Compensation Planning Outlook 2020

Impact paper October 2019 Preface Acknowledgements

Compensation Planning Outlook 2020 is the The authors acknowledge the input, review, 38th edition of this publication, which summarizes and feedback contributions provided by Darren the results of The Conference Board of Canada’s De Jean and Bryan Benjamin. They also thank annual compensation survey and forecast. Monica Haberl, Brad Seward, Jonathan Francis, In June 2019, a questionnaire was sent to Natalie Arruda, Amanda Holmes, and Leane Swales 2,551 predominately large and medium-sized for their assistance. Canadian organizations operating in a variety of regions and sectors. A total of 326 respondents participated in the survey, for a response rate of 13 per cent. This publication was prepared under the auspices of the Conference Board’s Compensation Research Centre (CRC) and was made possible through the ongoing support of the funding members and survey participants. We owe a special thank you to all the individuals who took the time to answer this year’s comprehensive questionnaire and to the many organizations that participate year after year. Their efforts are very much appreciated, as it is through the commitment of respondents that The Conference Board of Canada is able to produce this report. Contents

i Summary for executives Appendix A ii Key findings 33 Glossary iv Slower economic growth continues 33 Employee group definitions iv Organizations facing human 33 Base pay increase definitions capital challenges Appendix B v What page is that on? 34 Respondent profile 1 Section 1: Compensation planning Appendix C 2 Key findings 36 Participating organizations 2 Managing base pay 8 Incentive pay Appendix D 41 Bibliography 17 Section 2: Collective bargaining 18 Key findings 18 Wage increases 19 Short-term incentive pay 19 Negotiation issues

21 Section 3: Human capital and talent trends 22 Key findings 22 Rewards strategies and priorities 23 Managing performance 25 Recruitment and retention 26 Turnover 29 Retirement 31 Employee absences Compensation Planning Outlook 2020 Summary for executives Key findings

• Organizations are planning moderate base salary increases for 2020, with the average base pay increase for non-unionized employees projected to be 2.5 per cent.

• Projected increases are highest in the pharmaceutical and chemical industry (2.9 per cent) and lowest in education (2.1 per cent).

• Short-term incentive plans remain an important part of the total rewards package. Over three-quarters of survey respondents (79 per cent) have at least one of these plans in place.

• Looking ahead to 2020, 18 per cent of compensation planners expect the size of their workforce to increase, with 7 per cent anticipating workforce reductions. Summary for executives | The Conference Board of Canada

Real GDP in Canada is forecast to remain below the 2.0 per cent mark over the near term. This is due to several factors, including weak export and investment spending linked, in part, to the ongoing global trade tensions.1 As economic growth slows, organizations are planning moderate salary increases for next year.

The average pay increase for non-unionized • Negotiated base wage increases for unionized employees is projected to be 2.5 per cent in employees are anticipated to be 1.9 per cent in 20202—slightly higher than the 2.0 per cent 2020. Public sector negotiated wage increases inflation forecast for the year ahead.3 are projected to be 1.8 per cent, slightly lower than the expected average increase of 1.9 per Salary increases are expected to vary by region, cent in the private sector. sector, and industry: This year, 82.0 per cent of employees received • Regionally, Saskatchewan leads with the highest a base salary increase, similar to last year projected base salary increase at 2.9 per cent. (81.2 per cent). Among those receiving increases, • The lowest base salary increases are expected the average increase was 2.9 per cent. Only 2 per in Alberta at 2.2 per cent. cent of organizations are planning to implement • Private sector salary increases are expected a salary freeze in 2020, down from 4 per cent to be 2.6 per cent in 2020, while the average in 2019. increase for employees in the public sector4 is expected to be 2.4 per cent. Average increases to salary ranges (or • Projected increases are highest in the “structures”) are expected to be 1.4 per cent pharmaceutical and chemical industry, at 2.9 per next year, the same as the average reported cent, and lowest in education, at 2.1 per cent. range increase in 2019. Among organizations with salary structures in place, 28 per cent held ranges constant in 2019 and 23 per cent are planning to do so in 2020.

1 Conference Board of Canada, The, Canadian Outlook Executive Summary: Autumn 2019. 2 Unless stated otherwise, all average salary increase percentages reported in the text include zero per cent increases. For averages excluding zero per cent increases, please consult tables 1–4. 3 Conference Board of Canada, The, Canadian Outlook Executive Summary: Autumn 2019. 4 The public sector includes federal and provincial government departments, agencies, and Crown corporations; municipalities; hospitals; and universities and colleges.

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all bad. Strong population and income growth will continue to drive demand for housing and 2020 by the numbers for household goods and services.

Canada’s labour market remains in good shape, 2.5%—average non- unionized projected as the economy has generated 304,000 new 6 salary increase jobs since the beginning of this year. The labour market is expected to weaken over the rest of 2019 and into the first quarter of 2020, 2.9%—highest projected as Canada’s population cannot support the salary increase by industry (pharmaceutical job growth seen this year on a sustainable and chemical) basis. Not only is Canada facing a retirement surge that is slowing labour force growth, but weaker economic growth will ease firm hiring. 1.4%—average projected The unemployment rate will continue to decline increase to salary ranges over the near term and average 5.6 per cent in 2020.7

The majority of organizations are relatively 2.0%—forecast inflation optimistic about business conditions in 2020, with 78 per cent expecting conditions to improve or stay the same. Only 5 per cent expect Source: The Conference Board of Canada. conditions to deteriorate, while the remaining 17 per cent are unsure what to expect.

Slower economic Organizations facing growth continues human capital challenges

The Canadian economy is set for a period Results from this year’s survey indicate that of slower growth due to weakness in the 62 per cent of organizations are experiencing global economy and global trade tensions. difficulty recruiting and/or retaining particular Overall, real GDP is forecast to expand by skills, similar to the 64 per cent that reported 1.6 per cent in 2019 and 1.8 per cent in 2020.5 these challenges last year. Organizations in However, news on the economic front is not Ontario are feeling stretched, with 54 per cent

5 Conference Board of Canada, The, Canadian Outlook Executive Summary: Autumn 2019. 6 Ibid. 7 Ibid.

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reporting difficulties. In Quebec, where labour of immigration.8 Looking ahead to 2020, 18 per markets are expected to tighten further, the share cent of organizations expect their workforce of organizations reporting challenges increased to increase by an average of 7.5 per cent, 7 per from 42 per cent in 2018 to 48 per cent this year. cent are expecting a decrease in the size of their workforce, and the majority (64 per cent) are Voluntary turnover in the most recent 12 months expecting no significant change. was 8.9 per cent—up from 8.1 per cent last year and 7.1 per cent in 2017, suggesting that In the past few years, we have seen organizations workers are feeling more comfortable changing hold closely to their budgets and provide employers. The overall voluntary turnover rate increases that have been among the lowest increased slightly, going from 4.0 per cent last over the past 20 years. For 2020, compensation year to 4.2 per cent in 2019. planners continue to offer moderate wage increases that remain ahead of inflation. Retirement rates continue to rise. An average While these small increases in real wages of 2.4 per cent of the workforce retired last should benefit household income and consumer year and projections for next year currently sit spending, labour markets are tightening, and at 3.0 per cent. Despite rising retirement rates, Canadian employers will need to invest and employment rates are up 2.4 per cent since last focus on productivity improvements in order year, thanks to higher workforce participation to remain competitive. rates among many age groups and higher levels

What page is that on?

