In a tough year, many took the long view
Many Canadian organizations had to clawback compensation budgets this year, but they appear to have done so strategically, according to recent salary surveys.
“In 2002, a number of companies reacted to changing economic conditions by reducing costs and this is reflected in reduced salary increase budgets,” said Todd Mathers, a senior consultant in the talent and organization consulting practice of Hewitt Associates. The firm released the findings of its compensation survey of 191 Canadian companies, last month. For the first time since 1994, this year’s average salary increases were lower than those given in the previous year. Overall average increases for 2002 were 3.3 per cent, down from 3.8 per cent in 2001. But the downward movement seems to have stopped after just one year; projections for 2003 show a slight increase to 3.4 per cent.
The findings were similar in the Mercer Human Resource Consulting salary survey.
Organizations were busy trying to control costs in 2002 and to a large extent they still are, said Merrilyn Earl, a consultant with Mercer. A slowing economy bred caution throughout 2001 and after the terrorist attacks of Sept. 11 a lot of organizations just put the brakes on, she said.
They wanted to wait and see what happened and therefore salary increases were lower than in previous years. According to the Mercer survey of 519 organizations across the country, the overall average increases for 2002 were 3.3 per cent, which matched projections adjusted after Sept. 11. Increases for 2003 are also projected to be about 3.3 per cent.
While the flat salary increases confirm it was a difficult year for many organizations, the survey also revealed many Canadian firms were thinking strategically when making compensation decisions, said Mathers, adding there was “a huge jump” in the use of variable pay programs.
Organizations are using more than one type of variable pay program and at lower levels of their organizations.
That’s a sign Canadian businesses are making smarter decisions about how to use the budgets that they have, he said. “They are getting much more targeted…to align employee performance with awards.”
The Hewitt survey indicates organizations are slowing in the adoption of cash profit sharing programs. These programs often end up creating a sense of entitlement among employees because there is little they can do to affect whether or not the organization meets the targets at which the bonus is paid, said Mathers. Instead, organizations are looking at programs where employees feel they have more responsibility to perform well individually to receive a bonus.
The Hewitt survey also revealed an increase in the number of organizations paying extra for certain in-demand skill sets. “In a year where salary increase budgets fell we actually saw an increase in all monetary awards for the attraction and retention of hot skills,” said Mathers.
Some people believe the need to pay more for hot skills went away but the survey showed that was not the case in 2002, nor will it be anytime soon, he said. “The demand for certain skill sets will continue to exceed the supply.”
In the recession of the early ’90s, a lot of organizations took a short-sighted approach when they acted to control costs.
“This is evidence organizations are being much more strategic in managing costs and taking a much longer view where they can,” said Mathers. “It is a very good sign.”
The Mercer study revealed cost-containment remains an important issue for organizations looking ahead to 2003.
More than half of respondents said they are, or will soon be, implementing cost containment strategies. Nearly 20 per cent of Canadian organizations expect to lay off workers in 2003. At this time last year, just 11 per cent said they were planning staff cuts.
But after a difficult couple of years, many Canadian organizations feel like they have regained stability and are getting back to normal, though perhaps slowly, said Earl.
Organizations are returning to their normal compensation planning cycles and there is some pressure to increase salaries for the year ahead, she said.
“There has been some loosening of the strings,” she said. “It is very difficult to keep people motivated especially coming off a hard year if you put in another round of blanket freezes.” The Mercer survey showed that after an unusually high number or organizations froze salaries for 2002, fewer organizations will be doing that in 2003.
“Last year there were seven per cent that said we are freezing salaries. In the private sector that is now more like four per cent,” said Earl. (The Hewitt study also pegged salary freezes at about seven per cent this year but only one per cent plan to freeze salaries in the year ahead.)
Other compensation surveys have found organizations are cautiously optimistic about the year ahead, while many organizations remain anxious, refusing to even make predictions for 2003. (See CHRR, Oct. 7 or click on related articles link below).
