An era of stable salary increase continues

Salary increases expected to be about three per cent for 2004

Employers are taking this year’s spate of bad news in stride as they’re drawing up expected salary increases for 2004, three compensation surveys have found.

It’s business as usual, said nine out of 10 participants in Hay Group’s survey of 364 Canadian and American employers. Expected salary increases average 3.0 per cent for 2004, down only slightly from the 3.3-per-cent actual increase in 2003 and the 3.1-per-cent projection in 2003.

In Canada, expected pay increases are 2.9 per cent in the industrial sector and 3.1 per cent in the financial sector. These numbers were compiled this summer, before Ontario’s power blackout and the forest fires in British Columbia.

These figures are slightly ahead of inflation rate, which is projected to be 1.9 per cent at the end of 2003 and 1.4 per cent at the end of 2004. Real growth in Canada is expected to be 2.8 per cent in 2004.

Alberta has the largest expected salary increases in Canada at 3.5 per cent, followed by 3.3 per cent in Saskatchewan and 3.1 per cent in Ontario and in Atlantic Canada. Manitoba employers surveyed are expecting 3.0 per cent. The two lowest projected increases are 2.8 per cent in B.C. and 2.7 per cent in Quebec.

Steady salary increases and greater adoption of variable pay were some of the findings in Hewitt Associates’ 25th Annual Canadian Salary Increase Survey.

The survey of 345 Canadian organizations found that firms are holding steady on projected salary increases for 2004 — 3.3 per cent compared to 3.2 per cent actual in 2003.

Salary increases for executives, projected at 3.5 per cent in 2004, remain unchanged from last year’s.

However, employers are pulling back from imposing salary freezes, with only two per cent of respondents expecting to take this action in 2004. Last year, seven per cent reported implementing a salary freeze, on par with eight per cent reporting the same in 2002.

Respondents also revealed ever greater acceptance of variable pay programs, with 81 per cent of surveyed organizations using them. That’s up from 76 per cent reported in last year’s survey and highest yet reported in the 25 years this study has been conducted. Variable pay spending, which made up 9.9 per cent of payroll in 2003, is expected to amount to 10.8 per cent of payroll in 2004.

In a Towers Perrin survey of 240 organizations in the United States and Canada, researchers found most organizations (76 per cent in U.S. and 73 per cent in Canada) are experiencing significant to severe cost pressures. However, 46 per cent of Canadian organizations said they’re not changing their approach to rewards in the new year.

Firms that feel greater cost pressures, the survey also found, tend to have less emphasis on rewarding top performers. Of respondents who said their firms feel only some cost pressures, half reward top performers above market level; this is twice the rate of firms that feel severe cost pressures.

Along the same line, the survey looked at the prevalence of variable pay programs among low-performing companies compared to high-performing companies, which are defined as companies with average five-year total shareholder return above the corresponding Dow Jones market sector average for their industry.

The high performing companies, the survey found (see graph 1), are more likely to emphasize incentives over fixed salaries; they’re also more likely to promote a team culture by pegging incentive payouts to organizational performance before individual performance.

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