Salary surveys 101

A look at seven leading salary surveys and what 2005 holds for employee wage increases

Summer is grinding to a halt, the children are all back in school and some trees are starting to turn colours and drop their leaves.

For HR staff, that can only mean one thing — it's salary survey season. Canadian HR Reporter has compiled the salary surveys from seven organizations. To read the details on each one, click on the links below.

2005 salary surveys

Watson Wyatt Worldwide
Aon Consulting
WorldatWork
Mercer Human Resource Consulting
Hay Group
Hewitt Associates
Morneau Sobeco


Watson Wyatt Worldwide

Modest pace of salary increases continues in Canada, Watson Wyatt survey finds
Performance management emerges as key issue

In 2005, Canadian employers will continue to offer modest salary increases and rely heavily on short-term incentive programs, according to the 2004 Annual Canadian Salary Survey by Watson Wyatt Worldwide.

In 2004, the vast majority (97 per cent) of employers reported salary increases, up from 92 per cent in 2003. Of those organizations providing increases in 2004, the average actual salary increase for all employees was 3.2 per cent, a slight decline from the 3.3 per cent actual increase in 2003. For the second year in a row, base salary increases are fairly flat across different regions and industries. For 2005, employers are forecasting a 3.1 per cent increase in salaries.

“While base salaries are not growing rapidly, companies are realizing that the competition for high-performing individuals is intensifying and requires them to have incentive plans that can adequately reward key employees and help drive business success,” said Graham Dodd, national practice director for Watson Wyatt Canada’s Human Capital Group.

In 2004, the percentage of respondents who indicated they have a short-term incentive plan held steady from 2003 at 86 per cent. In 2002, 81 per cent said they employed short-term incentive plans and in 2001, only 78 percent had plans.

“Now that the vast majority of employers have well-established short-term incentive plans in place, they are turning their attention to how to ensure their plans are successful,” said Dodd. When employers were asked about their most pressing human resources issue for the next two years, over half of the respondents named performance management.

“Now that companies are heavily utilizing short-term incentive plans, they are starting to ask themselves if they can properly define and measure performance – two key components of a successful incentive plan,” according to Dawn Bell, National Practice Leader for Organization Effectiveness. “They are turning to the development of performance management systems to differentiate high performing employees from the rest and reward them appropriately.”

Other survey highlights include:

Key issues for HR for the Next one to two years (in ranked order):

• performance management;
• leadership development;
• cost containment;
• succession planning;
• recruiting key talent; and
• benefits strategy.

A breakdown of the main categories covered in the survey follows:

Geographic breakdown

City2004 actual2005 forecast
Calgary3.33.2
Toronto3.13.2
Vancouver3.13.1
Montreal3.03.2
Southwestern Ontario3.13.1
Other Ontario3.23.1
Manitoba3.23.2
Saskatchewan3.13.2
Atlantic3.03.1


Sector/industry breakdown

Sector2004 actual2005 forecast
Private sector - for profit3.23.1
Public sector3.23.0
Retail2.93.0
Manufacturing (non-durable)3.23.2
Manufacturing (durable)3.13.0
Finance3.63.5
Utilities/communication2.93.3
Professional/business3.43.3


About the survey

The annual Canadian salary survey, now in its 36th year, was conducted by questionnaire earlier this year with 429 organizations participating and representing over 930,000 employees. The organizations were of varying sizes, geographic locations and industry sectors. Survey results are available for purchase with more details at www.watsonwyatt.com/acss.

About Watson Wyatt

Watson Wyatt is a global consulting firm specializing in human capital and financial management. The firm offers services in three areas: employee benefits, human capital strategies and related technology solutions. Watson Wyatt has more than 6,000 associates in 88 offices in 30 countries. In Western Canada, the firm serves clients from Vancouver and Calgary; in Central Canada from Toronto and Kitchener-Waterloo; and in Eastern Canada from Montreal.

