Caution still reigns with salary forecasts

Some employers downgrade budgets predicted last summer, but there are signs of optimism
By Sarah Dobson
|Canadian HR Reporter|Last Updated: 02/14/2012

When it comes to the economy in 2012, it’s anyone’s guess, judging by the results of recent surveys around salary and recruitment. Some organizations have rethought planned raises because of shaky forecasts but others see signs of better days before the end of the year.

With that in mind, HR professionals will be facing plenty of pressure when it comes to strategies around compensation, recruitment and retention.

“People are not feeling the recovery’s moving as quickly as expected or desired, so organizations are being conservative,” said Susan Hunter, vice-president of Aon Hewitt’s rewards practice in Toronto. “What you’re seeing is a little bit of a softening… a downward trend.”

In conducting a followup salary survey in the fall of 2011 — after doing one in the summer — Aon Hewitt found at least one-third of 322 respondents had revised their original budgets for salary increases or salary structures in 2012.

Originally, British Columbia employers were forecasting an increase to the salary budget of 2.8 per cent. Now, it’s 2.6 per cent. For Saskatchewan, the original forecast was 3.3 per cent, now it’s 2.8 per cent. For Manitoba, 3.1 per cent has been lowered to 2.8 per cent and for Atlantic Canada a forecast of 2.6 per cent has dropped to 2.4 per cent.

However, Alberta bucked the trend, going from 3.6 per cent to 3.7 per cent, and Ontario and Quebec stayed about the same, predicting increases to the salary budget of 2.8 per cent and 2.9 per cent, respectively.

Gail Evans, president of HR consulting firm Wynford Group in Calgary, said the recovery is in full swing, with few staff reductions and recruitment back to normal levels. For 2012, almost 60 per cent of employers are planning to replace all vacancies, compared to less than 50 per cent in 2011, according to her firm’s survey of more than 325 employers in the fall.

“The economy seems to be stable, the outlook, at least in North America, seems to be reasonably stable — nothing crazy is going to happen in an election year in the U.S.”

The optimism continued in the Wynford Group’s survey, with the projected national average base salary increase climbing to 3.23 per cent for 2012. Alberta was strongest, at 3.54 per cent, followed by B.C. (3.37 per cent) and Saskatchewan (3.43 per cent). Ontario is forecasting 3.22 per cent while the Atlantic provinces (3.2 per cent) are quite stable, said Evans. Manitoba (3.15 per cent) and Quebec (3.19 per cent) followed.

Industries leading the 2012 projections are energy (4.15 per cent), manufacturing (3.97 per cent), engineering (3.95 per cent) and energy services (3.92 per cent).

Many sectors are beginning to return to, or even surpass, pre-recession levels of business activity, according to Rowan O’Grady, president of Hays Canada in Toronto, with particular bright spots in construction, information technology, and resources and mining.

Regionally, the West is quite strong, with salary increases of more than three per cent predicted for 2012, according to a survey of 1,300 organizations conducted in the fall by Hays.

But Canada’s employment market hasn’t come back strong enough, or long enough, for salaries to be able to move forward, he said. Among employers giving salary increases, 55 per cent said they would make increases between one per cent and three per cent while 44 per cent said increases would be more than three per cent.

“They’re releasing some of the pressure to say, ‘We’ve got to give an increase, it is a better economy, give something,’” he said.

Eighty-one per cent of respondents expect the economy to continue to strengthen or remain static in 2012 and 39 per cent plan to increase staff levels this year.

“Almost everybody cut back so much in 2010, and they cut right back to the bone on staff levels in almost all departments,” said O’Grady. “The expectation for hiring, it’s almost more than you would expect because the economy hasn’t come back that much.”

However, filling these new roles may be challenging as 77 per cent of the companies cited “availability of suitable/skilled candidates” as the biggest challenge in attracting top talent, found Hays.

Meeting retention challenges

The amount of Canadian workers actively looking for a new job has increased over the last quarter, according to Randstad, which surveyed at least 400 people each from 29 countries. And no other country experienced greater movement than Canada.

“Leaders in talent management, what they’re also starting to recognize is that there is going to be a gap between retention and acquisition of talent, so they’ve got to ensure they’ve got both practices, that succession planning is moving forward in conjunction with a very strong, fast, solid recruiting strategy,” said Stacy Parker, executive vice-president of marketing at Randstad Canada in Toronto.

Almost two-thirds (65 per cent) of the respondents to Hays’ survey listed “career progression” as the primary challenge for talent retention while 53 per cent listed “salary.” To deal with the career progression challenge, some employers are asking employees to meet certain targets or measurable objectives before they move up the ladder, said O’Grady.

“They’re answering the career progression problem but they’re putting the onus on the individual to achieve it.”

The Wynford Group is doing a significant amount of work for employers on various types of incentive strategies, and not just annual ones, said Evans. That means looking at longer-term incentives or a variety of incentives so people are encouraged to stay more than one year and get the big payout.

“(Employers) have had a little more time to think about how their compensation structures or incentives are set up and, therefore, they are tying them more clearly to performance measures, as happened with executive compensation,” she said.

“There’s more confidence, companies are feeling that they can maybe catch up or do something special or provide an extra bonus if they have to to reward and retain employees. It’s really the retention piece that’s the big one.”

The other key challenge will be to use a total rewards package creatively, said Hunter.

“It puts more pressure on employers to really rethink that whole employment deal because as the economy continues to move and recover, there are more options for people. We all know people stay during the bad times because there’s no options.”

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