Canadian HR Reporter

'Caution' 'Caution' Credit: Georgejmclittle (Shutterstock) By Sarah Dobson W ith a still-uncertain economy, along with falling oil prices and a low Canadian dollar, "cau- tion" is still the word of the day for many employers when it comes to salary predic- tions for 2016. What is notable, however, is the in- creasing emphasis on variable pay, as employers go beyond limited base sal- ary increases to try and have a greater impact on valuable employees. e raises Ninety-eight per cent of the 422 employers polled by Towers Watson are planning to give raises next year, with a projected in- crease of 2.9 per cent across all employee categories. Since 2009, increases have hovered around three per cent, according to Sandra McLellan, North America practice leader for rewards at Towers Watson in Toronto. "(It's been) very consistent year over year." e sub-story in all of this is these bud- gets — 2.9 per cent in Canada, three per cent in the United States — seem to be the new norm, says McLellan. "It seems like companies are getting and keeping the employees they need at this level of increases." And infl ation has not been moving that aggressively, she says. " e other thing that drives salary in- creases budgets is how much infl ationary pressures there are." Almost two-thirds (62 per cent) of Cana- dian organizations report the overall eco- nomic climate as the primary factor infl u- encing compensation planning decisions, according to Mercer's 2015/2016 Canada Compensation Planning Survey. "I would characterize it as absolutely cau- tious and probably more uncertain than it was a year ago, particularly due to the price of oil, state of the economy, that sort of stuff ," says Gordon Frost, Mercer's talent business leader for Canada in Montreal. "Some (employers) are actually holding off on making their fi nal decision until we get closer to 2016." As a result, salary budgets have re- mained fl at and the average raise in base pay is expected to be 2.8 per cent, found Mercer's survey of almost 600 Canadian organizations. " e results are actually relatively sta- ble for the rest of Canada and it's really the West where the numbers have come down year over year, which is infl uencing the overall Canadian average," says Frost. "But if you look at the results for Ontario, Quebec, Atlantic Canada… it's really more of a stable year-over-year situation… When you go city by city or province by province, most of them are actually relatively stable." Employers are expecting salaries to rise by an average of 2.5 per cent in 2016, ac- cording to Morneau Shepell's annual sur- vey for Canada. is is down from the 2.8 per cent increase expected for 2015 and includes expected salary freezes. It's fairly reasonable considering em- ployers were still pretty cautious when the survey was done in the early summer, says Randal Phillips, executive vice-president and chief client offi cer at Morneau Shepell in Toronto. " ere was talk of recession in the air, everybody had seen the crash in oil prices, there were big changes in expectations, particularly in Alberta, and in the rest of the country, the falling Canadian dollar hadn't yet had any material impact on business outlook." Some sectors, such as mining and oil and gas, are expecting average salary increases of about 2.4 per cent for next year, found Morneau Shepell, compared to a forecast of 3.4 per cent last year. "People aren't feeling desperate at all, they're just being careful," says Phillips, adding organizations are taking a wait-and- see approach. " ey'll continue to monitor things — but the overriding sentiment seemed to be caution." Aon Hewitt's survey of more than 475 employers found employees can expect an average total salary increase of three per cent in 2016, up from this year's estimated average salary increase of 2.8 per cent. Performance-based, variable pay e expected variable pay averages across performance tiers for 2016, according to Aon Hewitt, are 4.5 per cent for those who "far exceed" expectations, 3.6 per cent for those who "often exceed" and 2.5 per cent for those who "meet" expectations. Many companies are shifting more of their spending to variable pay, says Suzanne omson, senior consultant, global data so- lutions, at Aon Hewitt in Toronto. "With increases being at two and three per cent — and they've been like that for the last couple of years anyway — it makes it diffi cult to apply an increase across for high performers if you're trying to average it out at two or three per cent, so by adopt- ing a variable pay approach, employers are able to focus on the key roles and high per- formers; and by paying them more based on their performance, they're able to spend their dollars better, more wisely." About 82 per cent of organizations have variable pay programs and the majority of those are based on corporate performance measures, says omson. And in looking at the most common type of awards based on performance, they tend to be individual performance awards, at 62 per cent; team awards and gain-sharing at 25 per cent; profi t sharing at about 20 per cent; and special recognition, which is clos- er to 40 per cent, she says. When it comes to long-term incentives, about 55 per cent of organizations off er these, says omson, and of those, about 75 per cent provided grants to executive employees in 2015. Employees who received the highest performance ratings were granted an aver- age salary increase of 4.5 per cent this year, about 80 per cent larger than the 2.5 per cent increase given to workers receiving an average rating, found Towers Watson. Workers with below-average performance ratings received salary increases of less than one per cent. Companies are making dramatic changes to their approach to performance manage- ment, including eliminating formal re- views or taking a ratingless approach, says McLellan. But that's not to say performance doesn't matter. "It doesn't mean that your annual bo- nus goes away, it just means that you're not having to translate a rating into… 'How do I relate that rating with what I re- ceived as a bonus?' ere's just more clear common theme for salary outlooks Variable pay increasingly used by employers to differentiate F E AT U R E S COMPENSATION OUTLOOK Caution Caution 'Caution' Caution 'Caution' 'Caution' Caution 'Caution' EMPLOYERS > pg. 18 "By adopting a variable pay approach, employers can focus on high performers."

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