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Aon Consulting

Aon Consulting 2005 Pay Increase Survey projects salary increases of only 3.3 per cent on average for Canadian employees

Results of a national survey, conducted by Aon Consulting, show that Canadian companies are estimating average salary pay increases of only 3.3 per cent in 2005. That’s down from 3.4 per cent in 2004. These results have been gathered through Aon Consulting’s 2005 Canadian Pay Increase Survey.

The employee base pay increases for 2005 will continue to be modest, ranging from 3.3 per cent to 3.6 per cent. When compared to scale increases forecasted for 2005 in the 2.5 per cent range, it indicates that employers are allowing only one per cent for performance increases.

“Slow business growth continues to effect employee pay increases and we will continue to see conservative pay administration practices across Canada in 2005,” said Phil Wallace, senior vice-president, compensation. “Such modest pay increase projections raise the possible question as to whether companies are appropriately using their salary administration programs effectively. Employees hired at salaries lower than the midpoint, will need at this pace, many years to reach the midpoint.”

“Lean compensation budgets and salary management challenges, provide employers with the opportunity to evaluate their compensation structures and incentive programs,” said Pierre Geoffrion, senior vice-president, human capital. “The quiet economy presents the ideal environment to align compensation practices with overall business strategy and culture.”

The survey saw a slight decline in the pay increases employees are predicted to see in all regions of Canada. The most significant change is predicted in Western Canada where salary increases are forecast to drop from 3.7 per cent in 2004 to 3.4 per cent in 2005. This reduction is significant compared to other regions surveyed; however, Western Canada remains ahead of national average salary increases.

The survey was administered across Canada to private and public sector companies, not-for-profit organizations and companies in manufacturing and non-manufacturing sectors. The results remain comparable across all sectors, with private sector – non manufacturing leading the way with a projected average pay increase of 3.4 per cent.

Overall, the variation between 2004 actual pay increase percentages and those forecast for 2005 are minimal. Executives, directors and managers show a slight decline in their salary increases, while the levels below show a salary increase similar to last year. However, as in previous years, the trend continues for employees at the executive level to outpace other employees on the pay increase scale, widening the gap between employee levels.

Results from this survey were gathered from Aon Consulting’s 2005 Canadian Pay Increase Survey. A total of 338 organizations from across Canada provided information for this survey.

Aon Corporation (www.aon.com) is a provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting, and specialty insurance underwriting. The company employs approximately 52,000 professionals in its 600 offices in more than 120 countries. Backed by broad resources, industry knowledge and technical expertise, Aon professionals help a wide range of clients develop effective risk management and workforce productivity solutions.

Aon Consulting is among the top global human capital consulting firms, with 2003 revenues of $1.185 billion and 7,500 professionals in 140 offices throughout the world. Aon Consulting delivers integrated human capital consulting solutions to help clients align people strategies with business strategies. Its core services span talent strategies, communication, compensation, health and benefits, retirement and workers’ compensation.

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WorldatWork

Survey: 87 Percent of Workers to Get Raises in 2004

Finally, some good news for employees.

Organizations are indicating that 87 per cent of employees will receive an increase in base pay this year, up from 83 per cent in 2003, according to the 31st annual WorldatWork Salary Budget Survey. Base pay increases may come from general increases, merit increases or cost of living increases, (promotional increases are excluded). This news bodes well for rank-and-file employees given that 2004 salary budgets - the total amount of money allocated by an organization for all employee salaries - are generally static.

After seeing salary increase budgets sink to historic lows in 2003, this year's installment duplicated those historic lows. Participating organizations in the annual SBS are reporting an actual average total salary budget increase of 3.5 percent, which is in line with other salary budget surveys out this year, although the WorldatWork annual survey is the world's largest and most comprehensive.

The 2,774 respondents to the survey are WorldatWork members who are employed in the compensation and benefits departments of mostly large North American companies. Combined, the survey's participating organizations represent approximately 12.7 million U.S. employees.

The 3.5-percent average salary budget increase fell short of the projected 3.7 percent average increase employers estimated last year. Company projections for 2005 look slightly better than the 2004 actual figures, with a projected increase to 3.7 percent.