2 Base pay increases for 23 Performance management non‑unionized employees 25 Recruitment and retention challenges 8 Incentive plans for non‑unionized employees 26 Employee turnover 18 Base pay increases for 29 Retirement rates unionized employees 31 Employee absence rates 19 Incentive plans for unionized employees 19 Collective bargaining negotiation issues

8 Statistics Canada, “Labour Force Survey, September 2019.”

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Key findings

• Organizations are planning moderate salary increases for 2020. The average pay increase for non-unionized employees is projected to be 2.5 per cent—similar to the actual increase of 2.6 per cent in 2019.

• Most organizations are planning salary increases for 2020, with only 2 per cent of organizations anticipating a base salary freeze for all employees, down from 4 per cent that froze salaries in 2019.

• Seventy-nine per cent of surveyed organizations have short-term incentive pay plans— typically cash bonuses or incentives—with an average cost of 11.0 per cent of total base pay spending in 2019. Incentive payouts in 2019 met or exceeded targets for more than half of employees across all employee groups.

Managing base pay

Salary increases Eighty-two per cent of employees received a The average pay increase for non-unionized base salary increase in 2019, similar to last year employees is projected to be 2.5 per cent in (81.2 per cent). Among employees who received 2020—slightly higher than the 2.0 per cent a raise, the average increase was 2.9 per cent. total inflation forecast for the year ahead.1 Average range (or “structure”) increases are (See Chart 1.) expected to be 1.4 per cent in 2020, the same range movement we have seen this year. The overall average salary increase in 2019 was 2.6 per cent—slightly higher than what The public sector anticipates an increase of compensation planners anticipated last year. 2.4 per cent in 2020, while the private sector These salary increases are holding steady, expects an increase of 2.6 per cent. These are remaining among the lowest in the past 20 years. slightly lower than the actual increases in 2019 Among organizations providing increases in (which were 2.5 per cent for the public sector 2019, more than half (56 per cent) are providing and 2.7 per cent for the private sector). While increases between 2 and 3 per cent—similar there are regional variations in pay projections, to what is planned for 2020. (See Chart 2.) they are not as significant as they have been

1 Conference Board of Canada, The, Canadian Outlook Executive Summary: Autumn 2019.

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Chart 1 Inflation vs. increases (percentage change)

Inflation rate Salary increases for non-unionized employees Forecast 5

4

3

2

1

0 1999 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19f 20f

f = forecast Note: Salary increases for non-unionized employees for 2019 (actual) and 2020 (projected) are from the Compensation Planning Outlook 2020 Survey. Sources: The Conference Board of Canada; Employment and Social Development Canada.

Chart 2 in the past. (See Exhibit 1.) At 2.8 per cent, salary Base salary increase distribution projections in the Atlantic provinces are higher (percentage of organizations; non-unionized employees) than we’ve seen in recent years, likely due to

2019 actual (n = 277) strong economic growth in the region and record levels of international migration.2 From an industry 2020 projected (n = 254) standpoint, organizations in pharmaceutical and 1 .01−.99 chemical products are projecting the highest 2 increases at 2.9 per cent. (See tables 1–4.) 12 1.0−1.99 11 56 Just over a quarter (28 per cent) of organizations 2.0−2.99 52 with salary range structures held ranges constant 23 3.0−3.99 31 in 2019, and, looking ahead to 2020, 23 per cent 3 are planning to hold their ranges constant. Only 4.0−4.99 4 2 per cent of organizations are planning a salary 4 5.0 or more 1 freeze in 2020, down from 4 per cent that froze salaries in 2019. 0 10 20 30 40 50 60 At the time of the survey, most organizations Note: Totals may not add to 100 due to rounding. (84 per cent) were still working with preliminary Source: The Conference Board of Canada. salary budgets, with nearly all (94 per cent) planning to provide annual salary increases on a fixed date as opposed to on an anniversary date.

2 Ibid.

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Exhibit 1 2020 projected salary increases (n = 317; per cent; non-unionized employees)

2.5% Canadian average

British Columbia 2.8%

Alberta 2.2% Manitoba 2.3% Quebec 2.8% Saskatchewan Ontario 2.9% 2.5% Atlantic provinces 2.8%

Source: The Conference Board of Canada.

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Table 1 2019 actual and 2020 projected compensation increases: non-unionized employees, by employee group* (per cent)

2019 actual 2020 projected Average Average salary increase Average Average salary increase range increase among all employees range increase among all employees Average percentage Average salary 2019 average zeros zeros of employees increase for those zeros zeros base salary zeros zeros zeros zeros included excluded receiving an increase receiving one included excluded (CDN$) included excluded included excluded Overall 1.4 1.9 82.0 2.9 2.6 2.7 n.a. 1.4 1.8 2.5 2.6 Senior executives 1.2 2.0 73.9 3.1 2.7 3.2 300,044 1.3 1.9 2.5 2.8 Executives 1.2 2.0 77.1 2.9 2.6 2.8 206,921 1.3 1.9 2.5 2.7 Management 1.4 2.0 85.6 3.0 2.7 2.8 122,719 1.5 1.9 2.6 2.7 Professional—technical 1.5 2.0 83.1 2.9 2.6 2.8 92,434 1.5 2.0 2.5 2.7 Professional—non-technical 1.4 2.0 83.0 3.0 2.6 2.8 85,547 1.4 1.8 2.6 2.7 Technical and skilled trades 1.6 2.2 83.5 2.8 2.5 2.7 76,327 1.4 1.9 2.6 2.7 Clerical and support 1.5 2.1 83.1 2.8 2.5 2.6 57,386 1.4 1.8 2.6 2.7 Service and production 1.4 2.0 83.1 2.9 2.6 2.7 59,583 1.5 1.9 2.6 2.6

*Employee group definitions Terms Senior executives: All executives reporting directly to the CEO. Range increase: Percentage increase to salary ranges (salary structure) among organizations with ranges Executives: All other executives. (often associated with increase to cost of living, or economic adjustment). Management: Senior and middle management who plan, develop, and implement policies and programs. Percentage of employees receiving an increase: Percentage of employees receiving a base salary increase, Professional—technical: Engineers, information technology specialists, developers, etc. as a percentage of all employees in category. Professional—non-technical: All other professionals, such as accountants, lawyers, and doctors, Average salary increase for those receiving one: The total percentage increase to base salary from all excluding sales. sources—range, merit, economic, and progression (excluding increases due to promotions). Does not include Technical and skilled trades: Technologists, technicians, millwrights, etc. employees receiving a zero per cent increase. Clerical and support: Administrative staff, clerks, coordinators, assistants, etc. Average salary increase among all employees: The total percentage increase to base salary from all Service and production: Employees providing service, production, maintenance, transportation, etc. sources—range, merit, economic, and progression (excluding increases due to promotions). Includes employees receiving a zero per cent increase. n.a. = not applicable Average base salary: The average annual base salary in dollars after the increases have been applied. Note: Due to large market adjustments, two organizations were removed from the 2019 sample and one organization from the 2020 sample; “zeros” refers to organizations that reported a zero per cent increase. Source: The Conference Board of Canada.

