Drilling down into total rewards

In recovery, employers fine-tune compensation, performance
By Sarah Dobson
|Canadian HR Reporter|Last Updated: 08/15/2011

The economic recovery continues to be uneven and across Canada, the labour trends, challenges and opportunities vary wildly by industry sector, according to Ian Cullwick, a partner at Deloitte’s consulting practice in Ottawa.

“It’s quite interesting this time around in terms of economic trends,” he says. “Both globally and nationally, the impact and implications are being felt differently by different industry sectors.”

The oil and gas industry is booming again so the scenarios experienced before the fall of 2008 are back, such as escalating wages and salaries for cashiers at Tim Hortons in Fort McMurray, Alta., says Cullwick.

In some industry sectors or jurisdictions, wage restraint and freezes are still the order of the day while in others, employers are going to have to manage expectations for compensation growth, he says.

“In 18 to 36 months’ time, we may have a very highly fragmented or disjointed labour economy when it comes to compensation trends and practices,” says Cullwick.

Also having an impact on total rewards are unions and collective agreements after a stretch of fiscal and legislative restraint in the public and private sectors, he says.

“Those controls are coming off as the economy improves and there are a number of collective agreements coming up for renewal, so there’s a bit of a pressure cooker,” says Cullwick. “The frustration and pent-up wage demands that have not been addressed for the last three years have been simmering and now they’re going to manifest.”

How that plays out over the next six to 12 months will set the tone for many other parts of the non-unionized wage sector across the country, he says.

Canada could see national average salary gains from two per cent to 2.5 per cent in 2012, according to Karl Aboud, director of the Canadian reward practice at Hay Group in Toronto. But there’s no standard answer for the allocation of total rewards as it depends on an employer’s circumstances, location or even company ownership.

“Alberta is resurgent in its need for anyone who can walk and talk because they’re expecting a commodity boon,” says Aboud, adding Newfoundland and Labrador was last year’s economic leader in terms of salary adjustments. “You’re going to see location premiums coming back into the fore.”

“In central Canada, where the recovery won’t be as strong, it’s more, ‘We want to make sure we keep our top talent but we’re willing to let go of some talent,’” he says.

In the next year, Canada could see salary increases around three per cent, says Iain Morris, a Toronto-based partner who leads Mercer’s human capital business in Canada. And there should be relatively few wage freezes this year.

Canadian organizations are cautiously optimistic about the economic environment and looking at their people needs, says Morris.

“A lot of them are looking at programs that may not have been changed very much over the last few years and looking to see what they might need to do to make them more competitive and more attractive,” he says. “But a lot of work is being done in a total rewards context. There’s more thinking about that than there was kind of in the run-up to the recession.”

That means pondering the total rewards philosophy and then drilling into the areas where there may be the most pain, says Morris.

In the compensation realm, the definition of performance is transforming by taking more of a corporate profit perspective than just an individual approach, says Aboud.

“What organizations are now caring more about are, ‘We want to pay the bonuses to reflect corporate financial affordability, not just bonusing people who individually did well.’ So there’s a trend in that the bonus has to be affordable, not just based on individual performance.”

More employers are also interested in longer-term incentive programs for executives that are cash-based as opposed to equity-based, he says.

“They’re not looking to bestow equity ownership because of dilution and ownership priorities, but they are looking to find ways to better incent and reward through executive comp programs that are long-term, cash-based.”

Changing demographics

Many employers are also concerned about much of their workforce retiring in the next three to five years, says Morris. So firms need to be stronger in terms of succession planning and offer compelling total rewards to fill these gaps.

There are four generations who all have different perspectives on salary, equity pay, bonuses and pensions, he says.

“Generally, in the non-cash items — the benefits, perks, pensions — we’re seeing customized packages relative to the demographics of the workforce.”

The multi-generational workforce also means flexible health benefits plans are increasingly offered, says Aboud. Older workers returning to the workplace might, for example, prefer premium health-care benefits.

“It’s because of the segmentation of the workforce, designed to be attractive to as many people as we can,” he says.

Flexible work options are also popular with employers, says Aboud.

“You have to pay competitively to be in the game but you don’t have to overpay if you’re doing all the other engagement things well and the issue of flexible work life is absolutely one of the key things,” he says.

And training and development is coming back, exemplifying one of the silver linings of the recession — it forced organizations to be more selective with investments, says Cullwick.

“There’s an increased focus on internal training and development, whether that’s on-the-job training, projects, and then selective investments when it comes to out-of-pocket hard cash being spent on external training and development. It is rebounding but it’s more focused and selective with how it’s being done.”

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