand.
Over the past decade the public and not-for-profit sectors have trailed the private sector in salary increases. However, in its survey of 205 companies, Aon found that the public and not-for-profit sectors will keep pace with the private sector, with median salary increases of three per cent.
The small movement in base salary increase projections indicates many employers are still focused on cost-saving measures, said Hewitt Associates’ senior compensation consultant Keri Humber.
“Instead (of base pay), employers are using variable pay as part of their overall strategy for attracting and retaining employees who can help the organization achieve strong business results,” said Humber.
The reasons for using variable pay programs are changing. Instead of the reward aspect of compensation plan design, the focus is on variable pay as a tool to attract, motivate and retain employees. Only 72 per cent of the 400 organizations Hewitt surveyed reported using such programs to reward employees, down from 76 per cent in 2004.
Nearly half of the organizations Mercer surveyed said they increased pay differentiation based on performance and another 16.8 per cent said they’re considering it for next year.
While 85 per cent of the companies that participated in Watson Wyatt’s survey said merit increases were the leading factor in determining their annual salary increase budgets, the difference in merit increases between average employees and top performers is minimal at 2.9 per cent and 5.4 per cent respectively.
“Canadian companies are missing the mark by providing only a marginal difference in salary increases to top performing employees,” said Watson Wyatt’s Graham Dodd. “Our recent Human Capital Index study shows that companies that meaningfully differentiate employee rewards based on performance financially outperform those that do not.”
Hewitt also found that attracting and retaining employees is becoming a bigger issue for many companies. This year 53 per cent of employers reported that attraction was an issue compared to 37 per cent last year. Similarly, 34 per cent stated they were facing retention pressures, up from 27 per cent last year.
Hewitt said employers need to design variable pay programs that focus employees on achieving goals that are aligned with business objectives and then must measure the outcome of the programs to ensure they’re attracting and retaining staff.
Unfortunately, fewer organizations are doing these kinds of analyses — only 37 per cent of organizations reported doing so this year, down from 42 per cent in 2004.
The Watson Wyatt Worldwide survey, which included 422 organizations, found that after three years of declining salary increases, the average raise in 2005 was up slightly from 2004’s 3.2-per-cent increase. However, this is still below the 2001 average increase of 4.1 per cent. The survey predicts that next year’s increase will be 3.3 per cent.
“As the economy continues to improve and the competition for high performing individuals intensifies, employers will face increasing pressure to raise salaries at a faster rate to attract and retain talented employees,” said Graham Dodd, national practice director of Watson Wyatt’s human capital group.
Projected salary increases vary geographically, between industries and job levels. Western provinces, and Alberta in particular, are expected to have the highest increases (from 3.4 to four per cent) because of the oil boom. The Hay Group, which surveyed 482 employers, predicts that Atlantic Canada and Saskatchewan will be significantly below the national average with just 2.4- and 2.8-per-cent increases respectively.
The oil and gas industry is expected to have the highest salary increases next year with Mercer Human Resources Consulting and Morneau Sobeco predicting a 4.6-per-cent increase and the Hay Group predicting a 4.5-per-cent increase.
Both Mercer, which surveyed 384 organizations, and Morneau Sobeco, which surveyed 300, forecast higher increases for executives next year (3.6 and 3.3 per cent, respectively) compared to hourly workers (3.3 and 2.7 per cent).
While nearly every survey shows that employers expect next year’s average salary increases to be in line with the past few years, more companies are giving more employees raises than in recent years.
Organizations surveyed by WorldatWork reported giving a base salary increase to an average of 91 per cent of all employees in 2005, up from 86 per cent in 2004.
The Hay Group found that 88 per cent of 482 organizations surveyed are planning base salary increases for 2006. This survey also reported the largest projected salary increase difference between 2005 and 2006 — 2.6 versus 3.3 per cent.
“Over the past year, we’ve been witness to many different turn of events,” said Karl Aboud, national director, reward management at the Hay Group. “But on balance there is enough optimism that the forecasted salary increases are showing stronger growth than they have in the recent past.”
This optimism is also reflected in workforce planning, according to Mercer’s principal Marc Chartrand.
“More than one-quarter of employers surveyed said they expect to add head count in 2006,” said Chartrand.
Over the past decade the public and not-for-profit sectors have trailed the private sector in salary increases. However, in its survey of 205 companies, Aon found that the public and not-for-profit sectors will keep pace with the private sector, with median salary increases of three per cent.
The small movement in base salary increase projections indicates many employers are still focused on cost-saving measures, said Hewitt Associates’ senior compensation consultant Keri Humber.
“Instead (of base pay), employers are using variable pay as part of their overall strategy for attracting and retaining employees who can help the organization achieve strong business results,” said Humber.
The reasons for using variable pay programs are changing. Instead of the reward aspect of compensation plan design, the focus is on variable pay as a tool to attract, motivate and retain employees. Only 72 per cent of the 400 organizations Hewitt surveyed reported using such programs to reward employees, down from 76 per cent in 2004.
Nearly half of the organizations Mercer surveyed said they increased pay differentiation based on performance and another 16.8 per cent said they’re considering it for next year.
While 85 per cent of the companies that participated in Watson Wyatt’s survey said merit increases were the leading factor in determining their annual salary increase budgets, the difference in merit increases between average employees and top performers is minimal at 2.9 per cent and 5.4 per cent respectively.
“Canadian companies are missing the mark by providing only a marginal difference in salary increases to top performing employees,” said Watson Wyatt’s Graham Dodd. “Our recent Human Capital Index study shows that companies that meaningfully differentiate employee rewards based on performance financially outperform those that do not.”
Hewitt also found that attracting and retaining employees is becoming a bigger issue for many companies. This year 53 per cent of employers reported that attraction was an issue compared to 37 per cent last year. Similarly, 34 per cent stated they were facing retention pressures, up from 27 per cent last year.
Hewitt said employers need to design variable pay programs that focus employees on achieving goals that are aligned with business objectives and then must measure the outcome of the programs to ensure they’re attracting and retaining staff.
Unfortunately, fewer organizations are doing these kinds of analyses — only 37 per cent of organizations reported doing so this year, down from 42 per cent in 2004.