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Table 2 2019 actual and 2020 projected compensation increases: non-unionized employees, by industry (per cent)

2019 actual 2020 projected Average salary Average salary Average Average increase among Average increase among percentage Average salary range increase all employees range increase all employees of employees increase zeros zeros receiving an for those zeros zeros zeros zeros zeros zeros n included excluded increase receiving one included excluded included excluded included excluded Overall 317 1.4 1.9 82.0 2.9 2.6 2.7 1.4 1.8 2.5 2.6 Pharmaceutical and chemical 7 2.0 2.0 92.1 2.7 2.6 2.6 2.3 2.3 2.9 2.9 Insurance and real estate 23 1.4 2.2 86.6 3.0 2.6 2.6 1.3 1.9 2.8 2.8 Power and utilities 18 1.0 1.5 83.7 3.1 2.8 2.8 1.0 1.5 2.8 2.8 Services—accommodation, tourism, food, 16 0.9 1.9 81.1 3.3 3.1 3.4 1.7 2.1 2.8 2.8 entertainment, and personal Government 30 1.4 1.8 84.5 3.0 2.6 2.8 1.4 1.7 2.7 2.7 Mining, forestry, and agriculture 12 1.9 2.5 91.4 3.3 3.1 3.1 2.2 2.7 2.7 2.7 Food and beverage 6 1.8 2.2 92.7 3.0 2.7 2.7 1.1 1.9 2.6 2.6 Not-for-profit (associations, foundations, charities, etc.) 26 1.4 1.8 86.3 3.0 2.8 2.9 1.4 1.8 2.6 2.7 Services—professional, scientific, and technical 20 1.5 2.1 83.5 3.2 2.9 2.9 1.5 2.0 2.6 2.6 Transportation and warehousing 15 1.3 1.8 88.8 2.9 2.5 2.5 1.6 1.9 2.6 2.6 Wholesale trade 6 1.7 1.7 91.5 3.0 2.2 2.7 1.8 1.8 2.5 2.5 Finance 41 1.3 2.1 78.1 2.8 2.5 2.7 1.4 1.7 2.4 2.5 Communications, telecommunications, and media 10 2.3 2.5 87.6 2.7 2.4 2.4 1.1 1.1 2.4 2.4 Construction 10 1.0 1.5 78.2 3.0 2.4 2.4 1.6 1.6 2.4 2.4 Manufacturing 15 1.7 2.0 80.9 2.7 2.4 2.4 1.7 2.1 2.4 2.4 Oil and gas 22 1.3 2.2 69.9 2.8 2.5 2.8 0.9 1.6 2.4 2.7 Technology 10 2.1 2.4 73.6 2.8 2.6 3.0 0.7 * 2.4 2.8 Health 8 0.5 1.2 61.0 1.9 1.8 2.4 * * 2.3 2.8 Retail trade 11 1.2 1.9 83.8 2.9 2.3 2.3 1.2 1.6 2.2 2.2 Education 11 1.2 1.2 76.8 2.8 2.7 2.7 1.0 1.3 2.1 2.1

*sample size too low to report Note: Due to large market adjustments, two organizations were removed from the 2019 sample and one organization from the 2020 sample; sample sizes indicate the number of organizations providing a response for at least one actual or projected increase; “zeros” refers to organizations that reported a zero per cent increase. Source: The Conference Board of Canada.

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Table 3 2019 actual and 2020 projected compensation increases: non-unionized employees, by sector (per cent)

2019 actual 2020 projected Average Average salary increase Average Average salary increase range increase among all employees range increase among all employees Average percentage Average salary zeros zeros of employees increase for those zeros zeros zeros zeros zeros zeros n included excluded receiving an increase receiving one included excluded included excluded included excluded Overall 317 1.4 1.9 82.0 2.9 2.6 2.7 1.4 1.8 2.5 2.6 Private sector 238 1.4 2.0 83.9 3.0 2.7 2.7 1.4 1.8 2.6 2.6 Public sector 79 1.3 1.7 76.3 2.7 2.5 2.7 1.3 1.8 2.4 2.6

Note: Due to large market adjustments, two organizations were removed from the 2019 sample and one organization from the 2020 sample; sample sizes indicate the number of organizations providing a response for at least one actual or projected increase; “zeros” refers to organizations that reported a zero per cent increase. Source: The Conference Board of Canada.

Table 4 2019 actual and 2020 projected compensation increases: non-unionized employees, by region (per cent)

2019 actual 2020 projected Average Average salary increase Average Average salary increase range increase among all employees range increase among all employees Average percentage Average salary zeros zeros of employees increase for those zeros zeros zeros zeros zeros zeros n included excluded receiving an increase receiving one included excluded included excluded included excluded Overall 316 1.4 1.9 82.0 2.9 2.6 2.7 1.4 1.8 2.5 2.6 Atlantic provinces 12 1.3 1.6 89.4 2.8 2.5 2.5 1.5 1.7 2.8 2.8 Quebec 24 1.7 1.7 89.8 3.0 2.8 2.8 1.8 1.9 2.8 2.8 Ontario 151 1.4 2.0 85.2 2.9 2.6 2.7 1.3 1.8 2.5 2.5 Manitoba 12 1.6 1.8 85.6 2.8 2.6 2.6 1.6 1.6 2.3 2.3 Saskatchewan 20 1.3 1.8 92.2 3.2 2.9 2.9 1.5 1.6 2.9 2.9 Alberta 65 1.1 2.0 69.0 2.6 2.3 2.7 0.9 1.6 2.2 2.5 British Columbia 32 1.4 2.0 79.4 3.3 2.9 3.0 2.0 2.5 2.8 2.8

Note: Due to large market adjustments, two organizations were removed from the 2019 sample and one organization from the 2020 sample; organizations based in the territories were removed from the analysis due to low sample size; sample sizes indicate the number of organizations providing a response for at least one actual or projected increase; “zeros” refers to organizations that reported a zero per cent increase. Source: The Conference Board of Canada.

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Differentiating base pay Incentive pay Base pay is often used as a tool to motivate and reward performance. Nearly three-quarters Short-term incentive plans (71 per cent) of organizations surveyed link base Short-term incentive plans (STIPs) are common pay to performance. In 2019, “top” performers among Canadian organizations. Just over three- received an average increase of 4.0 per cent, quarters (79 per cent) of survey respondents have compared with 2.6 per cent for “satisfactory” at least one STIP in place. (See Table 5.) These performers and 0.7 per cent for “poor” plans are most prevalent in the private sector, performers. (See Chart 3.) where 91 per cent of organizations report having at least one plan in place. By comparison, just Eighty-six per cent of organizations reward under a half of public sector organizations (46 per top performers with base pay increases that cent) have one or more short-term incentive plans are up to twice the average increase given in place. The most common STIP type is individual to satisfactory performers. Thirteen per cent cash bonus or incentive plans. (See Chart 4.) reward top performance with increases between two and three times the average increase for Chart 4 satisfactory performance. The remaining 1 per Short-term incentive plan types cent of organizations reported that the average (n = 236; per cent)* base pay increases for their top performers Individual cash 90 are more than three times those given to bonus/incentive satisfactory performers. Team-based incentive 12

Profit-sharing 12 Chart 3 Gainsharing 7 Average salary increase by performance group (n = 187; per cent) 0 20 40 60 80 100

*based on organizations that have at least one short-term incentive plan Top performers 4.0 in place Source: The Conference Board of Canada. Satisfactory performers 2.6

Poor performers 0.7 Looking at 2019 STIP payouts across employee 0 1 2 3 4 5 groups, the majority of average actual payouts3 Note: Sample size indicates the number of organizations providing met or exceeded targets for every employee a response for at least one performance group. Source: The Conference Board of Canada. group. (See Table 6.) The percentage of eligible employees receiving payouts varies slightly by employee group, ranging from 90 per cent to 99 per cent. In 2019, the cost of short-term incentive plans averaged 11.0 per cent of total base pay spending—slightly more than the 10.5 per cent that was planned for the year.

