Hewitt Forecasts Canadian Pay Increases of 3.3% in 2004

The latest projection represents a slight increase of 0.1% from this year’s actual increase of 3.2% given out to employees in Canada. Meanwhile, 2004’s figures actually came in below the level forecast for 2003, according to Hewitt Associate’s Canadian Salary Increase Survey.

Highest projected increases for 2004 are expected in Calgary, with average increases of 3.7%, as the city’s economy continues to be driven by activity in the Oil Patch. Otherwise, Toronto (3.4%) and Montreal (2.9%) are expected to show modest gains, while Vancouver is projected to fall to 2.9%.

However, even with salary increases remaining modest, Canadian employers are still looking for other compensation vehicles to both support their business objectives and to attract and retain talent. One such vehicle that has surged is the use of variable pay plans – where a portion of the employee’s compensation is a performance-related award that must be re-earned each year and does not permanently increase base salary – that are now offered by 81% of respondent organizations, the highest level yet reported in the 25 years that this study has been conducted, and up from 76% in 2002.

In 2003, respondent organizations paid an average of 9.9% of payroll in the form of variable pay awards. For 2004, average variable pay spending is forecast to increase to 10.8% of payroll. Most prevalent among these in 2003 was:

• 68% – business incentives, awards that are based on combined financial and operational measures for company, business unit, department, plant and/or individual performance
• 41% – special recognition, recognition for individual or group achievements in the form of cash or merchandise
• 37% – individual performance, rewards based on specific employee performance criteria
• 28% – cash profit-sharing, payment to all or most employees based on organizational profitability
• 16% – gainsharing/productivity, plans designed to measure productivity improvements of a group, unit or organization
• 13% – team/group, awards based on project team or work team results.

Recorded Declines

Even though most employee groups were relatively steady in their forecasted increases, executives will note a decline in their raises of 3.5%, the same number they actually received in 2003. However, this number represents a tumble of 0.3% from the forecasted numbers of 2003.

Additionally, the number of Canadian employers implementing salary freezes in 2003 went up. While historically approximately 1% of organizations have reported freezing salaries, the figure jumped to 7% in 2002. For 2003, 8% of respondents reported implementing a salary freeze, despite only 2% of organizations in last year’s study projecting a salary freeze in 2003, the same number forecasting such an action for 2004.

The report was not all doom-and-gloom though. Over the last several years, average salary increases in Canada have lagged behind those in the US by close to 1% point or more. Yet in 2003, average US salary increases were only 0.2% higher than those in Canada, and this gap is projected to decline to 0.1% in 2004.

Additionally, as with the US,while pay budgets may be small, inflation is running almost a point less than salary increase budgets. The Conference Board, which earlier released similar salary budget projections in the US (See Conference Board: Salary Budgets At 3.5% in 2003 ) is projecting a 2.6% rise in the Consumer Price Index for 2003 compared with a 3.5% average salary budget. Thus, ” many employees continue to make real economic gains with even modest salary increases,” says Todd Mathers, a Hewitt compensation consultant.

“This virtual standstill in both projected and actual salary hikes indicates a more cautious outlook among Canadian companies than we saw a year ago,” added Mathers. “We might have seen more optimism with regards to 2004 were it not for the wide array of events challenging the Canadian economy this year, including geopolitical tensions, continued sluggishness of the US economy, softwood lumber tariffs, and the impact of SARS.”

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