Many Canadian organizations had to clawback compensation budgets this year, but they appear to have done so strategically, according to recent salary surveys.
“In 2002, a number of companies reacted to changing economic conditions by reducing costs and this is reflected in reduced salary increase budgets,” said Todd Mathers, a senior consultant in the talent and organization consulting practice of Hewitt Associates. The firm released the findings of its compensation survey of 191 Canadian companies, last month. For the first time since 1994, this year’s average salary increases were lower than those given in the previous year. Overall average increases for 2002 were 3.3 per cent, down from 3.8 per cent in 2001. But the downward movement seems to have stopped after just one year; projections for 2003 show a slight increase to 3.4 per cent.
The findings were similar in the Mercer Human Resource Consulting salary survey.
Organizations were busy trying to control costs in 2002 and to a large extent they still are, said Merrilyn Earl, a consultant with Mercer. A slowing economy bred caution throughout 2001 and after the terrorist attacks of Sept. 11 a lot of organizations just put the brakes on, she said.
They wanted to wait and see what happened and therefore salary increases were lower than in previous years. According to the Mercer survey of 519 organizations across the country, the overall average increases for 2002 were 3.3 per cent, which matched projections adjusted after Sept. 11. Increases for 2003 are also projected to be about 3.3 per cent.
While the flat salary increases confirm it was a difficult year for many organizations, the survey also revealed many Canadian firms were thinking strategically when making compensation decisions, said Mathers, adding there was “a huge jump” in the use of variable pay programs.
Organizations are using more than one type of variable pay program and at lower levels of their organizations.
That’s a sign Canadian businesses are making smarter decisions about how to use the budgets that they have, he said. “They are getting much more targeted…to align employee performance with awards.”
The Hewitt survey indicates organizations are slowing in the adoption of cash profit sharing programs. These programs often end up creating a sense of entitlement among employees because there is little they can do to affect whether or not the organization meets the targets at which the bonus is paid, said Mathers. Instead, organizations are looking at programs where employees feel they have more responsibility to perform well individually to receive a bonus.
The Hewitt survey also revealed an increase in the number of organizations paying extra for certain in-demand skill sets. “In a year where salary increase budgets fell we actually saw an increase in all monetary awards for the attraction and retention of hot skills,” said Mathers.
Some people believe the need to pay more for hot skills went away but the survey showed that was not the case in 2002, nor will it be anytime soon, he said. “The demand for certain skill sets will continue to exceed the supply.”
In the recession of the early ’90s, a lot of organizations took a short-sighted approach when they acted to control costs.
“This is evidence organizations are being much more strategic in managing costs and taking a much longer view where they can,” said Mathers. “It is a very good sign.”
The Mercer study revealed cost-containment remains an important issue for organizations looking ahead to 2003.
More than half of respondents said they are, or will soon be, implementing cost containment strategies. Nearly 20 per cent of Canadian organizations expect to lay off workers in 2003. At this time last year, just 11 per cent said they were planning staff cuts.
But after a difficult couple of years, many Canadian organizations feel like they have regained stability and are getting back to normal, though perhaps slowly, said Earl.
Organizations are returning to their normal compensation planning cycles and there is some pressure to increase salaries for the year ahead, she said.
“There has been some loosening of the strings,” she said. “It is very difficult to keep people motivated especially coming off a hard year if you put in another round of blanket freezes.” The Mercer survey showed that after an unusually high number or organizations froze salaries for 2002, fewer organizations will be doing that in 2003.
“Last year there were seven per cent that said we are freezing salaries. In the private sector that is now more like four per cent,” said Earl. (The Hewitt study also pegged salary freezes at about seven per cent this year but only one per cent plan to freeze salaries in the year ahead.)
Other compensation surveys have found organizations are cautiously optimistic about the year ahead, while many organizations remain anxious, refusing to even make predictions for 2003. (See CHRR, Oct. 7 or click on related articles link below).
