Pay raise budgets projected to increase 2.6% in 2019 and 2020

Canadian companies are projected to increase their merit budgets to 2.6% – up 0.1% from last year – according to a study from Mercer. The HR consultancy polled 652 organizations in their 2019/2020 Canadian Compensation Planning Survey.

The slight merit budget increase to 2.6%, however, excludes organizations implementing salary freezes. Before 2019, merit increase budgets held steady at 2.5% for the previous three years. The annual inflation rate in Canada currently stands at 2.0%, the general mark developed economies try to hold to.

The 0.1 point increase was driven by “hot” sectors like technology, where salary increase budgets were a healthy 3.2% because of a more robust competition for talent, according to the report.

Salary is generally the most important tool in employee recruitment, retention, and satisfaction. Getting the other parts right, such as work-life balance and company culture, is important too, but obviously not to the supercession of the central core of salary and compensation.

“Getting compensation right is critical to your employee value proposition,” Gordon Frost, partner and Career business leader at Mercer Canada. “When you have the right compensation strategy in place, you can bolster employee retention, and build a thriving workforce.”

Firms continued to reward their best workers with greater pay increases. The Mercer report found that “high performers” in 2019 received 1.85 times the salary increase of average performers.

Most organizations reported they were investing in salary increases, with only 6.0% having a salary freeze for executives and 4.8% having a freeze on non-executive salaries.

Fifty-seven percent of surveyed organizations said they planned to have the same salary increase budget in 2020, while 21% said their increase budget would be lower. The top reason for projecting a lower merit increase budget was economic uncertainty and general cost reduction initiatives, at 24%.

Twenty-two percent said they would have a higher merit increase budget, with the top reason being greater competition for talent or anticipated labour shortages, at 28%.

The top three factors influencing 2020 compensation decisions for respondents were retention concerns (72%), attraction concerns (70%), and strengthening a performance-based culture (50%).