Salary forecast: Same raises, different year

Predictions for 2014 range from 2.6 to 3.1 per cent, some signs of pessimism
By Sarah Dobson
|Canadian HR Reporter|Last Updated: 09/24/2013

While “cautious optimism” has been the catchphrase of late when it comes to salary forecasts, it’s now been replaced by “cautious pessimism,” according to Karl Aboud, director of the Canadian reward practice at Hay Group in Toronto.

Canadian employees can expect an average salary increase of 2.6 per cent in 2014, according to Hay Group’s survey of more than 500 unionized and non-unionized employers.

“It’s still a positive number, but it’s three tenths of a point less than it was (in 2013) and there are some other foreshadowings of pessimism in the details of the data,” he said.

These include the realized change for 2013, which was 2.8 per cent, and the percentage of forecast salary freezes for 2014, which rose for the first time in four years, with five per cent of respondents indicating as such, he said.

“So 2.6 per cent rises to 2.8 if you exclude freezes — but I don’t think you should exclude freezes.”

Also foreboding is the 20 per cent of employers that have had the payroll adjustments officially approved by the board, at 2.3 per cent, while the forecasts not yet approved for the remaining 80 per cent sit at 2.8 per cent, he said, “which to me indicates that when the rubber hits the road... they’re coming in more conservatively than the perceived ideal numbers that people’s forecasts are.”

Overall, the public sector forecast noticeably lower salary increases (2.3 per cent) than the private sector (industrial and financial at 2.7 per cent), found Hay Group.

Oil and gas (four per cent), services (3.3 per cent), credit unions (3.2 per cent) and chemicals (3.1 per cent) are expected to have the highest increases in 2014, while retail, consumer durables and
forestry and paper (2.1 per cent) and leisure/hospitality (two per cent) are to receive the lowest increases.

But this year the higher sectors, such as mining in Alberta, are not vastly outpacing the norm, said Aboud.

“Those higher forecasting sectors, while they are still the highest of the database, they are not proportionally higher than the norm than they usually are, so they’re not causing upwards pull to balance off the traditionally lower sectors.”

There’s a clear divide between the provinces, found the Hay Group survey, with resource-rich provinces — Newfoundland and Labrador (four per cent ), Saskatchewan (3.4 per cent ) and Alberta (3.2 per cent) — leading the pack while the rest of Canada predicted increases of 2.1 per cent to 2.6 per cent.

Canadian projections are ahead of some industrialized nations, such as France ( 2.5 per cent), Italy (2.2 per cent ) and Japan (two per cent), but behind others such as the United States (2.8 per cent) and United Kingdom (2.9 per cent), found Hay Group.

And Canada still lags far behind the forecasts for India (10.8 per cent ), China (nine per cent ) and Russia (eight per cent) .

Flat in job categories: Morneau Shepell

The forecasts for 2014 are exactly as expected, said Michel Dubé, principal, compensation consulting, at Morneau Shepell in Montreal. Salaries are expected to rise by an average of 2.6 per cent, according to its survey of 308 employers — similar to the forecast and actual increase for 2013.

Overall, respondents expect 2014 to be pretty flat in terms of revenue growth, profitability and staffing levels.

“The forecast of our respondents is twice the level of inflation, which is very significant,” he said. “Of course, (there’s a lot of caution) because when we talk about recession or recovery, we still have a big question mark around this, so it’s not that clear.”

The forecast of 2.6 per cent includes expected salary freezes but excludes promotional or special salary adjustments. And there’s been no growth in salary freezes, said Dubé, with only a very slight difference between the forecasts excluding freezes (2.7 per cent).

“However, it doesn’t mean that there is no proclivity of freezes in the area of salary policy because we have a significant amount of observations for freezes in salary structures, so this is important — it shows that there’s a lot of uncertainty right now.”

From a hierarchical standpoint, it’s very stable, said Dubé.

“Traditionally, we were seeing forecasts that were a little bit more generous for executives than for other job categories, but that’s no more the case — it’s very, very flat in the job categories, so its lower for operation and production staff but not that much. So 2.6 is really the magic figure.”

The mining and oil and gas extraction sector expect the greatest salary increases for 2014, at 3.5 per cent, while the manufacturing sector is expected to maintain salary increases in line with the overall average, found Morneau Shepell.

