Productivity improvements cited as top HR challenge
Under pressure to contain labour costs, Canadian employers are being more selective in handing out raises and looking for ways to rein in benefits spending, says the Conference Board of Canada.
According to the 363 organizations surveyed for the business think tank’s annual compensation forecast, average increases for non-union workers in 2004 are projected to be 3.4 per cent. While the increase is still 1.5 points above inflation, it marks the third consecutive year of a downward trend in wage increases (the average increase in 2003 was 3.7 per cent). It’s a trend that will continue until Canadian businesses can become more productive, said Prem Benimadhu, vice-president of organizational performance at the Conference Board.
Business leaders have no choice but, claw back salary increases because they are competing against companies in low-wage countries like China and high-productivity nations like the United States. If Canadians want to get the raises they have in the past, productivity must improve, Benimadhu said. “You can give a 10-per-cent (wage) increase, but if you get a 12-per-cent increase in productivity, it doesn’t matter.”
He said projections for 2004 of 3.4 per cent are probably optimistic. “We think it is going to be less than that because the labour market is not going to be overly tight.” For people with hot skills the turnover rate is about two per cent, he said. Little movement between organizations means even less pressure to increase wages, he added.
The pressures to contain costs and improve productivity were reflected in the survey. Asked to identify top HR challenges for the next 12 to 18 months, productivity improvements, along with leadership development, were most often cited (51 per cent of respondents). Labour cost containment was the next most common problem, with 37 per cent identifying it as a significant challenge.
Employers are refining compensation strategies to make more efficient use of limited compensation budgets, distributing pay increases more selectively and making better use of variable pay programs, said Benimadhu. “Across-the-board increases are going the way of the dodo bird. You have to look at those people who are performing well and reward them,” he said.
In 2003, 89 per cent of all workers received an increase. In the past, it was typically closer to 95 per cent. (Just 74 per cent of high-tech workers got a raise this year.)
“Why do employees think that every year they should get inflation plus one per cent?” asked Benimadhu. Guaranteed increases were okay in the past when Canadian industry was highly protected, but those days are gone. Some employees may resent not getting a raise, but the alternative is worse, said Benimadhu.
“What if you were to give across-the-board increases and you have top performance looking at it and saying, ‘I’m not getting anything more even though I am making a bigger contribution’?”
Increased focus on rewarding top employees will likely lead to a greater interest in talent management programs, said Benimadhu. Talent management is different than performance management because it is more strategic, he said. Talent management requires organizations to determine what skills the organization will need in the future, then singling out employees who can deliver for special treatment.
Just six per cent of respondents said they have “well-developed” talent segmentation programs, 27 per cent said they practise talent segmentation “to some extent” and 67 per cent said they don’t do it at all. Few organizations are doing this because it is such a new concept, but it will increase, said Benimadhu.
Variable pay continues to play an increasingly important role, with 86 per cent of respondents saying they now have some variable pay plan in place. “If you just keep adding to the base pay, you are putting an albatross around your next in hard times,” he said.
The survey also showed many organizations are looking for ways to curb spending on benefits. Fifty-nine per cent of respondents said they are taking steps to control health benefit costs.
The most common tactic is to introduce some form of cost-sharing arrangement with flexible plans and setting new maximums on certain benefits also popular.
Employers should review their plans and get rid of benefits that are not valued by employees, said Benimadhu. “That is a way of reducing benefit costs without reducing employee satisfaction. I don’t think many companies do that.”
For a look at other compensation surveys released this fall, click on the related articles links below.
According to the 363 organizations surveyed for the business think tank’s annual compensation forecast, average increases for non-union workers in 2004 are projected to be 3.4 per cent. While the increase is still 1.5 points above inflation, it marks the third consecutive year of a downward trend in wage increases (the average increase in 2003 was 3.7 per cent). It’s a trend that will continue until Canadian businesses can become more productive, said Prem Benimadhu, vice-president of organizational performance at the Conference Board.
Business leaders have no choice but, claw back salary increases because they are competing against companies in low-wage countries like China and high-productivity nations like the United States. If Canadians want to get the raises they have in the past, productivity must improve, Benimadhu said. “You can give a 10-per-cent (wage) increase, but if you get a 12-per-cent increase in productivity, it doesn’t matter.”
He said projections for 2004 of 3.4 per cent are probably optimistic. “We think it is going to be less than that because the labour market is not going to be overly tight.” For people with hot skills the turnover rate is about two per cent, he said. Little movement between organizations means even less pressure to increase wages, he added.
The pressures to contain costs and improve productivity were reflected in the survey. Asked to identify top HR challenges for the next 12 to 18 months, productivity improvements, along with leadership development, were most often cited (51 per cent of respondents). Labour cost containment was the next most common problem, with 37 per cent identifying it as a significant challenge.
Employers are refining compensation strategies to make more efficient use of limited compensation budgets, distributing pay increases more selectively and making better use of variable pay programs, said Benimadhu. “Across-the-board increases are going the way of the dodo bird. You have to look at those people who are performing well and reward them,” he said.
In 2003, 89 per cent of all workers received an increase. In the past, it was typically closer to 95 per cent. (Just 74 per cent of high-tech workers got a raise this year.)
“Why do employees think that every year they should get inflation plus one per cent?” asked Benimadhu. Guaranteed increases were okay in the past when Canadian industry was highly protected, but those days are gone. Some employees may resent not getting a raise, but the alternative is worse, said Benimadhu.
“What if you were to give across-the-board increases and you have top performance looking at it and saying, ‘I’m not getting anything more even though I am making a bigger contribution’?”
Increased focus on rewarding top employees will likely lead to a greater interest in talent management programs, said Benimadhu. Talent management is different than performance management because it is more strategic, he said. Talent management requires organizations to determine what skills the organization will need in the future, then singling out employees who can deliver for special treatment.
Just six per cent of respondents said they have “well-developed” talent segmentation programs, 27 per cent said they practise talent segmentation “to some extent” and 67 per cent said they don’t do it at all. Few organizations are doing this because it is such a new concept, but it will increase, said Benimadhu.
Variable pay continues to play an increasingly important role, with 86 per cent of respondents saying they now have some variable pay plan in place. “If you just keep adding to the base pay, you are putting an albatross around your next in hard times,” he said.
The survey also showed many organizations are looking for ways to curb spending on benefits. Fifty-nine per cent of respondents said they are taking steps to control health benefit costs.
The most common tactic is to introduce some form of cost-sharing arrangement with flexible plans and setting new maximums on certain benefits also popular.
Employers should review their plans and get rid of benefits that are not valued by employees, said Benimadhu. “That is a way of reducing benefit costs without reducing employee satisfaction. I don’t think many companies do that.”
For a look at other compensation surveys released this fall, click on the related articles links below.