3 Actual and target payouts are measured as a percentage of base pay.

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Individual cash bonus plan: A plan formula for allocating profit shares among designed to reward the accomplishment participants and for distributing funds of specific results. Rewards are usually accumulated under the plan. However, tied to expected results identified at the some plans are discretionary. beginning of the performance cycle. Gainsharing plan: Any one of a number Team-based incentive plan: An incentive of incentive programs designed to share program that focuses on the performance the results of productivity gains with of a group or work team. employees as a group.

Profit-sharing plan: A plan providing Source: WorldatWork, 2014 and 2018. for employee participation in an organization’s profits. The plan normally includes a predetermined and defined

Short-term incentive plans by the numbers in 2019

have at least 60% or more paid out at or above 79% one plan in place. target across all employee groups. 11.0% is the average cost of Of these: short‑term incentive plans as a percentage of total base pay 54% link short-term incentives to spending in 2019. performance management results. Source: The Conference Board of Canada. 83% provide top performers with short- term incentive payouts that are twice that of satisfactory performers.

13% provide top performers with short-term incentive payouts that are two to three times that of satisfactory performers. Compensation Planning Outlook 2020 Compensation planning

Table 5 Prevalence of short-term incentive plans, by sector and employee group (percentage of organizations; non-unionized employees) All organizations Only organizations with short-term incentive plans in place* Private sector Public sector Overall Private sector Public sector Overall (n = 242) (n = 84) (n = 326) (n = 219) (n = 39) (n = 258) Overall 91 46 79 100 100 100 Senior executives 87 45 75 97 97 97 Executives 86 42 74 96 97 96 Management 87 43 75 96 92 95 Professional—technical 82 24 67 91 62 87 Professional—non-technical 80 31 68 89 73 87 Technical and skilled trades 64 10 50 74 46 72 Clerical and support 73 29 62 81 66 79 Service and production 61 7 48 70 33 67

*based on organizations that reported having a short-term incentive plan(s) in place for at least one employee group Note: Overall prevalence of incentive plans refers only to ongoing plans. Source: The Conference Board of Canada.

Table 6 Annual short-term incentive plan targets and payouts, by employee group (percentage of base salary, non-unionized employees) 2019 payouts* 2020 projected payouts** Target Actual Eligible for Receiving Fell short Met Exceeded Target Plan n payout payout payouts payouts*** n of target target target n payout maximum Senior executives 170 45.3 52.4 99.1 96.0 151 32 18 50 152 45.7 76.2 Executives 161 31.5 34.6 98.5 96.0 142 34 13 54 142 32.8 57.2 Management 195 16.7 18.2 96.1 94.3 172 34 18 48 169 18.8 32.1 Professional—technical 151 11.3 12.8 94.2 93.1 133 34 20 47 128 14.1 24.0 Professional—non-technical 156 10.5 12.4 94.5 92.5 139 32 17 50 132 13.3 25.0 Technical and skilled trades 80 7.9 10.3 95.5 95.6 70 30 27 43 67 12.2 23.5 Clerical and support 148 6.7 8.7 96.0 92.0 132 32 24 44 127 9.6 16.3 Service and production 73 6.8 10.1 90.6 92.4 63 40 14 46 60 10.1 19.3

*2019 payouts refer to payouts based on 2018 results, paid in 2019. Sample size indicates the number of organizations providing a response for target payout for that employee group **2020 projected payouts refer to payouts based on 2019 results, to be paid in 2020. Sample size indicates the number of organizations providing a response for target payout for that employee group ***based on the percentage of employees eligible in category Note: Totals may not add to 100 due to rounding. Source: The Conference Board of Canada.

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In 2020, organizations expect to spend 10.6 per Chart 5 cent as a percentage of total base pay spending Average short-term incentive payout, on short-term incentive pay. by performance group (n = 110; per cent) Nearly a third (29 per cent) of organizations are adjusting 2020 payout targets for at least Top performers 14.2 Satisfactory performers 9.3 one of their employee groups. (See Table 7.) Poor performers 3.8 Overall, target adjustments are expected to be greatest for employees in technical and skilled 0 4 8 12 16 trades positions. Note: Sample size indicates the number of organizations providing a response for at least one performance group. Targets vary widely across employee groups and Source: The Conference Board of Canada. industries when comparing short-term incentive pay. Senior executives and executives have the highest targets across the board. Despite the Medium-term incentive plans challenging operating environment over the past Ten per cent of organizations have “medium- few years, oil and gas companies continue to term” or “mid-term” pay plans that pay out set some of the highest targets overall and do after two or three years. While this type of plan so across many employee groups, revealing the continues to be less common than short- or long- importance of incentive pay for organizations in term plans, they are more common in the private this industry. (See Table 8.) sector than in the public sector (13 per cent vs. Over half (54 per cent) of organizations with 2 per cent), in line with what has been reported in at least one short-term incentive pay plan link recent years. performance to STIP payouts. In 2019, the average short-term incentive payout for top Long-term incentive plans performers was 14.2 per cent, compared with As with medium-term incentive plans, the 9.3 per cent for satisfactory performers and prevalence of long-term incentive plans (LTIPs) 3.8 per cent for poor performers. (See Chart 5.) remains relatively stable. Forty per cent of The majority (83 per cent) of these organizations organizations surveyed have these plans in place, provide outstanding or top performers with short- and an additional 2 per cent are considering term incentive payouts that are up to twice the putting them in place for the upcoming year. amount provided to satisfactory performers. (See Table 9.) Once again, this figure is influenced Thirteen per cent provide short-term incentive mostly by the prevalence of LTIPs in the private payouts that are two to three times the average sector, where half of organizations reported payout for satisfactory performance, and 4 per having LTIPs in place, compared with only 11 per cent offer more than three times the typical cent in the public sector. Many publicly traded payout to their top performers. firms offer long-term incentives (83 per cent), as do those that are controlled by a publicly traded company (86 per cent).

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Table 7 Short-term incentive plan target adjustments, by employee group (per cent; non-unionized employees)* Average Average Overall average Adjusting target Increasing target increase Decreasing target decrease target movement** Senior executives 19 9 15.3 10 12.8 0.8 Executives 17 8 22.4 9 8.2 5.8 Management 19 12 19.5 7 5.7 10.0 Professional—technical 16 9 35.3 8 5.0 16.1 Professional—non-technical 21 12 24.4 9 3.7 12.4 Technical and skilled trades 21 12 33.1 9 1.9 18.1 Clerical and support 23 13 24.2 10 2.1 12.4 Service and production 27 15 20.2 12 1.3 10.8

*based on organizations providing 2019 and 2020 targets **average target movements are based on data provided by organizations adjusting targets Note: Percentage increasing and decreasing may not add to percentage adjusting target due to rounding. Source: The Conference Board of Canada.