‘Generally the same’: Mercer

Mercer also found salary budget increases for Canadian employees are remaining steady and are indicative of a flat-lining trend.

The average raise in base pay is expected to be 3.1 per cent in 2014, a small decrease from the average actual salary increase reported for 2013 and 2012 of 3.2 per cent.

“It’s generally the same, the number is relatively close to what we’ve seen going back at least five years, within one tenths of the high and low during that period, which is not a great deal of change,” said Iain Morris, leader of Mercer’s talent consulting business for central Canada in Toronto.

Overall, it’s about waiting to see what would happen if there was a year of very good economic performance that was not regionalized or in particular industries, said Morris.

“For example, if we were to find the manufacturing sector in Ontario and Quebec were to get back to historic levels of performance, we may see some upside in these numbers overall,” he said.

“There still is a reasonable gap between increases in cost of living and average salary adjustments that we’re seeing, so there is real wage growth for people and maybe if the economy was in fact firing on all cylinders, that increase could be a little bit bigger. I’m not holding my breath for next year.”

Also of note is the increasing gap between the average salary increase that’s predicted and salary range adjustments, said Morris. The mean salary range adjustment is 2.2 per cent and the mean salary adjustment is 3.1 per cent for all employee groups, excluding zeros.

“It’s almost a full percentage and that leaves room for organizations to differentiate a bit more around the performance of individual employees, so when the average increases in structure adjustments tend to go up together, you tend to have a tougher time differentiating pay in a typical pay-for-performance model.”

Unlike Hay Group, Mercer’s data showed freezes to be pretty flat, he said, and that could be because Mercer’s sample size is larger and does not include unionized employees.

“Certainly it would be the public sector organizations where you would see the greatest number of freezes,” said Morris.

Executives and management had the highest salary increases in 2013, with 3.4 per cent and 3.3 per cent respectively, found the Mercer survey of 719 employers. And the highest performers were given a 5.1 per cent salary increase in 2013, compared to 2.8 per cent for middle performers and 0.1 per cent for the weakest performers.

The oil and gas industry still has the highest salary increases both in 2013 (4.3 per cent) and projected for 2014 (4.2 per cent). The pharmaceutical and biotech (three per cent) and wholesale/retail industries (2.7 per cent) are projected to see the lowest salary increases, found Mercer.

Not surprisingly, Alberta has the highest projected average salary increases (3.2 per cent), followed by Saskatchewan at 3.1 per cent. The lowest projected increases are in Quebec and Manitoba (2.8 per cent each).

Salary forecasts for 2014: results from 3 national surveys

Average salary increase forecasts by industry

(management, professionals)

2013

2014

Natural resources, utilities

2.3%

3.1%

Trade

2.5%

2.5%

Finance, insurance

2.7%

2.7%

Services

2.8%

2.9%

Manufacturing

2.7%

2.6%

Public administration

2.3%

2.4%


Source: Morneau Shepell

Average base pay increases by employee group 

Actual 2013 (excl. 0s)

Actual 2013 (incl. 0s)

Projected 2014 (excl. 0s)

Projected 2014 (incl. 0s)

All employees

3.2%

3%

3.1%

3%

Executives

3.4%

3%

3.2%

2.9%

Management

3.3%

3.1%

3.3%

3.1%

Professional (sales, non-sales)

3.1%

2.9%

3.1%

2.9%

Office/clerical/technician

3.2%

3.1%

3.2%

3%

Trades/production/service

3%

2.7%

3%

2.7%

Source: Mercer


Average salary increase forecasts by province

2014

2013

2012

2011

B.C.

2.3%

2.7%

2.5%

2.4%

Alberta

3.2%

3.6%

3.4%

2.9%

Saskatchewan

3.4%

3.2%

3.2%

3.3%

Manitoba

2.6%

2.7%

2.5%

2.7%

Ontario

2.5%

2.7%

2.7%

2.4%

Quebec

2.6%

2.7%

2.8%

2.7%

Maritimes

2.1%

2.6%

2.4%

2.7%

N.L.

4%

3.4%

3.4%

3.5%

Source: Hay Group

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