"The continuing lackluster increases in salary budgets must be taken in context with relatively low inflation rates and high benefits costs," said Anne C. Ruddy, executive director of WorldatWork. "And we're encouraged to see employers link pay to performance, which will be instrumental in retaining key employees as the economy improves and employees start looking around."

Seventy-seven per cent of companies will link pay to performance this year, up from 75 per cent last year and way up from 66 per cent in 2001.

About WorldatWork

WorldatWork is a not-for-profit professional association dedicated to knowledge leadership in compensation, benefits and total rewards. Founded in 1955, WorldatWork focuses on human resources disciplines associated with attracting, retaining and motivating employees. Besides serving as the membership association of the professions, the WorldatWork family of organizations provides education, certification (Certified Compensation Professional – CCP, Certified Benefits Professional – CBP and Global Remuneration Professional – GRP), publications, knowledge resources, surveys, conferences, research and networking. WorldatWork Society of Certified Professionals and Alliance for Work-Life Progress (AWLP) are part of the WorldatWork family.

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Mercer Human Resource Consulting

Mercer salary survey shows growing optimism among Canada’s employers
Overall pay increases of 3.4 per cent expected for 2005

Preliminary results from Mercer Human Resource Consulting’s 2005 Compensation Planning Survey show the average salary increase for 2005 will be 3.4 per cent, with Canadian organizations projecting higher average salary increases for 2005 than they have in the past two years.

“As the economy improves, companies naturally feel more optimistic about their future and this is reflected in the increases companies plan to offer employees in 2005,” said Ailsa Forsgren, principal of Mercer’s Performance, Measurement and Rewards practice in Vancouver. “The fact that less than one per cent of employers are projecting salary freezes for the coming year is also good news for employees and shows that employers really aren’t being as cautious about increases as they were last year when freezes were at close to five per cent.”

The largest industry increase was in the oil and gas sector at 4.1 per cent, up from 3.6 per cent last year. Employees in Alberta, Manitoba, Saskatchewan and British Columbia can expect to see the highest increases at 3.5 per cent. In Toronto and Vancouver, forecasted increases are at 3.4 per cent, followed by the Maritimes and Montreal at 3.3 per cent.

Early indications from the survey show that all employers plan to offer increases well above anticipated inflation and that no sector is looking much below a 3.2 per cent increase in their 2005 planning. The pharmaceutical sector expects to see increases at 4.0 per cent.

Pay increases are expected to be awarded in a range of 3.5 per cent for executives to 3.2 per cent for operational (hourly) staff.

Preliminary results from Mercer’s 2005 Compensation Planning Survey represents data collected from 342 organizations across Canada, with participation up over 10 per cent from last year. The Compensation Planning Survey is conducted twice a year in August-September and the following January-February. The forecasts are released in September and actual awards/increases are reported in March the following year. In addition to pay increase budgets, the survey addresses structural adjustments and workforce planning. The forecast and update reports are available for purchase from Mercer at www.imercer.ca or by calling 1-800-631-9628.

About Mercer

Mercer Human Resource Consulting helps employers create measurable business results through their people. With more than 13,000 employees serving clients from some 150 cities in 40 countries worldwide, the company is part of Mercer Inc., a wholly owned subsidiary of Marsh & McLennan Companies, Inc., which lists its stock (ticker symbol: MMC) on the New York, Chicago, Pacific, and London stock exchanges.

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Hay Group

Hay Group releases forecast for 2005 salary increases

Whether or not the economy will meet earlier expectations, and despite continued global tensions, the projections for 2005 salary increases are as equally optimistic as they were in 2004.

According to the most recent Hay Group survey of Canadian employers, base pay is forecast to increase next year by an average of 3.2 per cent, with 83 per cent of surveyed organizations planning to provide base salary increases in 2005. The 3.2 per cent increase compares to the projection of a 3.0 per cent increase made one year ago.

