No significant wage increases on horizon

But ‘notable experimentation’ around incentive comp: Survey
By Sarah Dobson
|Canadian HR Reporter|Last Updated: 06/12/2019
Amazon, Toronto headquarters
Canadian employers have to compete for tech talent with the likes of employers such as Amazon, with its Toronto headquarters (pictured above). Credit: Google Street View

The Canadian economy did fairly well in 2018, and the unemployment rate hovered near a 40-year low with job creation staying strong.

And with an aging population moving into retirement, employers are looking to hire, with job vacancies hitting record highs, according to a Payscale report.

Yet most Canadian organizations have no plans to give workers significant wage increases, found its survey of 584 respondents.

The lower numbers could be influenced by slower economies in provinces such as Alberta, Saskatchewan and Newfoundland and Labrador — alongside economic uncertainty, said the report.

In 2018, 56 per cent of Canadian organizations budgeted between two and three per cent for base pay increases.

However, eight per cent of organizations budgeted four to five per cent, and another seven per cent budgeted more than five per cent for increases, found Payscale.

The labour markets have become very competitive in the United States and Canada, but wages haven’t necessarily gone up dramatically, said Tim Low, senior vice-president of marketing at Payscale in Seattle.

“We’re still wondering if that is going to pop, or if there are structural changes that have actually happened behind the scenes that are keeping wages from popping back up,” he said. “(Employers) are concerned about turnover — about losing employees — but it hasn’t yet been reflected in raises necessarily across the board.”

“Companies are experimenting a lot with different perks and benefits, as well as really leaning into and emphasizing their career development opportunities and learning and development-type benefits… which employees do very much appreciate. But there does seem to be a resistance to give broad-based raises.”

On one hand, the next decade means retirements are set to escalate. On the other, the economy in Canada has been somewhat difficult to get a handle on, said Liz Wright, managing director at HR and compensation consultancy Gallagher McDowall Associates in Toronto.

“That plays out in terms of what you’re seeing in terms of salary increases — businesses are just taking their time to really determine what they need going forward and what sustains them.”

Employers are getting smarter about how they spend their dollars, said Domenico D’Alessandro, also a managing director at Gallagher McDowall in Toronto.

“The budgets aren’t getting bigger but they do realize there is a war for talent so they’re identifying strategic positions with the organization... and maybe they forego an increase at lower levels or positions that are not instrumental to their business.”

Employers are waking up to market dynamics around pay, and starting to comprehend the fact that different jobs have different competitive positions in the market, said Low.

“Companies that are not actually tech companies are increasingly competing for tech talent, because everything is becoming software-enabled; you’re seeing these changing dynamics around the competitive nature of those types of positions… so (they’re) now competing for some of the very same talent that Microsoft and Google and Amazon and Facebook (are),” he said.

“Maybe you’ll have to pay them at 70 or 80 per cent of market compared to a usual 50 or 55 per cent of market for target compensation. Then you’re going to have to figure out: Is it possible to hire accountants, maybe in a more local market and maybe get away without... paying them at 55 per cent of the market or 60 per cent of the market? So the idea is not to peanut butter your dollars evenly across all of the employees, but to understand where you have to apply a little bit more strategic dollars in order to win the talent that you’re trying to acquire.”

There’s tremendous competition in terms of offerings from organizations, said Anthony Ariganello, president and CEO of CPHR (Chartered Professionals in Human Resources) British Columbia & Yukon in Vancouver.

“It’s not only about dollars and cents, it’s about time off, it’s about work flexibility, it’s about giving time to an employee to do things that they care about, for the community… and that’s all part of your compensation scheme.”

Variable pay options

Organizations are looking at different options to reward top-performing employees, including bigger base pay increases (62 per cent), promotions (48 per cent), career development (42 per cent), informal bonuses or incentives (39 per cent) and goal-based bonuses or incentives (29 per cent), found Payscale.

Employers are now more likely to turn to cash and merit-based pay plans than they have in the past, said the report.

They’re using cash, but not indiscriminately. They’re using a defined merit-based pay plan that connects performance with pay to retain the high-performing people. And they’re turning to market data to ensure they pay fairly and competitively, said the report.

In 2018, most organizations provided some form of variable pay (77 per cent). Roughly 65 per cent were paying out bonuses on an annual basis, while some gave out variable pay on a quarterly basis (13 per cent) or monthly (seven per cent) basis, found the survey.

