Each year — typically between May and July — HR consulting firms poll employers about actual changes in overall salaries for the current year, along with projections for the coming year. The objective is to provide context for organizations to make salary budget decisions.
Press releases on the surveys generally highlight top-level findings, such as projected and actual increases, salary freezes and merit increases. But much more information is available from the reports, which are often more than 50 pages long.
When the data is considered in its entirety — particularly on a year-over-year basis — organizations can fine-tune and update compensation philosophies, make informed decisions regarding salary increases and consider alternate pay arrangements to ensure they attract and retain key employees.
Survey results offer a snapshot of the economy that explains why raises may be higher or lower than in previous years, as well as the factors that could influence salary forecasts for the coming year. They can also provide insights into changing approaches to salary increases and compensation arrangements, so employers can ensure their perspectives on compensation strategies and practices remain current and competitive.
Reports may also provide trend data on broad-based variable pay plans, projected increases for specific locations and industries, and compensation arrangements for employees with high-demand skills or roles in high demand.
Armed with the numbers and their context, HR can present a senior management team and board of directors with a defensible salary budget recommendation.
Once the salary budget has been finalized, the organization must determine how it will be allocated. That doesn’t necessarily mean spending it all on base pay increases. Based on the report’s trend data, employers may decide to reserve some or even all of the budget for:
pay for performance and other recognition programs for top performers
promotions with accompanying increases for employees who are ready to move up
signing bonuses and other special compensation arrangements for hot-skill or hot-location jobs
lump-sum payments to reward specific achievements or milestones (such as completion of a particular project).
But the data only provides reference points. HR should always consider its specific needs to ensure the budget will allow for necessary increases. For example, a company with a high percentage of young, developing employees may need a higher budget than an organization where the workforce has more mature incumbents.
Workers want to know they are being compensated fairly. If salary increases fall below the national average, employers should be prepared to explain why — or run the risk of losing key employees.
Most discussions about salary increases occur with individual employees. They may approach their manager convinced they are underpaid, based on data from one source or another. At that point, the employer — through the manager — must be able to provide its own evidence and explain the rationale behind its decision.
Managers must be equipped to provide answers but 63 per cent of 542 respondent organizations cite raising the ability of managers to have such conversations as a challenge, according to Aon Hewitt’s Canada Salary Increase Survey 2011-2012.
Once employees understand why their salaries are or aren’t increasing, the conversation may turn to how they can receive larger increases in the future. It is imperative employees understand the response to that question, particularly if there is a variable pay plan in place or some other program that recognizes corporate or individual performance.
Again, survey respondents indicate this is a challenge — 66 per cent state they have difficulty drawing a clear line of sight between individual effort or achievement and reward and corporate performance, found Aon Hewitt.
Clearly, employers feel there is room for improvement with respect to communication around salary increases and compensation. Almost one-third of employers provide total rewards statements as a means to help employees understand the value of their entire compensation package. Of those, 74 per cent believe they are effective at positively impacting employee engagement, found Aon Hewitt’s Canadian Talent Survey 2011.
While these statements are not a complete solution to compensation communication challenges, they provide a contextual framework for discussions with employees.
Susan Hunter is the national leader of Aon Hewitt’s rewards group in Toronto and can be reached at firstname.lastname@example.org. StéphaneParé is a vice-president at Aon Hewitt in Montreal and can be reached at email@example.com.