Table 8 2020 short-term incentive plan targets for select industries, by employee group (percentage of base salary; non-unionized employees) Services— Insurance and Power and accommodation, tourism, food, Transportation Construction Finance real estate Manufacturing Oil and gas utilities entertainment, and personal Technology and warehousing (n = 8) (n = 28) (n = 18) (n = 9) (n = 18) (n = 15) (n = 12) (n = 8) (n = 10) Senior executives 52.2 51.6 47.2 * 74.2 35.0 32.0 45.0 32.0 Executives 47.9 36.3 34.1 29.3 47.4 21.4 31.4 32.2 25.3 Management 20.0 22.1 18.2 15.3 27.9 13.0 21.9 16.4 15.2 Professional—technical 12.9 16.4 16.3 8.7 20.3 11.7 24.4 11.0 10.9 Professional—non-technical 8.5 15.2 16.4 6.7 19.7 10.2 24.4 10.2 11.0 Technical and skilled trades * 7.0 21.6 * 16.7 * * * 9.8 Clerical and support 4.4 10.8 11.3 5.3 14.8 6.7 21.2 6.5 7.6 Service and production * 6.2 22.3 * 10.9 * * * *

*sample size too low to report Note: Sample size indicates the number of organizations providing a response for target payout for at least one employee group. Source: The Conference Board of Canada.

Find Conference Board research at conferenceboard.ca. 12 Long-term incentive plan definitions

Performance share plans/units Phantom share plan: A type of incentive (PSUs): Grants of actual shares of grant in which the recipient is not issued stock, with payment that is contingent actual shares of stock on the grant date, on performance as measured against but receives an account credited with a predetermined objectives over a multi- certain number of hypothetical shares. year period of time. The value paid, however, will fluctuate in line with changes Stock grants: Plan that provides stock in the stock price. to employees without any cost to them— typically as either stock-appreciation Restricted share units (RSUs): grants or full-value grants. Represent a promise by the employer to pay the employee a set number of Restricted stock: Grants of shares of a shares of company stock in the future company’s stock, which are subject to upon completion of a vesting schedule. restrictions on sale and risk of forfeiture Employees are assigned a number of until vested by continued employment. units that represent his or her interest in the stock. Stock appreciation rights: Permits the optionee to receive the appreciation of Traditional stock options: A contractual fair market value over option price in right to purchase a specific number stock and/or cash without providing funds of shares of the company’s stock at a to pay the option price. specified price for a specified period of time. Performance-contingent stock options: Grants of dollar-dominated units with a Long-term cash: Cash awards in which value that is contingent on performance payment is contingent on performance as as measured against predetermined measured against predetermined financial objectives over a multi-year period of or strategic objectives over a multi-year time. Actual payouts may be in cash, period of time. stock, or a combination.

Deferred share units (DSUs): A profit- Performance-accelerated stock sharing plan providing for employee options: A restricted stock award participation in the profits of an or grant that vests over time based organization. The funds are deferred on employment. However, vesting can as a qualified retirement program and occur at an accelerated basis if pre- are distributed in cash or in a cash/ set and stated performance objectives deferred combination. are reached.

Source: WorldatWork, 2007, 2009, and 2018. Compensation Planning Outlook 2020 Compensation planning

Table 9 Prevalence of long-term incentive plans, by sector and employee group (percentage of organizations; non-unionized employees)

All organizations Only organizations with long-term Private sector Public sector Overall incentive plan(s) in place* (n = 242) (n = 84) (n = 326) (n = 130) Overall 50 11 40 100 Senior executives 52 11 41 98 Executives 46 10 36 85 Management 19 7 16 39 Professional—technical 5 1 4 11 Professional—non-technical 4 3 4 10 Technical and skilled trades 2 0 2 5 Clerical and support 2 3 2 6 Service and production 2 2 2 4

*based on organizations that reported having a long-term incentive plan(s) in place for at least one employee group Note: Overall prevalence of incentive plans refers only to ongoing plans. For the purposes of this question, any ad hoc rewards of stock options or grants are excluded. Source: The Conference Board of Canada.

Table 10 Long-term incentive plan eligibility and grant value of 2019 LTI awards (per cent; non-unionized employees)

n Employees eligible Employees receiving* n Average grant value** Senior executives 90 93.9 93.5 83 113.1 Executives 73 91.6 92.6 72 65.5 Management 41 71.6 73.0 39 38.2 Professional—technical 11 62.3 71.8 9 29.8 Professional—non-technical 10 67.1 55.3 7 29.6 Other non-unionized 3 67.7 100 3 *

*based on the percentage of employees eligible in category **as a percentage of base pay Source: The Conference Board of Canada.

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The four most common long-term incentive In most organizations, eligibility for long-term plan types include performance share plans/ incentives continues to reside primarily among units (PSUs) (51 per cent), restricted share units the senior executive and executive ranks. (RSUs) (39 per cent), traditional stock options The average grant value of long-term incentives (38 per cent), and long-term cash (35 per cent). for senior executives is 113.1 per cent of base (See Chart 6.) The top four plan types have salary (up from 101.3 per cent last year). remained unchanged since 2004. Executives can expect a grant value of 65.5 per cent of base pay. (See Table 10.)

Chart 6 Long-term incentive plan types Distribution of direct (n = 114; per cent)* compensation Performance share plan/ 51 Base pay generally represents the most units (PSUs) significant component of total direct Restricted share units (RSUs) 39 compensation, particularly in the public sector. Traditional stock options 38 The proportion of compensation represented Long-term cash 35 by short-, medium-, and long-term incentives Deferred share units (DSUs) 10 remains relatively steady, compared with the past Phantom share plan/ 4 two years. (See Chart 7.) phantom rights Stock grants 3 In an effort to account for regional differences

Restricted stock 3 in the cost of living, some organizations adjust

Stock appreciation rights 2 their rates of pay based on the area in which Performance-contingent their employees operate. Twenty per cent of 1 stock options responding organizations use regional rates of Performance-accelerated 1 stock options pay. Similar to last year, the highest rates of pay

0 10 20 30 40 50 60 were reported in the capitals of the territories and Western Canada, particularly in Fort McMurray, *based on organizations that have at least one long-term incentive plan Edmonton, and Calgary. (See Chart 8.) There has in place Source: The Conference Board of Canada. been little change in recent years in the average rates of pay for the regions surveyed.

Find Conference Board research at conferenceboard.ca. 15 Compensation Planning Outlook 2020 Compensation planning

Chart 7 Chart 8 Distribution of total direct compensation, Regional compensation levels by sector* (Toronto index = 100) (percentage of total direct compensation) 102 Whitehorse (n = 9) 90 124 Base pay Medium-term incentives 104 Short-term incentives Long-term incentives Yellowknife (n = 10) 90 134 101 Public sector Vancouver (n = 40) 90 120 103 93 95 100 87 89 Calgary (n = 47) 85 130 80 102 Edmonton (n = 39) 92 120 60 103 40 Fort McMurray (n = 25) 90 120 17 98 20 15 10 6 0 4 0 3 0 1 0 0 Regina (n = 29) 85 120 0 98 Saskatoon (n = 29) 85 120 Senior executives Executives Management Professional (n = 67) (n = 59) (n = 66) (n = 65) 94 Winnipeg (n = 35) 80 100 98 Ottawa (n = 39) 85 110 Private sector 98 100 88 Montréal (n = 41) 88 105 83 80 90 67 Moncton (n = 30) 75 95 58 60 91 40 Halifax (n = 35) 75 100 23 24 21 16 90 20 14 7 6 10 Charlottetown (n = 18) 82 95 4 2 1 1 0 90 St. John’s (n = 26) 70 100 Senior executives Executives Management Professional (n = 157) (n = 147) (n = 177) (n = 174) 60 80 100 120 140

*refers to the desired distribution of total direct compensation components Note: Regional pay data for Iqualuit were removed due to small sample size. based on the design of the total direct compensation strategy Source: The Conference Board of Canada. Note: Direct compensation can be defined as all compensation that is paid directly to the employee through base salary and incentives. Totals may not add to 100 due to rounding. Source: The Conference Board of Canada.

