Economic News/Trends and Analysis — September 7, 2010

Organizations Look Beyond Base Pay to Attract and Retain Key Employees, According to Hewitt Associates

Salary Increases for 2010 and 2011 Remain Below Three Per Cent

TORONTO, Sept. 7 /CNW/ - While average national salary increases awarded in 2010 were higher than those granted in 2009, they are still considerably lower than raises provided earlier this decade, according to the 32nd annual Canada Salary Increase Survey conducted by Hewitt Associates, a global human resources consulting and outsourcing company. In June/July, more than 500 organizations from across the country representing more than 835,275 employees responded to the survey.

The biggest difference between this year and last year is a reduction in the number of salary freezes. In 2009, nearly three in ten employers (29.2 per cent) imposed a salary freeze, awarding no increases to some or all employees. In 2010, the number of companies with salary freezes dropped to about 1 in 12 (8.2 per cent). Other positive news is that the percentage of organizations considering pay cuts dropped from nine per cent to less than one per cent between 2009 and 2010, and the number planning layoffs fell from 30.7 per cent to 11.8 per cent.

There was also an upward, but conservative, trend in salary increases this year. The average salary increase was 2.6 per cent nationally in 2010, up from the 2.2 per cent increase awarded in 2009. Saskatchewan led the country this year, as it did in 2009, with pay increases averaging 3.7 per cent, although this figure represents a decrease from the 4.2 per cent salary increases awarded last year. Atlantic Canada had the next highest 2010 salary increases at 3.3 per cent, while Alberta (3.1 per cent), Manitoba (2.9 per cent) and Ontario (2.5 per cent) followed. British Columbia and Quebec had the lowest 2010 increase rates at 2.4 per cent.

"The differences reflect relative weaknesses in the manufacturing and service industries and relative strengths in mining and energy," said Toronto-based Hewitt consultant Prashant Chadha. "Of course, public sector employers are also facing tight budgets, as well as legislation, such as that in Ontario, that limits their ability to grant pay increases."

According to Chadha, "While the trend is definitely positive, the numbers are still lower compared to what we saw in the early part of the decade. Through 2008, salaried workers could realistically expect pay increases in the range of 3.5 per cent to 4.5 per cent. Now, even a company's top performers may receive less than three per cent. The turnaround is likely to continue to be slow, since employers are predicting average pay increases nationally of only 2.9 per cent in 2011."

Higher Pay for Higher Performers

Even though overall salary increases are modest, certain employees at many organizations have the opportunity to earn additional compensation. "Twenty-seven per cent of employers hold some of their compensation budget in reserve to provide additional base pay increases to highest performing employees and 14 per cent provide discretionary restricted stock or stock options," stated Jeff Vathje, Hewitt's Calgary-based national compensation leader. "In addition, 84 per cent of survey respondents offer variable pay programs. If properly designed and communicated, these plans both incent and reward employees. They earn more pay based on individual and/or corporate performance where business objectives are achieved."

Because salary increases are lower than in prior years, it is especially important to provide top producers with the opportunity to earn more. "Once the economy turns around, frustrated employees are going to start leaving," said Vathje. "An organization's high performers are often also the most ambitious and the most attractive to other companies. If an employer isn't providing its top employees with opportunities to increase their pay, it's at significant risk of losing those high performers."

Hanging On to Top Employees: Immediate Action Items

To prevent the loss of key talent, companies need to act now, before the economy rebounds completely. Beyond the opportunity to earn greater pay, there are several additional methods to engage top performers. "Our research suggests that high performing employees want opportunities to do new and interesting tasks," said Rob Lewis, a senior consultant in Hewitt's Toronto office. "They want to be able to give input and interact with leaders. And they want to know that there are opportunities to advance. These employees tend to be restless and easily bored if they're not moving forward, so organizations need to make sure they are continually challenged and recognized for their achievements."

Employers should also focus on manager development, according to Lewis. "Organizations need to work with their managers to ensure they understand how to reward high performers and keep them happy. Many managers are promoted because they have good technical skills, but they lack the ability to manage people well. An investment in developing better managers can pay great dividends in the future as those managers become more effective at recognizing, rewarding and developing top talent."

It is critical for organizations to be proactive. "Now is not the time for employers to be passive," stated Lewis. "While the economy limits what companies can spend to keep top talent, that doesn't mean they are helpless. The best employers get creative in these times to ensure that, once the economy picks up, their top performers are saying 'I want to stay'."

Copies of the Hewitt Associates' 32nd annual Canada Salary Increase Survey are available at www.compensationcenter.com.

About Hewitt Associates

Hewitt Associates (NYSE: HEW) provides leading organizations around the world with expert human resources consulting and outsourcing solutions to help them anticipate and solve their most complex benefits, talent, and related financial challenges. Hewitt works with companies to design, implement, communicate, and administer a wide range of human resources, retirement, investment management, health care, compensation, and talent management strategies. With a history of exceptional client service since 1940, Hewitt has offices in more than 30 countries, including Canadian offices in Calgary, Montreal, Regina, Toronto and Vancouver, and employs approximately 23,000 associates who are helping make the world a better place to work. For more information, please visit www.hewitt.com/canada.

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