Despite the less than optimal economic circumstances in Canada, companies polled in Mercer’s 2009 Compensation Planning Survey say that they are still committed to investing in talent and that they recognize the need to have the right people in their organizations.
“We haven’t reached a recession yet in Canada, but we are weakening at the knees,” said Ross Coyles, principal with Mercer, at a recent compensation planning seminar. However, the numerical data still shows that many companies are planning for 3.1% to 4% salary increases for all levels of employees next year, while some of the industries that have been less affected by poor economical times but still struggling for talent, such as oil and gas and utilities, are planning for salary increases in the 4.3% to 5.4% range. Coyles noted that the gap between the Consumer Price Index and base salary will likely grow and that projected salaries for 2009 are only down slightly from actual salaries in 2008.
Of the organizations that participated in the survey, 28% said that their 2009 expected salary increase budgets were greater than their actual 2008 salary increases. The main reasons for this are greater competition for employees (65.6%), higher salary increases due to labour shortages (30.3%) and change in base pay strategy or target levels (18.9%). However, 29.9% of organizations reported that they were budgeting for smaller increases in 2009 than actual 2008 rewards. The main reasons for the cutbacks? Companies said economic uncertainty (50%), general cost reduction (42.3%) and shifting budget dollars to variable pay (12.3%).
Just as salary increases for the general employee population are expected to vary by industry, the same is expected of executive compensation. Michael Thompson, principal with Mercer, said that although executive compensation is expected to continue to grow in 2009, it will do so at a slower pace than in the past and incentives will be more closely linked with performance.
A top priority for organizations in 2009 should be clarifying expectations and the type of performance that matters to the company. “Getting performance targets right matters,” Thompson said. “Make sure it’s clear to everyone what is expected.” He added that long-term incentives should be linked to the prior year’s performance, not just automatically granted year after year.
Another significant change on the compensation landscape will be the total rewards mix. It’s expected that the focus will be on long-term incentive programs as the primary compensation vehicle for senior executives and that there will be a renewed interest in stock options.
“It’s not just about how you pay people; it’s how you value them. We are trying to attract and retain, and we need to do what it takes,” Thompson said. “It’s all about the talent, baby.”
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