Find Conference Board research at conferenceboard.ca. 16 Section 2 Collective bargaining Compensation Planning Outlook 2020 Collective bargaining

Key findings

• The average wage increase negotiated among unionized employees for 2020 is projected to be 1.9 per cent. The average negotiated increase for 2019 was also 1.9 per cent.

• Just under a third (30 per cent) of respondents have short-term incentive pay plans for their unionized employees. Unionized employees in these organizations received payouts averaging 5.8 per cent of base pay in 2019.

• Wages remain the key bargaining issue for both management and unions.

Wage increases

For unionized employees, average negotiated (2.1 per cent). The private sector’s 2020 projected wage increases for 2020 are expected to be average increase of 2.4 per cent is equivalent to 1.9 per cent. (See Table 11.) Unionized employees actual increases of 2.4 per cent provided in 2019. in the public sector can expect base wage increases averaging 1.8 per cent, compared with 1.9 per cent in the private sector. Chart 9 Base wage increase distribution The average negotiated wage increase in (percentage of organizations; unionized employees) 2019 was also 1.9 per cent, with the bulk of 2019 actual (n = 72) organizations providing increases between 2 and 2020 projected (n = 63) 3 per cent. (See Chart 9.) Negotiated increases in the public sector were 1.8 per cent, compared 3 .01−.99 with 2.0 per cent in the private sector. 0 35 1.0−1.99 38 Organizations were asked to provide overall 60 2.0−2.99 salary increases (as a percentage of base) 62 1 for unionized employees (including negotiated 3.0−3.99 0 increases, in-range adjustments, merit, 0 4.0−4.99 step progression, etc.). The overall increase 0 1 for unionized employees in 2019 averaged 5.0 or more 0 2.2 per cent and is projected to be the same (2.2 per cent) in 2020. The public sector reported 0 10 20 30 40 50 60 70 an increase for 2019 (2.0 per cent) that is Note: Totals may not add to 100 due to rounding. slightly lower than what it anticipates for 2020 Source: The Conference Board of Canada.

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Table 11 Average base wage increases; unionized employees* (per cent)

Average no. of years in contract Year 1—2019 Year 2—2020 Year 3—2021 Year 4—2022 Year 5—2023 (n = 75) (n = 72) (n = 72) (n = 65) (n = 40) (n = 17) Contracts negotiated since Jan 1, 2019 3.5 1.9 1.9 2.0 2.0 2.0 Contracts to be negotiated before Dec 31, 2020 3.5 1.9 1.8 1.8 1.9 1.9

*base wage increase is the rate for the year specified (includes any cost of living allowance increases) Source: The Conference Board of Canada.

Table 12 Short-term incentive pay Short-term incentive pay plan payouts; unionized employees Nearly one-third of unionized organizations (per cent) (30 per cent) have at least one short-term incentive pay plan in place for unionized 2019 payouts (actual, based on 2018 performance) Per cent employees. These plans are more common Target payout* (n = 36) 5.1 Actual payout* (n = 32) 5.8 in the private sector, where 42 per cent have % of eligible employees receiving (n = 34) 89.4 a plan in place, compared with 11 per cent of % of organizations falling short of target (n = 31) 32.0 public sector organizations. The majority of % of organizations meeting target (n = 31) 23.0 plans (68 per cent) exceeded or met payout % of organizations surpassing target (n = 31) 45.0 targets in 2019. Almost all eligible employees (89.4 per cent) received a payout, averaging 2020 payouts (projected, based on 2019 performance) Target payout* (n = 30) 5.4 5.8 per cent, compared with targets of 5.1 per Plan maximum* (n = 29) 8.5 cent. (See Table 12.) Target payouts for 2020 *as a percentage of base pay are expected to average 5.4 per cent. Source: The Conference Board of Canada.

Negotiation issues organizations surveyed rated the overall union– management climate in their organization as The majority (64 per cent) of unionized cooperative, with a further 9 per cent rating organizations believe work stoppages to be the climate as “very cooperative.” The majority unlikely in 2020, and only one organization (74 per cent) of organizations anticipate that believes that a work stoppage “will definitely the relationship with their union counterparts occur.” Just over half (52 per cent) of will remain the same in the next one to two years.

Find Conference Board research at conferenceboard.ca. 19 Compensation Planning Outlook 2020 Collective bargaining

In recent contract negotiations, most union The leading issue for the year ahead—on both members (93 per cent) successfully ratified sides of the negotiation table—continues to the contract that was accepted by union be wages. (See Table 13.) Flexible work practices, representatives. The average percentage business competitiveness, and productivity are of union members voting in favour of the also top of mind for management. In line with contract was 81 per cent. That said, 20 per recent years, employment security and health cent of organizations have, at some point, benefits are still expected to be top of mind negotiated at least one contract that the union for unions. membership failed to ratify.

Table 13 Top negotiation issues (percentage of unionized organizations)

Management issues (n = 135) Per cent Union issues (n = 138) Per cent Wages 58 Wages 83 Flexible work practices 34 Employment security 51 Business competitiveness 33 Health benefits 38 Productivity 31 Employment and pay equity 28 Organizational change 27 Outsourcing and contracting out 22 Outsourcing and contracting out 26 Flexible work practices 16 Health benefits 23 Pensions 15 Employment and pay equity 16 Organizational change 14 Technological change 14 Technological change 7 Training and skills development 10 Training and skills development 6

Note: Respondents were provided a list and asked to indicate the top three negotiation issues for both management and union. Source: The Conference Board of Canada.

Find Conference Board research at conferenceboard.ca. 20 Section 3 Human capital and talent trends Compensation Planning Outlook 2020 Human capital and talent trends

Key findings

• Sixty-two per cent of organizations are having difficulty recruiting and/or retaining talent, similar to what organizations reported last year (64 per cent).

• Voluntary turnover rates are up compared with last year, at a national average of 8.9 per cent.

• The overall absence rate for the most recent 12 months averaged 7.0 days per employee. Government organizations continue to show the highest rates, with an average of 8.8 days.

Rewards strategies and priorities

Similar to the last four years, the top Table 14 three rewards priorities for organizations over Top rewards activities and priorities* (n = 321; percentage of organizations) the next 12 to 18 months are:

Next 12 to 18 months Per cent 1. Maintaining a competitive position. Maintaining a competitive position 49 2. Reviewing strategy and ensuring alignment Reviewing strategy and ensuring alignment 34 with business objectives. with business objectives 3. Retaining talent. Retaining talent 33 Attracting talent 32 Nearly half (49 per cent) of responding Connecting pay and performance 26 organizations reported that a top rewards priority Pay equity 15 over the near term is maintaining a competitive Performance management 15 position. (See Table 14.) Similar to last year, Ensuring internal equity 13 reviewing strategy and ensuring alignment with Managing benefit costs 12 business objectives, and retaining and attracting Communicating rewards to employees 12 talent remain key areas of focus. *respondents were asked to select (from a list) their top rewards activities/ priorities over the next 12 to 18 months. Only the top 10 responses are shown. Source: The Conference Board of Canada.

