Base salary forecasts range from 2.5 to 2.6 per cent as salary freezes thaw
The good news is we’ve survived and there is cautious optimism in the air, with people thinking, “Thank goodness 2009 is over, we can only go up from here, on to better things,” according to Gail Evans, president and founder of the management consulting firm the Wynford Group in Calgary.
Judging by the latest salary forecast numbers, some employers are budging when it comes to giving increases, though the raises are expected to be conservative.
Projected base salary increases are 2.52 per cent across Canada, according to a survey of 316 organizations in November by the Wynford Group. The highest projections are for Saskatchewan and Alberta, at 3.1 per cent and 2.9 per cent, respectively.
One of the other signs of optimism is fewer organizations (18 per cent) are predicting “zeroes” or a zero-per-cent budget increase, down from 25 per cent in February 2009, said Evans.
The latter survey saw huge changes with employers, such as salary freezes, hiring freezes and cancelled summer student programs.
But she said the November update found four factors add up to a more positive outlook:
• Employers said they are more or less finished with major layoffs and hopefully have hit bottom.
• If there is hiring, it’s not just for key vacancies.
• Summer programs are being considered again.
• Training is expected to pick up.
“I predict a big increase in training in 2010 because people understand, as the economy starts picking up again, it’s an opportunity to do some training and people skills is an issue,” said Evans.
Clients are also showing greater interest in variable pay programs and other ways to make people feel valued, such as better-defined career development, she said.
“Everybody understands that there aren’t going to be a lot of big bonuses this year but if you have an opportunity to learn some new skills or try some new sorts of work, that works just as well.”
Executive pay freezes?
A late October survey by Towers Perrin found nearly one-half of 143 Canadian companies froze salaries in 2009, but only 11 per cent anticipate a salary freeze for 2010. However, that number increases to 18 per cent when it comes to senior executive salaries.
All the governance concerns and poor optics around executive pay are making companies pretty conservative, said Fiona Macdonald, a managing consultant for executive compensation in Canada at Towers Watson (formerly Towers Perrin) in Vancouver.
“At that level, most companies work with a market-facing pay as opposed to any consequence or merit or progress. So if the market’s not moving much, why would you bother? Save the money.”
Salary budgets for Canada remain conservative, estimated at 2.5 per cent for 2010, found the survey. Companies are split into thirds when it comes to the timing of a recovery, ranging from a few months into 2010 to later in 2011.
“It reflects that uncertainty about the economy, people are still dithering around these numbers,” said Macdonald.
Some companies are keen to provide increases in 2010 but those that froze salaries or made modest increases have not lost much ground — there haven’t been a lot of big numbers, she said.
“There’s just not a lot of extra money being tossed around,” she said.
While there is huge pressure to make increases — particularly for people who are on a growth trajectory — the budget is much smaller, so employers should freeze it at certain levels and common sense says leadership should take the hit, said Macdonald.
“I think we will see companies really rethink their comp philosophy,” she said.
With low inflation, low salary budgets, “companies will need to differentiate pay much more dramatically, so they’ll need to rethink, and help their employees rethink, the concept of ever-increasing pay,” said Macdonald.
Retention a concern
Almost 70 per cent of companies said they are concerned about retaining high-performing, critical talent as a result of cutbacks made during the recession, especially as pay stagnates for a second year, said Macdonald.
Companies are taking specific measures to retain top talent, including greater pay differentiation through targeted salary increases (55 per cent), differentiated bonuses (21 per cent) and retention awards in cash (29 per cent) or stock (25 per cent). In addition, 40 per cent of respondents are enhancing talent management programs.
There is the danger of losing high performers with the economy picking up, so a great bonus or well-defined career path can help despite lower salary increases, said Prashant Chadha, a compensation consultant in Hewitt’s Toronto office.
“With salary increase budgets shrinking, organizations are paying a lot of attention to variable pay, so actually awarding high performance and also showing high performers (they) have a career path,” he said.
A few months ago, Canadian employers planned to provide average salary increases of 2.8 per cent in 2010, according to a Hewitt survey. But now, the rate has dropped to 2.6 per cent.
However, the optimism is apparent in the zeroes, said Chadha, as a summer survey by Hewitt found 39 per cent of employers were considering a salary freeze for 2010, but that number dropped to 27 per cent in the November survey of 641 organizations.
While the salary freezes are still more prevalent than the one or two per cent of employers that typically opt out of providing raises, there is a definite thaw, he said.
And there’s an effect on employee retention and attraction when it comes to employers melting salary freezes, even if the increases are slight, said Chadha.
“It actually has a huge impact because a lot of organizations, because they were tending toward salary freezes, now with them saying, ‘Everybody’s going to get an increase,’ employees weren’t expecting that, so it comes as a pleasant surprise.”
