Canadian employees should see average salary increases of 3.1 per cent in 2012, according the Canada Salary Increase Survey released by Aon Hewitt.
The forecast is a slight improvement over actual 2011 salary increases, which averaged 2.9 per cent.
"The consumer price index (CPI) is expected to average 2.9 per cent this year, so many employees' raises are just keeping up with inflation," said Suzanne Thomson, a senior associate at Aon Hewitt in Toronto. "Next year, Statistics Canada is projecting a twp per cent increase in the CPI, so employees should feel less of a pinch if salaries increase by 3.1 per cent."
Another positive trend is limited pay freezes. This year, 2.7 per cent of employers froze salaries; less than one-half a per cent expect to do so next year, found the survey of 542 employers in June and July.
In 2010, that number was 8.5 per cent, while it was 29.2 per cent in 2009.
"There is more good news with respect to pay cuts," said Thomson. "Of the very few organizations that reported cutting salaries in 2011, two-thirds are planning to fully or partially restore that cut."
The following chart shows average salary increases by province:
Province or Region
Actual average 2011 increase
Projected average 2012 increase
Greater Toronto Area
However, the forecasts present some challenges for employers, according to Susan Hunter, national leader of Aon Hewitt's Rewards group.
"Employee attraction and retention will become more pressing issues as the supply of workers decreases with baby boomer retirements. If base salary increases are modest, employers have to find ways to hang on to their high performers."
Hunter suggests organizations consider the following approaches to engage key employees:
•Hold part of the compensation budget in reserve to provide greater base pay increases for employees who surpass established performance objectives.
•Revisit variable compensation programs to ensure they continue to help achieve business objectives. "Variable compensation programs enable high performers to earn additional compensation, generally on the basis of corporate or individual performance," said Hunter. "They're not new and are offered by over 80 per cent of organizations. However, their design may need revamping as goals change. Communication is also key: Employees must understand any design modifications so that they know exactly what to do in order to earn additional compensation."
•Ensure that employees understand all they're receiving for their efforts — the employee side of the employment value proposition. "Employers should have a larger conversation with each employee that goes beyond pay and covers other aspects like training and development, career opportunities, workplace flexibility and so on," said Hunter. "To provide a broad perspective of compensation and benefits, however, annual total rewards statements are an effective way to provide the big picture, beyond base salary."
•Give high performers opportunities to do new and interesting tasks. "If additional financial compensation is not possible, it's especially important to make sure high performers are continually challenged and recognized for their achievements. That will help to keep these key employees onboard,” said Hunter.
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