Canadian employers project they’ll dole out more modest pay raises in 2024 than in 2023, according to a pair of recent surveys.
In a recent survey of more than 500 organizations across 15 industries by global professional services firm Mercer, employers said they’re projecting an average 3.3 per cent merit increase and 3.7 per cent for total increases (including promotional and cost of living increases) in 2024. That’s compared to 3.6 and 4.1 per cent actual increases, respectively in 2023.
Another survey by consulting firm Eckler found similar numbers, with employers projecting a 3.9-per-cent average salary raise, excluding planned salary freezes, in 2024. That’s compared to 4.2 per cent projected for 2023 and 4.4 per cent in actual 2023 salary raises so far this year.
“Last year’s projection was the highest in two decades. So coming off of that peak, I think it would be normal to see a little bit of a decrease versus last year,” said Anand Parsan, principal in Eckler’s compensation consulting practice.
“There’s concern about the economy slowing,” said economist and author Linda Nazareth. “We’re not seeing that recession; most people are hopeful that we won’t see that. However, [organizations are] cutting budgets or being careful about budgets.”
The labour market is cooling slightly, too, though there are still about three million unfilled positions, according to Mercer. That means employers are still concerned about retaining talent when there are so many options for workers to go elsewhere, according to Luc Lapalme, senior principal at Mercer. Workers, for their part, may be more likely to move jobs for higher compensation in the face of high inflation and a cost-of-living crisis, in which almost half of Canadians have never been more stressed about money.
One way employers are approaching this retention is by allocating their compensation budgets less equally, said Mr. Lapalme. “Bigger portions of the budgets are being reserved for critical roles, key roles, high performers and successors or potential successors.”
These gaps aren’t new, even if they might widen, said Ms. Nazareth. She called it “the superstars phenomenon: the idea that there are some people who, even in a tough labour market, are able to ask for whatever they want, and whatever working conditions they want, and get it.” She suggested we may see more of this ‘winners and losers’ model in the future.
The Eckler survey found that almost half of employers are providing more training on dealing with compensation-related issues for people managers.
Avery Francis, chief executive officer of Toronto-based human resources consultancy Bloom, said many of her clients need support developing what she called a compensation philosophy. “Leaders need to be empowered with understanding how these decisions are made, where employee costs fit into the overall cost management decision [and] how to best communicate this to the work force,” she said.
And employees are expecting this level of transparency. “It’s not a matter of if pay transparency is going to be more widespread; it’s just a matter of time,” said Mr. Parsan.
Still, the majority of organizations Eckler surveyed are still in the beginning phases of implementing pay transparency. Mr. Parsan said these beginning stages involve making sure existing employees know what salary range they’re in – and having salary bands or ranges determined in the first place. Less than a third of organizations Mercer surveyed agreed “they should have embedded transparency as part of their reward and talent philosophies.”
This is a problem, according to Ms. Francis: “People are speaking more openly about compensation than ever before amongst their peers and people they work with.”
She said managers should be ready for the questions and even conflict that can come from these kinds of conversations among employees, but many are not.
Ms. Francis said she works with many organizations who lack “internal readiness” for pay transparency, either because they don’t have salary bands determined or they don’t have systems for communicating to employees why they’re making the salaries they’re making.
“When a decision is made to manage employee head count or personnel costs, knowing that all areas of the business were assessed fairly and equally will oftentimes support the messaging,” Ms. Francis said. “Whereas if you make these decisions, but you still have CEOs flying first class and going on fancy business lunches, people notice these things and that will break trust.”