By far, the most typical form of variable pay is an individual incentive bonus (65 per cent).

An employee referral bonus took second place, at 40 per cent, followed by spot bonuses and other discretionary bonuses (30 per cent).

There’s been experimentation around various types of incentive compensation, said Low.

“Companies may be — for multiple reasons — conservative about giving salary increases, but there may be less-conservative experimenting with different types of one-time rewards,” he said. “We’ve seen an interesting uptick in companies applying some sort of team bonuses, for example.”

“Bonuses and results-based incentives end up having that explicit kind of validation of a company strategy that says, ‘We share in the success of the organization.’”

The most prevalent reward, which cascades from the executive level, is a target-based plan, said Wright.

“It’s an annual incentive, it’s typically linking corporate results with individual performance, and there could be divisional or unit-based as part of that... Of course, there’s profit sharing and goal sharing as well.”

Comp philosophy, strategy

While the type of plan is important, the calibration and metrics used are equally important, said D’Alessandro.

“Make sure the metrics you’re using, or the individual goals you’re setting, are the ones that are aligned to your business. If you set a bonus plan and you just keep running it for 10 years, I have not seen a business that has not changed focus or direction in 10 years… even if you’re doing the same thing, oftentimes you go through business cycles where you go from more customer focus to service focus, so as you change your focus, you need to change those metrics and those levers to make sure you get the right behaviours out of employees.”

Just 29 per cent of Canadian organizations have developed a formal compensation philosophy or strategy and are sharing it with employees, according to Payscale. Forty-six per cent said they are working on one, but another 20 per cent said they do not have one.

It’s more about having a strategic discussion with the senior leadership and executive team about what everybody else is doing, said D’Alessandro.

“It comes down to the social responsibility of organizations, the attraction and retention of talent through values, the focus on getting compensation right, and making sure (you) have a good balance from a total rewards perspective, not only from a cash perspective but also (for) benefits and retirement,” he said.

“Throwing money at the problem isn’t going to fix it; throwing cash at something — when you know there’s a benefits cost built on top of it and retirement cost built on top of it — could be more costly than doing the right thing and looking at the intangibles that you have as levers.”

Focusing on communications

When you have a strategy, then you actually have to speak to it, said Ariganello.

“It’s part of your selling tool to employees to stay, keep them motivated, as opposed to ‘Well, we don’t know what will happen, and depending on our performance, it could be everyone gets the same amount.’ If they have a strategy, then they can speak to that (so) employees feel, ‘Oh, there’s a commitment there from the organization; they’ve looked at the long term; they understand that this is an important piece for us as an employee.’ So I think it lends itself very well to getting a lot of a buy-in from employees.”

With a comp philosophy, it’s about stating that you as an employer are committed to pay people fairly and equitably, said Wright.

“Remind the employee; in essence, be transparent and position it so the employee feels good and is aware and understands what they’re getting, as opposed to it just being a dollar that ends up in their bank account,” she said.

“If companies today can change their perspective from compensation being a cost, to compensation being an investment in the future of their work, that in itself philosophically would really drive a different way of looking at reward systems.”

But when it comes to sharing, only 24 per cent of employees and employers said they are transparent about how pay is determined. Last year, 36 per cent of employers shared pay ranges with employees for their position, while 39 per cent said employees know where they fall within the range. But 30 per cent of organizations never share pay ranges with prospective employees, found the survey.

Employees often feel underpaid, even if they’re paid at or above market, said Low.

“One of the macro-level things that all organizations can do to change that impression is to actually communicate more effectively… about their overall compensation program, including benefits, including development opportunities, and all the elements that go into compensation, not just base salary,” he said.

“(It’s about) sharing with your employees some of the contextual information about not just the what — what’s the number — but also the why — why does your company value the things that they value and why are they willing to pay for that, as well as the how — for example, where do you even get your benchmark information? How fresh or old is it; is the vendor that you’re getting that data from reliable?”

But most organizations don’t trust managers to talk about pay, found Payscale. Only 41 per cent said they are confident in their managers’ abilities to explain rationale behind pay increases.

Part of the problem? Most organizations (62 per cent) don’t train managers on how to talk to employees about compensation.

“Think not just about your precision and your accuracy and about understanding the data and the market dynamics about all of the positions in your company, but also figure out how to contextualize that for your employees,” said Low. “That boils down to better communication and better manager training.”

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