Newsroom

Salary budgets indicative of a “new normal” as employers remain cautious of slow moving economy

  • September 9, 2015
  • Canada, Toronto

Differentiating pay based on performance remains important as organizations focus on retaining and engaging critical talent.

Faced with economic challenges and the decline in commodity prices such as oil and gas, Canadian organizations continue to be cautious with salary increases in 2016. According to Mercer’s 2015/2016 Canada Compensation Planning Survey, almost two-thirds (62%) of organizations report the overall economic climate as the primary factor influencing compensation planning decisions. As a result, salary budgets have remained flat, and the average raise in base pay is expected to be 2.8%. See Figure 1.

“Organizations are proceeding with caution as they look to the year ahead,” said Gordon Frost, market business leader for the Canada Talent business. “As base pay increases remain flat, organizations are recognizing that the days of big pay raises may be a thing of the past. As they struggle to do more with less, they are focusing on other types of rewards like training and career development.”

Despite base salary increases remaining flat, employers are continuing to reward through short-term incentives. According to Mercer’s survey, in 2015, 84% of organizations had short term incentive programs in place for at least one segment of their employee population.

“Employers are recognizing that annual bonuses (short-term incentives) are an effective way of aligning performance with rewards without increasing fixed costs,” said Frost. “Additionally, they are finding ways to deliver pay increases through other means like promotions, reflecting the growing trend of focusing on careers and sustained performance, rather than a one-year snapshot and reward,” said Frost.

Differentiation by performance

As organizations strive to balance reward programs and work within the confines of limited salary increase budgets, they are segmenting their workforce and focusing on identifying and recognizing high potential employees.  As a result, companies are still rewarding top-performers with greater than average increases, widening the gap between these employees and those in the lower-performing categories. Mercer’s survey shows the highest-performing employees (7% of the workforce) received average base pay increases of 4.6%  in 2015 compared to 2.6% for average performers (57% of the workforce) and 0.2% for the weakest performers (3% of the workforce).  

According to Frost, “Greater differentiation of top performers allows employers to allocate limited resources to those employees that will contribute most to the company’s success.”

Differentiation by sectors

In addition to differentiation among employee performance groups, variations do exist among industry sectors. Compared to the average projected pay increase of 2.8% in 2015, organizations within high-performing industries plan to grant higher increases in 2016. The High Tech industry is among the highest with projected average pay increases of 3.0% followed by the Life Sciences and Consumer Goods industry at 2.9%. In contrast, other industries expect to award less next year than they have in the past, including Energy at 2.9% and other Non-Durable Goods Manufacturing at 2.7%. See Figure 2.

Salary Freezes

According to Mercer’s findings, 8% of organizations actually froze salaries for all their employees in 2015. However, for 2016, this is projected to drop substantially with approximately 3% of organizations projecting that they will freeze salaries across all employee groups next year.

Certain sectors will fare worse than others in terms of salary freezes. Survey findings show the Energy sector reported the highest percentage of salary freezes with 37% of organizations reporting a salary freeze for at least one employee group thus far in 2015.

Mercer’s most recent survey on compensation trends, which has been conducted annually for more than 20 years, includes responses from almost 600 organizations across Canada and reflects pay practices for approximately two million non-union employees. The survey results are captured for five categories of employees: executive, management, professional (sales and non-sales), office/clerical/technical, and trades/production/service.

To purchase the survey results, visit https://www.imercer.com/products/canadian-compensation-planning.aspx. To request an invitation to a Mercer Compensation Planning seminar in September across Canada, visit: http://goo.gl/jZkgM9 .

About Mercer

Mercer is a global consulting leader in talent, health, retirement and investments. Mercer helps clients around the world advance the health, wealth and performance of their most vital asset – their people. Mercer’s more than 20,000 employees are based in more than 40 countries and the firm operates in over 130 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global professional services firm offering clients advice and solutions in the areas of risk, strategy and people. With 57,000 employees worldwide and annual revenue exceeding $13 billion, Marsh & McLennan Companies is also the parent company of Marsh, a leader in insurance broking and risk management; Guy Carpenter, a leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a leader in management consulting. For more information, visit www.mercer.ca. Follow Mercer on Twitter @MercerCanada.

# # #

 

Figure 1: Salary increases by employee group

 

 

Source: Mercer, 2015/2016 Canada Compensation Planning Survey

Figure 2: Base salary increase budgets, by industry

 

 

Source: Mercer, 2015/2016 Canada Compensation Planning Survey

 

 

 

CONTACT INFORMATION