By Mark Swartz
Canadian Workplace Specialist

2009 was a year in which compensation figured large in the minds of employers, as cost cutting took hold in the wake of our economic slowdown. Wage and hiring freezes were not uncommon.

“The recession obviously had a profound impact on 2009 salary increase budgets,” said Jeff Vathje, Hewitt Associate’s Calgary-based national compensation leader. A year ago, Canadian organizations were forecasting increases of 3.8 percent nationally. However the rate turned out to be just 2.3 percent on average for salary increases last year.

For 2010, Tentative Salary Increases

As the economic downturn recedes, prospects for the New Year are on the rise. “Feedback from employers across the country indicates there is a feeling of guarded optimism with respect to 2010 salary increases and the economy generally,” stated Vathje, commenting on the results of Hewitt’s annual salary survey.

“Half of the respondents indicated that they reduced their 2009 salary increase budgets due to economic conditions, but will increase them in the coming year due to the more favourable outlook.”

Aon Consulting Canada’s 2009 pay survey indicates that employers will be conservative on compensation for 2010. Organizations plan to adjust their salary structures upwards by a modest two percent and award on average a 2.5 percent increase in base salaries. “For employers,” says Scott Bunker, senior vice-president, Human Capital, “the 0.5 percent difference between the structure uplift and actual increase budgets offers a very small margin to work with. That margin is the room they have to reward and move people up through the structure – employers will be faced with difficult decisions if they want to reward their best talent with attractive raises.”

Fewer Freezes

In 2009 there were considerable wage freezes: 35-40 percent of Canadian employers, according to Morneau Sobeco’s 2010 Compensation Trends & Projections survey respondents, depending on the job category. Fewer employers are anticipating freezing wages in 2010 (10-15 percent, depending on job category). Instead, employers are planning to review their salary structures, job evaluation systems and incentive plans in order to better control their compensation costs.

Richard Béliveau, a partner with Morneau Sobeco, indicated that in 2010, concern over labour costs will increase considerably to 34 percent from 23 percent in 2009. HR will be moving from the traditional recruitment/retention issues to more cost control.

Decreased Compensation For Some

Starting salaries in the accounting and finance, information technology (IT), and administrative fields are expected to remain relatively flat or see modest declines in Canada this year, according to the 2010 Salary Guides from Robert Half International.

“Companies will continue to scrutinize expenditures in the coming year and it is evident that this trend is also affecting starting salaries,” said Kathryn Bolt, president of Robert Half International’s Canadian operations. Starting salaries for accounting and finance positions are expected to actually decrease by an average of 0.4 percent over the next 12 months.

The Robert Half survey also concludes that national starting salaries for IT roles are forecast to remain relatively flat with an average decrease of 0.2 percent in 2010. Starting salaries for administrative professionals are projected to decrease by an average of 2.2 percent, however demand is steady for administrative candidates with broad expertise and the ability to multitask.

How Benefits Will Fare

Salary may be the primary component of total compensation, yet benefits can amount to upwards of 40 percent of this overall figure. Here is what’s happening in this realm.

Healthcare and Disability

Although healthcare costs will remain a primary concern for employers, costs have been levelling off over the last five years, with a 12.6 percent annual increase from 1998 to 2002 and a 7.8 percent annual increase from 2003 to 2008, says Joy Sloane, a partner with Morneau Sobeco. For 2010, Sloane predicts an annual increase of about 8%.

Disability management will also be a primary concern for employers in 2010. According to published surveys on disability costs, says Sloane, these costs usually represent about 15% of a company’s total payroll.

Sloane says employers will need to focus on their employees “being healthy at work.” Employers will need an integrated healthcare model, she adds, which will include an employee benefits plan, an absence management program, an employee assistance program and health and wellness regimens.

Pension Plans

While defined benefit (DB) pension plans continue to struggle with solvency, the survey indicates that there’s little interest in converting from DB, says Peter Gorham, a partner with Morneau Sobeco. “Only 5% of respondents [in our annual survey] said they were considering such a move.”

Key issues for pension plans for 2010 include investment performance, followed closely by cost. DB plans will also consider risk management, temporary funding relief measures and the adoption of the new international accounting standards. Capital accumulation plans will focus on lifecycle funds, guaranteed funds, fees and communication with plan members.

Managing Expectations

“The good news is that 61 per cent of organizations in our survey discussed the impact of the recession on salaries with employees,” said Leslie Dutton, a senior communication consultant with Hewitt in Toronto. “The last thing organizations should do in tough times is cut down on or stop communicating. Employees crave information, especially from leaders, to help them make sense of the times and understand how the business is positioned to win, what they need do to help the organization succeed, and what’s in it for them.”

Therefore it’s important to let your staff know what your salary and benefit intentions are for 2010. Be as honest as possible, regardless if you are planning increases, a freeze, or even decreases. “If expectations aren’t managed, organizations run the risk of losing employees they wish to retain,” states Dutton.

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Adding these benefits won’t cost you anything, but will carry value with employees.

Payroll budgets may be more robust than they were a year ago, with some employers even hoping to expand their workforce, but there still isn’t a whole lot of wiggle room for new programs. So, how can employers stand out in an increasingly competitive labour market? Voluntary benefits may be a solution.

A recent poll of 2,500 American employees conducted by Well Point, Inc. shows that voluntary benefits—those that are offered by an employer where the employee pays all or most of the premium—provide employers with an edge when employees weigh the value of their jobs. In fact, 83% of those surveyed think more highly of employers that offer voluntary insurance benefits than those that don’t.

And, almost 90% look for a full range of health benefits (including voluntary ones) when accepting a new position. Fifty-six percent of employees feel this is “very important.”

For organizations that offer a full range of benefits, both employer-paid and voluntary, 82% of employees reported being satisfied with the offerings. That number fell by 30% at companies that don’t offer any type of voluntary benefits.

“The survey findings suggest that employees definitely see the value in voluntary benefits,” says Jeff Spahr, staff vice-president of vision and voluntary services for WellPoint. “Therefore, employers should consider including voluntary insurance as part of their benefits portfolio. Employees expect them, and when they are offered, employees tend to become healthier and more productive at work. Everyone wins.”

He adds, “We want employers to know how important it is to offer competitive benefits packages, and that voluntary benefits are a practical solution and a realistic option.” Although the uptake on voluntary benefits in Canada is much slower than in the U.S., given the current economic state, more employers are looking at implementing them.

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If you are self-employed, incorporated or not, we can help you.

And, if you are a business looking for cost-effective benefit plans for your employees you have also come to the right place.

Although a simple concept, HSA’s are not like traditional benefit plans, and therefore it is sometimes hard to get one’s “head around it”.  Once you see how the program works however, you will gain an appreciation for the cost-effective advantage an HSA provides.

However, for better understanding, it is recommended that we discuss the plan to  ensure all your questions are answered, and you get the components that are important to you. And, if you are a business wishing to offer choice to your employees, we should discuss each employee’s individual needs too.

For your convenience, please fill out the contact request form, located on the ‘Home’ tab.

Looking forward to helping you,

Craig Ferguson

Broker

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