Salary increases for 2013 hovering around 3 per cent mark

Alberta, mining, oil and gas industry expecting highest gains
By Amanda Silliker
|Canadian HR Reporter|Last Updated: 09/25/2012

Canadian employers are expecting to pay out base salary increases of 2.6 per cent to 3.2 per cent in 2013, according to the latest salary surveys.

Employers are predicting an average increase of 2.9 per cent, found a survey of 500 organizations by Hay Group.

“It’s a pretty optimistic number relative to the last three years,” said Karl Aboud, director of Hay Group’s Canadian reward practice in Toronto. “Since the 2009 economic turmoil, we have found for each of the last three years, the increase has been a quarter of a percentage point to where it’s now about three per cent.”

A WorldatWork survey found employers are expecting an average increase of 3.1 per cent in 2013. The average actual salary budget increase in 2012 was three per cent, found the poll of 417 organizations across Canada.

With only a little bit of growth from last year, employers are still playing it safe, said Alison Avalos, salary budget survey manager at WorldatWork in Scottsdale, Ariz.

“Employers have survived the recession, they’re not quite sure what’s coming up next, so we’re finding, in general, organizations are being pretty conservative with their cash flow — definitely still committed to rewarding through pay increases but trying to be smart, trying to get the most bang for their buck,” she said.

Performance-based merit increases are the most common type of increases and four or five times more popular than others, said Avalos. The most common practice is to conduct performance appraisals, give each worker a rating and give a salary increase that corresponds to that rating, she said.

“Most organizations don’t give pay increases just to keep up with inflation or to give everyone a small percentage each year. Most have figured out if they can differentiate by performance and in turn motivate the behaviours they need to be successful, they ultimately will get more out of the money they’re spending on pay increases.”

Many employers are segmenting their workforces and rewarding high-performing employees with higher-than-average pay increases, according to Mercer’s 2012/2013 Canada Compensation Planning Survey, which polled 750 employers across the country.

In 2012, the highest-performing employees received average increases of 4.9 per cent, compared to 2.9 per cent for average performers and 0.1 per cent for the weakest performers, found the survey.

“It sends the message to employees that are top-performing employees that they are very valuable and an important, critical resource to the organization, so it makes sense to invest in those employees to the greatest extent possible,” said Eleana Rodriguez, a principal at Mercer in Toronto.

For 2013, employers are expecting an average base salary increase of 3.2 per cent, found Mercer.

Respondents to Morneau Shepell’s Compensation — Trends and Projections survey were less optimistic than others, expecting an average salary increase of 2.6 per cent in 2013. This is a drop from the 2.8 per cent predicted last year, found the survey of 241 employers.

Continuing economic turbulence around the globe is likely a factor in this decrease, said Michel Dubé, a principal in compensation consulting at Morneau Shepell in Montreal.

“We are seeing a reduction in growth in Asia, in particular China, and there is still uncertainty about employment in the U.S. — a huge client of Canadian organizations — and this kind of volatility and uncertainty is still there.”

Finance sees biggest drop

Respondents in the finance sector expect the greatest drop in salary increases, forecasting average gains of 2.7 per cent for 2013, compared to 3.4 per cent last year, found the Morneau Shepell survey.

The mining, oil and gas industry is projecting the biggest salary boosts with averages ranging from 3.9 per cent to 4.2 per cent, found the surveys.

“There’s been a bit of a shortage in skilled labour in that area and pay is an area that organizations will leverage to try to put a premium on things, to try to attract the talent they need and keep those key employees,” said Avalos.

Construction (3.7 per cent) and utilities (3.5 per cent) are also predicting higher-than-average increases, found the WorldatWork survey.

Chemicals (3.4 per cent) and business/professional services (3.2 per cent) are also slightly above average, according to the Hay Group survey.

The sectors with the lowest projections for 2013 are health care (two per cent), media (2.2 per cent), government (2.2 per cent) and telecommunications (2.3 per cent), found Hay Group.

“For the low payers, their biggest expense line item is their people cost and so it’s a big, big deal to a labour-intensive sector to have a high salary increase, especially if times, economically, are tough,” said Aboud.

“So, the capital-intensive industries are paying more, the labour-intensive industries are paying less.”

Alberta still in the lead

Alberta came out on top as the province expecting the highest gains, ranging from 3.2 per cent to 3.6 per cent, according to the surveys.

“One of the issues in the Calgary market is a huge need for talent and it’s a fairly small market so they’ve got some critical talent gaps that are driving up compensation in that marketplace,” said Rodriguez.

Newfoundland and Labrador (3.4 per cent) and Saskatchewan (3.2 per cent) are also expecting higher-than-average increases, found Hay Group.

There is a correlation between business sector and geography, so the provinces with high-paying industries will also be high-paying, said Aboud.

While resource-rich provinces came out on top, there was little variation among the other provinces, found the surveys.

Freezes thawing

Between three per cent and five per cent of organizations are predicting salary freezes for 2013, according to the surveys.

But that compares to 15 per cent back in 2009, said Aboud.

“The percentage of organizations forecasting a freeze is now one-fifth of what it was three years ago,” he said. “That’s fairly optimistic.”

Salary freezes and increases will likely hover around these levels until the labour market changes, said Avalos.

“We’re probably looking at a very moderate approach because most have resumed budgeting for pay increases and there’s a lot of uncertainty, so smart organizations are going to do what they need to do to attract and retain and engage their talent. But they’re not going to do anything more than that.”

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