By Claudine Kapel
On the surface, managing salary increases seems like a fairly straightforward process. But a closer look shows there are a number of considerations that need to be addressed if an organization wants to manage base pay effectively.
Salary planning as a process seeks to address some fundamental questions related to the allocation of salary increases and related pay administration elements.
- How much should the organization budget for salary increases?
- How should salary ranges be adjusted?
- How do factors like industry or geography affect market practice related to planned salary increases?
The Conference Board of Canada’s latest compensation planning pulse check provides useful trend data that helps answer these questions.
It notes that 2013 has brought “some stability in salary planning.” For non-unionized employees, planned average salary increases for 2013 remain steady at three per cent – “exactly in line” with what survey participants projected last summer.
The Conference Board adds that at the industry level, oil and gas continues to project the highest average salary increase at 4.5 per cent (up from a projected 4.2 per cent this past summer). The majority of industries, however, “have stayed within 0.1 to 0.2 percentage points of their original summer projection.” The largest change was in the food, beverage and tobacco industry, where the projected salary increase has dropped from 2.9 per cent to 2.3 per cent.
The Conference Board notes that regionally, projections for average salary increases have been revised upwards in Saskatchewan (four per cent) and Alberta (3.9 per cent). In Quebec (2.7 per cent), Ontario (2.5 per cent) and British Columbia (2.5 per cent), projections were revised downward and remain below the national average.
The survey also found planned salary budgets have dropped slightly to 3.1 per cent, from 3.2 per cent. The salary budget values covers all budgeted items including range, merit increases, economic progression, promotions, etc., and may also include changes to headcount. In contrast, the overall average salary increase figures exclude promotions.
Meanwhile, average projected adjustments to salary ranges have remained constant at 1.8 per cent. The Conference Board notes 15 per cent of survey respondents indicated they would not be adjusting their salary structures in 2013.
It’s good to see that the majority of organizations in the Conference Board’s survey are planning to make adjustments to their salary ranges. Such adjustments represent a core part of effective compensation management.
Your organization’s salary structure provides a framework for making pay decisions. Examining how employees are positioned within that structure will help determine who is paid high or low or where there might be issues around internal equity.
But for this analysis to be truly meaningful, the salary structure or ranges need to be aligned with competitive market practice – however the organization defines that.
If the structure isn’t adjusted each year to keep pace with labour inflation, you may start to distort what the employee positioning means. For example, you may have a lot of employees positioned high in their ranges – which would in theory reflect highly competitive rates of pay if the structure were based on market.
But if the structure isn’t adjusted over time, you may have optics that suggest you’re paying competitively, while in reality you may be falling behind – leaving the organization more at risk of employee discontent and unwanted turnover.
Such optics are therefore really a hollow victory, because an organization that doesn’t maintain an up-to-date salary structure may be fooling itself about how well employees are compensated. It’s sort of like cheating at solitaire – nobody really wins.
Ultimately it takes some time and effort to develop and update salary plans. But keeping one’s finger on the pulse of competitive market practice is a key part of effective compensation management.
Claudine Kapel is principal of Kapel and Associates Inc., a Toronto-based human resources and communications consulting firm specializing in the design and implementation of compensation and total rewards programs. For more information, visit www.kapelandassociates.com.