Canadian Pay Increases at 3.4% In 2005

September 10, 2004 ( - Much as in the United States, Canadian companies are planning on offering larger raises in 2005, but not by much.

Average salary increases in Canada for 2005 are projected to be 3.4%. This figure represents a slight increase over the 2004 actual average salary increase of 3.3%, according to Hewitt Associates 26 th Annual Canadian Salary Increase Survey.

In the United States, 2004 increases averaged 3.4% for salaried exempt employees, 3.3% for salaried nonexempt employees, 3.3% for nonunion hourly workers and 3.7% for executives. Projected increases for 2005 are slightly better, with estimates of 3.6% for salaried exempt employees, 3.5% for salaried nonexempt employees, 3.5% for nonunion hourly workers and 3.8% for executives (See Salary Increases at Historically Low Levels ).

Additionally, the number of organizations planning to implement salary freezes is expected to drop in 2005. In 2004, 4% of employers reported a salary freeze, but only 1% expect to take this action in the coming year.

“Salary increases have leveled off due to ongoing cost containment measures being taken by employers, a relatively strong supply of available labor 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.”

As evidence of this trend toward greater use of variable pay programs in Canada, Hewitt found 82% of the 360 organizations polled offer broad-based variable pay plans, which is consistent with the 81% of companies that offered these programs in last year’s survey and up from 69% of responding organizations in 2000.

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

By specific variable pay vehicles, Hewitt found the most common ones in Canada were:

  • Business incentives – 68%
  • Individual performance – 37%
  • Special recognition – 34%
  • Cash profit-sharing – 24%.

“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 labor shortage,” stated Mathers. “Organizations should evaluate these programs annually to ensure their plans are meeting the intended objectives.”