Salary freezes lower forecasts for 2010

Predictions range from 2.3 to 3 per cent
By Sarah Dobson
|Canadian HR Reporter|Last Updated: 10/05/2009

Despite a very tough year, salary forecasts for 2010 are surprisingly optimistic, according to industry analysts, with predictions ranging from 2.3 to three per cent in Canada.

“Even a month ago, there was a very cautious approach to any projections on a go-forward basis and we were hearing still a lot of headway had to be made as well as a lot of pitfalls in the system, so we thought there would be a little more caution. But that’s not what we’re seeing,” said Liz Wright, human capital group leader at Watson Wyatt in Toronto.

The average projected salary increase for 2010 is three per cent for those granting increases and 2.7 per cent when factoring in projected wage freezes, found Watson Wyatt’s survey of 106 Canadian employers.

While 79.5 per cent of those surveyed had budgeted to increase salaries in 2009, that percentage will rise to 92.2 per cent for 2010, which is higher than the 91.4 per cent of employers that increased salaries in 2008.

“That’s what we mean by a tremendous amount of optimism,” she said.

As Canadian employers searched for ways to manage costs, 2009 salary increase budgets were trimmed up to one per cent from forecasts made in 2008, with some employers implementing wage freezes for some, if not all employees, according to Watson Wyatt. An updated survey is expected to be released in November.

“We’re going to keep tracking this, just to see how fast we get out of the trenches,” said Wright. “I get the sense there’s a bit of pent-up demand and pressure on this. Many organizations… have taken quite a bit of action over the last little while, particularly around restructuring and that, of course, always leaves a bit of a legacy with existing employees, so it’s a question of how do you re-engage these people, re-align them to the new business ­direction. And so compensation is very much a part of that picture.”

The results from a survey of 500 Canadian employers by Hay Group indicated a national average salary increase of 2.3 per cent in 2010, much lower than the 2009 forecast of 3.7 per cent from last year’s survey. But the prediction for next year is identical to the 2.3-per-cent actual salary increase that organizations realized in 2009.

“Even though there are signs of economic recovery, as we see all the time in the newspapers, employment and pay is a lagging indicator so organizations are only going to be more optimistic about payroll adjustments once they’re absolutely certain their own economic circumstances are improving,” said Karl Aboud, director of the Hay Group reward consulting practice in Toronto.

“Hopefully this time next year, organizations are saying, ‘Our economic recovery is in place, now we can be a bit more employee-responsive.’”

The most important question for 2010, however, is how many companies plan to freeze salaries. About 15 per cent of respondents are forecasting an actual salary freeze for 2010, compared to only two per cent one year ago. Without the “zeroes,” the predicted average increase for next year is 2.9 per cent, according to Hay Group.

“The percentage of zeroes is unprecedentedly large compared to any other year, so it’s making the biggest differential with and without zeroes,” said Aboud.

The one-third (36 per cent) of companies that have formally approved a salary budget for 2010 forecast a 1.9-per-cent increase while those that have not yet approved the budget sit at 2.6 per cent, so 2.3 per cent sits in the middle. That means two per cent is very likely and 2.3 per cent is very optimistic, he said.

Canada should see a three-per-cent increase in salaries among those employers awarding increases, according to the 2009/2010 Mercer Canadian Compensation Planning Survey.

“It’s a little higher than what we expected, somewhat more optimistic than we had originally thought,” said Shelley Peterson, a principal in Mercer’s human capital business in Toronto. “Also, there is a reasonably high percentage of companies that haven’t decided on their projections yet. That could be a factor, that chunk of the market taking a wait-and-see approach.”

Typically, about 98 per cent of organizations have a budget figure in mind and are able to share, but the 30 per cent this time is definitely low, she said.

“This could be a year where we continue to take a pulse of the market as more companies decide what they’re going to do.”

Almost one-third (31 per cent) froze salaries in 2009, according to the Mercer survey, but that is expected to drop to eight per cent in 2010.

“That’s still higher than what we would expect to see in a normal economic environment but much closer to typical market practice (of five per cent or less),” said Peterson.

Morneau Sobeco’s 27th Annual Compensation and Trends Projections Survey, which polled 253 Canadian employers, found 10 to 15 per cent of employers, depending on job category, are anticipating wage freezes in 2010 (compared to 35 to 40 per cent in 2009).

Variations by industry, region

Differences among industries include projected base salary increases for 2010 of 3.1 per cent in durable manufacturing (compared to 2.4 per cent for non-durable manufacturing) and services, 2.8 per cent in insurance and 2.6 per cent in retail and wholesale trade, according to Watson Wyatt’s survey.

Mining (3.7 per cent) was the sector projecting the highest increase, followed by utilities (3.2 per cent) and credit unions, hospitality and pharmaceutical (three per cent), according to Hay Group. The three sectors with the lowest projections for 2010 were media (0.9 per cent), forestry and paper (one per cent) and telecommunications (1.4 per cent).

Mercer’s survey predicted a rise of 3.5 per cent for utilities, 3.3 per cent for natural resources, oil and gas and pharmaceutical and 3.1 per cent for the public and not-for-profit sectors. Hospitality, entertainment, media and non-durable manufacturing were all expected to see a three-per-cent gain, while for-profit service and wholesale/retail should see 2.9 per cent. Durable manufacturing and insurance came in at 2.8 per cent, followed by high-tech and telecom at 2.7 per cent, transportation at 2.6 per cent and finance and investment at 2.5 per cent.

While Saskatchewan (3.8 per cent) repeated as the province with the highest forecast, Newfoundland (3.5 per cent) and Manitoba (three per cent) have replaced Alberta (2.6 per cent) as the next highest ranked provinces, found the Hay Group survey. The forecast for Quebec (at 2.5 per cent) was slightly above the national average, while Ontario (2.1 per cent) and British Columbia (1.9 per cent) were the only provinces with forecasts below the national average of 2.3 per cent.

The cities or regions expected to see the highest increase in 2010 were Saskatchewan and Vancouver, at 3.1 per cent, followed by Calgary at three per cent, Montreal, Toronto and Winnipeg at 2.9 per cent and Nova Scotia at 2.8 per cent, according to Watson Wyatt.

“It’s a bit of a vanilla approach happening here, to some degree,” said Wright. “Those cities that traditionally have had quite a bit of pressure, particularly out west — Calgary, Vancouver even Saskatoon and Regina — we’re just seeing a little bit more caution there and not necessarily hitting numbers pre-recession.”

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