The Hay Group survey, conducted over the summer months, polled more than 500 Canadian organizations in the public and private sectors on their planned adjustments to base and variable pay for 2005. Participants include many of Canada's leading employers.

"Over the past year, we've been witness to many different turns of events, one would reasonably expect the salary increase forecasts for next year to be cautious at best. But the numbers are showing stronger-than-expected employer confidence", said Karl Aboud, national director, reward management, Hay Group.

The forecasts varied slightly by job level, ranging from an anticipated increase of 2.8 per cent for trades jobs to 3.2 per cent for executive positions.

The survey findings also highlighted geographic differences for compensation increases: from a high of 3.6 per cent in Alberta to a low of 2.3 per cent in some parts of Atlantic Canada.

Bonus payouts

For an increasing number of employees, annual bonuses are a key part of their total pay packages. Despite considerable economic volatility this year, projected bonuses nationally for 2005 do not differ radically from last year's
forecasts.

For 2005, bonus targets (as a percentage of base pay) range from six per cent for trades jobs, 15 per cent for middle management, and 30 per cent for executives. Based on survey results, actual bonus awards, to be paid in 2005 in respect of 2004 performance, are expected to be in line with the targeted levels.

About Hay Group

Hay Group is a consultant that helps clients improve business results through people-focused solutions.

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Hewitt Associates

Hewitt study shows overall Canadian salary increases expected to remain modest in 2005

Performance-based compensation programs continue to be popular with Canadian employers, according to the Hewitt Associates 26th annual Canadian Salary Increase Survey.

Hewitt (NYSE: HEW), a global human resources outsourcing and consulting firm, surveyed 360 organizations nationwide. Eighty-two per cent offer broad-based variable pay plans – a performance-related award that must be re-earned each year and does not permanently increase base salary. This figure is consistent with the 81 per cent of organizations that offered variable pay in last year’s survey, up from 69 per cent of responding organizations in 2000.

Average spending on variable pay is also increasing. Two years ago, variable pay awards averaged 9.9 per cent of base salary among survey respondents. For 2005, the average award is expected to rise to 13.1 per cent of base salary.

“Salary increases have leveled off due to ongoing cost containment measures being taken by employers, a relatively strong supply of available labour in most markets, and ongoing low levels of inflation” said Todd Mathers, a consultant in Hewitt’s Toronto office. “However, the continued high prevalence of variable pay programs is a strong indication that organizations are willing to pay for performance, and these programs allow them to do this without adding to fixed salary costs.”

Salary increases remain steady

Average salary increase for 2005 are projected to be 3.4 per cent overall. This figure represents a slight increase over the 2004 actual average salary increase of 3.3 per cent. Additionally, the Hewitt survey shows that the number of organizations planning to implement salary freezes is expected to drop in 2005.

In 2004, four per cent of employers reported a salary freeze, but only one per cent expect to take this action in the coming year. Regional Salary Increases Average 2004 salary increases for all employee groups in Canada’s four largest cities were highest in Calgary (4.1 per cent) and lowest in Montreal (2.6 per cent). Vancouver and Toronto reported average increases of 3.5 per cent and 3.2 per cent respectively.

In 2005, employees located in western cities should see somewhat higher salary increases than the projected national average of 3.4 per cent. Pay increases are expected to average 3.9 per cent in Calgary and 3.6 per cent in Vancouver. Employers in Montreal and Toronto are projecting salary budget increases of 3.3 per cent over the next year.

Pay for performance

Hewitt’s study shows that organizations are offering employees a variety of variable pay plans. The most common types of variable pay plans in 2004 were:

•business incentives (68 per cent) – awards employees for a combination of financial and operational measures for company, business unit, department, plant and/or individual performance;

•special recognition (34 per cent) – acknowledges outstanding individual or group achievements with small cash awards or merchandise such as gift certificates;

•individual performance (37 per cent) – rewards based on specific employee performance criteria; and

•cash profit-sharing (24 per cent) – payment to all or most employees based on organizational profitability.