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Managing performance

Most Canadian organizations continue to use popularity over the years, the five-level system some kind of performance management system has remained the most common among across all groups of non-unionized employees. Canadian organizations. The majority of surveyed organizations use a performance rating system, whether the rating Chart 10 is formally discussed with employees or not, Number of performance levels across all groups of non-unionized employees. (n = 273; percentage of organizations) (See Table 15.) 7 Specifically, 74 per cent of organizations have a 20 rating system in place for senior executives and Three-level executives, 81 per cent use a rating system for Four-level management employees, and 81 per cent reported Five-level using ratings when evaluating non-management, 20 53 Other non-unionized employees. In contrast, for unionized employees, rating systems are used by only 46 per cent of organizations—either in Source: The Conference Board of Canada. formal discussions or for administrative purposes.

Among organizations with a rating system in place, 53 per cent currently employ the five- The distribution of ratings within each system level system. (See Chart 10.) Other commonly has remained fairly consistent over the past used rating systems include three or four levels. few years, skewed to a larger proportion of While all rating systems have fluctuated in employees rated at the top level(s) than at the

Table 15 Approach to performance management (percentage of organizations)

Do not use ratings Employees are given in performance Do not use ratings, a performance rating discussions with but do have Do not have any in performance employees, but they performance type of performance n discussions are rated discussions management system Senior executives / executives 309 67 7 22 4 Management 324 75 6 18 2 Non-management, non-unionized 324 74 7 18 2 Unionized 156 40 6 32 22

Note: Totals may not add to 100 due to rounding. Source: The Conference Board of Canada.

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bottom level(s). (See Chart 11.) Few organizations As employee performance management moves (10 per cent) force a distribution, opting instead away from the traditional annual review model, for a recommended distribution (41 per cent) organizations are beginning to incorporate an to guide managers in order to ensure normally ongoing touchpoint approach in which employees distributed performance ratings. (See Chart 12.) are given feedback on a more regular basis.

Chart 11 Performance distribution, by level (percentage of employees)

Three-level (n = 41) Four-level (n = 40) Five-level (n = 128)

80 69 80 80 57 60 60 60 60

40 40 40 25 23 26 18 20 20 20 7 6 2 2 5 0 0 0 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Level 4 Level 1 Level 2 Level 3 Level 4 Level 5

Note: 1 = the lowest level of performance and the highest number = the highest level of performance. Source: The Conference Board of Canada.

Chart 12 Performance management practices (percentage of organizations)

Currently in place Not in place but considering Not in place; no plans for future use

Frequent formal performance check-ins 61 12 27

Frequent informal performance check-ins 78 11 11

Peer feedback 30 20 50

360-degree feedback 33 23 44

Forced ranking 7 5 88

Forced distribution 10 5 85

Recommended distribution 41 6 53

0 10 20 30 40 50 60 70 80 90 100

Source: The Conference Board of Canada.

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Overall, 86 per cent of organizations have Chart 14 incorporated frequent check-ins into their Difficulty recruiting and retaining particular performance management program, either skills—trend over time (percentage of organizations) formally or informally. Nearly two-thirds (61 per cent) have formal performance check-ins; 80 64 62 59 58 57 78 per cent conduct check-ins informally. 60

40 Recruitment 20 0 and retention 2014–15 2015–16 2016–17 2017–18 2018–19 (n = 367) (n = 376) (n = 324) (n = 366) (n = 325) At 62 per cent, the percentage of organizations having difficulty recruiting and/or retaining Source: The Conference Board of Canada. particular skills is similar to last year (64 per cent). (See charts 13 and 14.) Recruitment and retention challenges are being felt both in the Organizations in the construction industry are private and the public sectors, where 61 per experiencing some of the greatest difficulties cent and 64 per cent, respectively, reported recruiting and/or retaining employees, with difficulties. (See Table 16.) 90 per cent of surveyed organizations saying they are having trouble in this area. With an aging workforce and fewer young people entering Chart 13 the labour market, especially in this industry,1 Difficulty recruiting and retaining this trend is poised to continue.2 Challenges are particular skills less common in the pharmaceutical and chemical (n = 325; percentage of organizations) products industry.

28 Regionally, Ontario is experiencing the most Recruiting only 39 difficulty recruiting and/or retaining. This is not Retaining only surprising given the high rate of job vacancies, Recruiting and retaining 2 rapid wage acceleration, and low unemployment No di culty rate in the province, all of which suggest a tightening labour market.3 Having become 31 a magnet for migrants relocating to this country, Atlantic Canada is having less trouble recruiting Source: The Conference Board of Canada. and retaining employees.

1 Kusisto, “Young People Don't Want Construction Jobs." 2 Fields, Uppal, and LaRochelle-Coté, “The Impact of Aging on Labour Market Participation Rates." 3 Conference Board of Canada, The, Provincial Outlook Economic Forecast: Summer 2019.

Find Conference Board research at conferenceboard.ca. 25 Compensation Planning Outlook 2020 Human capital and talent trends

Table 16 Similar to previous years, specializations in IT Difficulty recruiting or retaining particular are in highest demand, up from 33 per cent five skills, by sector, industry, and region years ago to 57 per cent in 2019. (See Table 17.) (percentage of organizations) Management continues to occupy the second n Per cent Overall 325 62 spot at 26 per cent, followed by skilled trades, SECTOR engineering, and accounting/finance positions. Private sector 241 61 Public sector 84 64 INDUSTRY Table 17 Communications, telecommunications, 10 60 Top professions/specializations/position types and media in demand Construction 10 90 (n = 202; percentage of organizations)* Education 11 55 Finance 41 71 Next 12 to 18 months Per cent Food, beverage, and tobacco products 6 67 IT/technology 57 Government 33 67 Management 26 Health 9 89 Skilled trades 23 Insurance and real estate 23 70 Engineering (electrical, mechanical, etc.) 22 Manufacturing 16 75 Accounting/finance 19 Mining, forestry, and agriculture 12 58 Sales and marketing 15 Not-for-profit 26 50 Service 13 Oil and gas 22 32 Human resources 10 Pharmaceutical and chemical products 7 29 Health 6 Power and utilities 19 32 Transportation/heavy equipment 5 Retail trade 11 46 Manufacturing 4

Services—accommodation, tourism, food, 17 88 *based on organizations reporting difficulty recruiting and/or retaining entertainment, and personal particular skills Services—professional, scientific, and technical 20 55 Note: respondents were asked to select (from a list) their top three professions/specializations/position types. Technology 11 46 Source: The Conference Board of Canada. Transportation and warehousing 15 73 Wholesale trade 6 100 REGION Newfoundland and Labrador 37 16 Turnover Prince Edward Island 23 13 Voluntary turnover rates have increased from Nova Scotia 55 22 8.1 per cent in 2018 to 8.9 per cent this year. New Brunswick 40 23 Quebec 100 48 (See Chart 15.) The private sector continues Ontario 194 54 to face higher rates of voluntary turnover Manitoba 77 30 (10.2 per cent), compared with 4.7 per cent in Saskatchewan 79 35 the public sector. Both rates are up (although Alberta 144 35 only marginally in the public sector) from last British Columbia 133 47 year, when the private sector reported an average Northern Canada 20 35 voluntary turnover rate of 9.1 per cent and the Source: The Conference Board of Canada. public sector a rate of 4.6 per cent.

