Faced with economic challenges and the decline in commodity prices, Canadian organizations continue to be cautious with salary increases in 2016.
Mercer’s 2015/2016 Canada Compensation Planning Survey finds 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%.
“Organizations are proceeding with caution as they look to the year ahead,” says 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.”
Read: Salaries projected to rise 2.4% in 2016
Despite base salary increases remaining flat, employers are continuing to reward through short-term incentives. 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,” he adds. “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.”
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.
Read: Employers expect lower salary increases in 2016
The 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).
In addition to differentiation among employee performance groups, variations exist among industry sectors.
The high tech industry is among the highest with projected average pay increases of 3% 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%.
Read: Compensation: Consider more than just salary
Eight percent of organizations actually froze salaries for all their employees in 2015. However, for 2016, this is projected to drop substantially with approximately three per cent 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.
The survey includes responses from almost 600 organizations across Canada and reflects pay practices for about two million non-union employees.
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