Plans’ Untapped potential

Although 81 per cent of organizations report that the primary driver behind their broad-based variable pay plan is “financial,” 58 per cent of organizations say they do not track or measure plan effectiveness.

In fact, 14 per cent of responding companies state they do not believe the use of variable pay programs has helped improve their business results.
“It is apparent that some organizations’ compensation programs are not realizing their full potential,” said Mathers. “These programs are most effective when they are designed to benefit both the employers and employees. In order for them to be successful, goals and plan objectives must be monitored and communicated on a regular basis. If executed correctly, variable pay plans can actually provide motivation for employees to work to improve the company’s bottom line, rather than serve only as a reward.

“Making the most of variable pay plans will become increasingly important as employers face additional pressure to attract and retain key employees in light of the predicted skilled labour shortage. Organizations should evaluate these programs annually to ensure their plans are meeting the intended objectives.”

Employers go beyond cash to attract and retain

Even though 2004 salary increases were modest, organizations are continuing to look to other non-monetary vehicles to attract and retain employees. Respondents to Hewitt’s “Salary Increase Survey” reported that the non-cash attraction and retention vehicles most commonly offered in 2004 were casual dress and flexible hours. Employers also indicated that telecommuting and a compressed workweek were gaining popularity.

Copies of the Hewitt Associates 26th Annual “Canadian Salary Increase Survey” are available at www.compensationcenter.com, or by calling the Hewitt Associates Publications Desk at (847) 295-5000.

About Hewitt Associates

Hewitt Associates is a global human resources outsourcing and consulting firm. It provides services from offices in 38 countries, including Canadian offices in Calgary, Montréal, Regina, Toronto and Vancouver.

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Morneau Sobeco

Salary increases expected to be modest in 2005; health care and pension costs a major concern

According to the results of the Compensation Trends and Projections for 2005 survey released by Morneau Sobeco, salary increase expectations remain subdued as Canadian employers are cautiously optimistic in their business outlook for 2005.

The average salary increase budget for 2005 is 3.3 per cent including a provision for promotional increases. Average salary increases expected for 2005 vary from 2.5 per cent for non-unionized hourly staff to 3.2 per cent for executives.

The most important human resource issues facing employers for 2005 continue to be health care costs and pension costs. Hot skills retention and recruitment, employees' appreciation of benefits and performance measurement are the other key issues. Some employees will see their share of the cost of health care benefits increase as 22 per cent of employers indicated their intention to introduce or increase employee cost sharing.

Supported by technology, employers are putting further information and more tools in the hands of their employees. In the last 3 years, there has been a dramatic increase in the use of Internet for benefits administration and communication. According to the survey, 56 per cent of employers currently use the internet to communicate plan details to employees, versus 30 per cent in 2001. Online employee self service options are also on the rise with 22 per cent of employers offering self service Web portals for enrolment.

As a result of the recent volatility of financial markets, 26 per cent of respondents with defined benefit pension plans are planning to make changes to their investment policies next year. Also, 21 per cent of respondents are planning new asset/liability management initiatives next year to ensure an optimal risk/return combination considering their pension obligations. Fewer than 10 per cent are considering the possibility of converting their defined benefit pension plans into defined contribution arrangements and less than two per cent are planning to terminate their defined benefit pension plans.

Survey results are based on data collected between June and August of this year from 302 organizations representing 631,000 employees across Canada.

By industry, the highest average increases are reported by pharmaceutical companies and by companies involved in mining and gas extraction, with expected average increases of 4.2 per cent for executives. The lowest average increases are reported by public-sector organizations, with an expected average increase of 2.1 per cent for all employee categories.

By region, the highest salary increases are reported in Alberta, with expected average increases ranging from 3.1 per cent for non-unionized hourly employees to 3.5 per cent for executives, while the lowest increases are reported in Quebec (outside Montréal) and in Atlantic Canada.

Morneau Sobeco is a human resource consulting firm focusing on the design and delivery of compensation, retirement, and employee benefits programs. With 950 professionals working in 13 cities across North America, it serves more than 3,000 clients.

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