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Feb 24, 2015

Pay increase projections drop amid uncertainty

Conference Board raises possibility of pay freezes in Alberta and Saskatchewan

By Claudine Kapel

Managing compensation effectively is much more of a dynamic exercise than many people realize.

On the surface, it may appear little changes year-over-year. After all, it seems like budgets for merit increases have been modest for an eternity.

But if you look below the surface, you’ll find the swirls and eddies that mark an ever-changing environment.

As a case in point, the Conference Board of Canada recently released its Mid-Year Pulse Check of its annual compensation planning outlook survey.

The survey found that “against a backdrop of falling oil prices and regional economic uncertainty, many Canadian organizations have lowered their projections for 2015 salary increases.”

The average base salary increase for non-unionized workers is now expected to be 2.7 per cent – down from the 2.9 per cent projected in the summer of 2014.

“Many organizations are waiting to see how the economy fares before finalizing plans,” notes the Conference Board. In fact, only 43 per cent of respondents indicated they had their salary plans for 2015 approved.

“It is likely that we will see further reductions in salary increases, including pay freezes, from organizations in Alberta and Saskatchewan,” notes the Conference Board.

While it projects oil prices have most likely bottomed out, the Conference Board notes the decline has made its mark. “Even if prices recover through the rest of the year, the Canadian economy will take a hit in 2015, due to reduced energy investment.”

At the industry level, oil and gas continues to project the highest average salary increase, at 3.7 per cent, but this is down from the projection of 3.9 per cent reported in the summer of 2014.

“While uncertainty continues in the oil and gas sectors, 42 per cent of respondents in the industry have lowered their expected salary increases for 2015.” Further, only about 25 per cent had their salary plans finalized.

Ontario is the only region whose most recent projection – at 2.5 per cent – is still in line with its summer 2014 forecast. The Atlantic provinces – at 2.0 per cent – are still projecting the lowest average salary increases.

“The next few months will be challenging for employers as they balance the need to retain top talent with affordability,” notes the Conference Board.

Compensation management is often a balancing act. You want to ensure your organization can attract and retain the talent it needs. You want to recognize and reward top performers and drive desired results. But you also need to achieve these objectives in a cost-effective and affordable manner.

Monitoring competitive market practice is just one facet of effect compensation management. But it’s a critical piece, and one that is sometimes overlooked.

And equally critical, you need to be able to interpret market information so you can make sound pay decisions that are right for your own organization.

For example, an organization may look at the projected values around budgets for salary increases and assume if the internal budget is comparable, then all is well.

But again, a deeper dive may be necessary in order to navigate the currents more effectively. For example, if the organization’s current pay levels have fallen behind its desired market positioning, a modest merit budget may not be sufficient to enable the organization to close the gaps.

And there are a host of other questions an organization still needs to address as it manages annual pay changes, such as:

  • By what percentage will the salary structure itself be adjusted?
  • Will a budget for market adjustments be needed, over and above the budget for salary and wage increases?
  • How will promotional increases be managed?
  • What happens when an employee reaches his or her salary range maximum?

Staying on course from a compensation perspective requires a broad, strategic perspective on what you’re seeking to achieve through your pay programs. But there’s also a need to pay attention to the countless details that shape the delivery – and ultimate success – of these programs.

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