Canadian salary increases expected to stay flat in 2017

November 3, 2016

By Sheryl Smolkin

Whether you are early in your career or well-established, pay raises are important. They help you deal with the rising cost of living and are tangible recognition of your progression up the ranks in your organization.

Organizations typically create a “raise pool” which is the number of dollars they budget for all employee salary increases. While base pay may increase by two or three per cent on average, that does not mean that everybody gets the same amount. Depending on performance and other established criteria, employers generally try to give top achievers a bigger piece of the pie.

Aon Hewitt’s 2016 Canadian Salary Increase Survey of 347 companies projects base pay to increase by 2.8% in 2017, up slightly from 2.6% (including salary freezes and pay cuts) in 2016. Spending on variable pay is expected to be 15.4% of payroll —unchanged from 2016.

“The Canadian companies we surveyed are clearly reluctant to earmark higher compensation increases as they prepare for a highly competitive landscape in 2017,” said Suzanne Thomson, Senior Consultant, Global Data Solutions, Aon Hewitt. “On the plus side, fewer of them expect to freeze pay or cut salaries, and they are planning to keep already strong budgets for variable pay intact. That’s a key factor in their ability to attract and retain high performers.”

Fewer salary freezes expected in 2017
Financial challenges were reflected in the number of companies that froze salaries last year, but employers are forecasting fewer freezes in 2017.  Aon Hewitt’s research showed that 4.5% of employers froze 2016 salaries – in part due to continuing challenges in the oil and gas sector, which had the lowest total salary increase (1.2 %) of all surveyed industries after factoring in salary freezes and cuts. Next year, only 0.4% of companies overall expect to freeze salaries.

“For 2017, employers, including those in the oil and gas sector, may be feeling confident that the worst is behind them,” noted Thomson. “From an employees’ perspective, there might not be much upside when it comes to pay increases, but they can find some solace in the fact that the downside might be more limited.”

Salaries by industry 
Aon Hewitt’s research showed that most salary increases across sectors and regions are in line with the national average for 2017. However, workers in several industries can expect slightly higher-than-average or lower-than average increases. Among the former, employees in the automotive and auto-supply, chemicals, consumer products and life sciences sectors are forecast to see pay increases of 3.0% next year, while high-tech and professional services companies are expecting increases of 2.9%. Lower-than-average increases are expected in the oil and gas (2.2%), banking (2.3%) and transportation and logistics (2.1%) sectors.   

Top performers make more, continuing the trend
In 2016, Canadian employers put a premium on performance, allocating higher increases to top employees. Nine out of 10 surveyed organizations reported providing a variable pay plan and bonus payouts in 2016.  Compared with the 2.5% actual increase to all employee groups in 2016, employees classified as high potentials, top performers and those in key positions received an average merit increase of 4.4%.

The trend towards performance-based salary differentiation will continue in 2017, as the average merit increase among those top employee categories is forecast at 4.6%, compared with a 2.7% merit increase across all employee groups.

The average budget for variable pay in 2017 is 15.4%, unchanged from 2016. Two-thirds of organizations reported offering some form of long-term incentive (LTI) plan to their employees, most often at the executive level (72%). Performance-related share grants remain the most popular form of LTI, followed by restricted stock grants. 

“While the overall job market may be strengthening slowly, competition for high-performing employees remains high,” says Thomson. “In order to win the competition for top talent, organizations are continuing to differentiate compensation through variable pay programs.”

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