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Chart 15 As would be expected, voluntary turnover is Voluntary turnover rates—trend over time* lowest among employees in senior executive (per cent) (2.6 per cent) and executive positions (2.4 per

10 8.9 cent), and highest in service and production 8.1 7.6 7.8 8 7.1 (9.7 per cent). (See Table 19.)

6 Employers were also surveyed on their 4 involuntary turnover rates—defined as exits 2 from the organization initiated by the employer 0 (severances, dismissals, etc.). This year’s 2014–15 2015–16 2016–17 2017–18 2018–19 (n = 306) (n = 331) (n = 267) (n = 304) (n = 227) overall involuntary turnover rate is 4.2 per cent. (See Chart 16.) In 2019, the private sector *refer to Table 18 for definitions reported a higher rate of involuntary turnover Source: The Conference Board of Canada. (5.0 per cent) than the public sector (1.7 per cent). The highest rates were reported in the The retail trade industry continues to face the construction (12.1 per cent) and retail trade highest voluntary turnover rates, at 30.5 per cent (9.5 per cent) industries. (See Table 18.) in 2019. (See Table 18.) Also experiencing higher- than-average voluntary turnover are organizations Chart 16 in construction (15.3 per cent), professional Involuntary turnover rates—trend over time* services (13.4 per cent), and wholesale trade (per cent) (13.2 per cent). Similar to last year, voluntary turnover was lowest in the power and utilities 10 industry (3.8 per cent). 8 5.7 6 5.4 4.4 4.0 4.2 Organizations with operations in Newfoundland 4 and Labrador are experiencing some of the 2 highest voluntary turnover rates. This seems 0 to be due, at least in part, to higher job creation 2014–15 2015–16 2016–17 2017–18 2018–19 in the province.4 Northern Canada is also seeing (n = 291) (n = 315) (n = 261) (n = 300) (n = 212) higher turnover rates (13.8 per cent), while *refer to Table 18 for definitions organizations in Nova Scotia are experiencing Source: The Conference Board of Canada. low voluntary turnover (5.7 per cent). (See Table 18.)

4 Ibid.

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Table 18 Voluntary and involuntary turnover rates, by sector, industry, and region (per cent)

Voluntary turnover rate Involuntary turnover rate n % n % Overall 227 8.9 212 4.2 SECTOR Private sector 172 10.2 163 5.0 Public sector 55 4.7 49 1.7 INDUSTRY Communications, telecommunications, and media 7 7.0 6 5.8 Construction 8 15.3 8 12.1 Finance 31 8.9 27 2.9 Government 22 4.3 19 1.0 Health 5 7.3 5 1.6 Insurance and real estate 18 8.7 17 3.6 Manufacturing 8 7.1 7 4.4 Mining, forestry, and agriculture 9 8.4 8 5.0 Not-for-profit 20 8.6 21 4.6 Oil and gas 18 5.4 18 4.8 Pharmaceutical and chemical products 5 10.6 * * Power and utilities 13 3.8 13 2.6 Retail trade 9 30.5 9 9.5 Services–accommodation, tourism, food, entertainment, and personal 12 12.3 12 5.1 Services–professional, scientific, and technical 10 13.4 10 5.3 Technology 9 6.2 7 2.1 Transportation and warehousing 12 4.8 10 1.9 Wholesale trade 5 13.2 5 5.1 REGION Newfoundland and Labrador 18 10.8 18 2.8 Prince Edward Island 9 8.3 9 3.8 Nova Scotia 28 5.7 27 3.3 New Brunswick 24 7.0 24 2.4 Quebec 35 9.6 36 5.5 Ontario 108 7.9 110 4.6 Manitoba 37 6.2 36 4.6 Saskatchewan 39 8.5 37 5.3 Alberta 74 7.6 71 4.2 British Columbia 63 9.9 61 6.3 Northern Canada 12 13.8 12 4.9

Definitions Voluntary turnover: Turnover that is due to an employee-initiated departure. Sometimes referred to as avoidable or regrettable turnover. Excludes retirements, dismissals, severances, redundancies, transfers, deaths, and leaves (e.g., disability, parental, sabbatical, and other leaves of absence). Involuntary turnover: An employee departure that is initiated by the employer (e.g., severances, dismissals, redundancies). Employee turnover: Determined by first calculating the average number of employees during a one-year period (add headcount for each month in the year/12), excluding casual, contract, temporary, or seasonal workers. Second, calculate the annual turnover rate (total number of exits/average number of employees during a one-year period)  100. *sample size too low to report Note: Only industries with sufficient sample size are shown. Source: The Conference Board of Canada.

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Table 19 Table 20 Voluntary and involuntary turnover rates, Top reasons for voluntary turnover* by employee group (n = 213; percentage of organizations) (per cent) Per cent Voluntary Involuntary turnover rates turnover rates Lack of progression 65 n % n % Personal reasons 62 Senior executives 115 2.6 110 3.5 Compensation 55 Executives 96 2.4 96 3.7 Poor relationship with manager 24 Management 127 4.3 132 3.1 Lack of learning and development opportunities 23 Professional—technical 112 5.7 108 3.3 Stress related to job 13 Professional—non‑technical 120 7.5 117 3.1 Commute 10 Technical and skilled trades 72 5.3 72 2.8 Work not rewarding 8 Clerical and support 123 7.8 125 4.1 Lack of recognition 5 Service and production 75 9.7 71 4.3 Toxic work environment 3 Sales 47 5.8 49 3.9 Lack of confidence in senior leadership 3

Source: The Conference Board of Canada. *based on organizations that track reasons for voluntary turnover Note: Respondents were asked to select (from a list) the top three reasons employees provided for leaving the organization. Source: The Conference Board of Canada. Many organizations conduct exit interviews to gather information on why employees decide to leave. The majority of organizations surveyed Retirement (79 per cent) track the reasons employees provided for voluntary turnover, either formally With the population aging, employers are losing or informally. (See Chart 17.) Lack of progression talent each year due to retirements. The overall (65 per cent), personal reasons (62 per cent), retirement rate for the last 12 months was 2.4 per and compensation (55 per cent) were the most cent, up 0.5 percentage points from last year’s commonly cited reasons for voluntary employee rate. (See Table 21.) The overall retirement rate is departures. (See Table 20.) the same for both the private and public sectors (2.4 per cent)—a deviation from what we typically see, which is a higher rate in the public sector. Chart 17 Tracking reasons for voluntary turnover (See Table 22.) Projecting forward, organizations (n = 325; percentage of organizations) are expecting 3.0 per cent of employees to retire over the next 12 months. Similar to last 21 year, estimated retirement rates within the next 12 months are highest in the wholesale 40 Tracked formally trade (6.2 per cent) and transportation and Tracked informally warehousing (5.2 per cent) industries.

Do not track

39

Source: The Conference Board of Canada.

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Table 21 Retirement rates—trend over time (per cent)

2015 2016 2017 2018 2019 Have retired in the past 12 months 2.0 1.9 1.9 1.9 2.4 Expect to retire in the next 12 months 2.7 2.6 2.9 2.4 3.0

Source: The Conference Board of Canada.

Table 22 Retirement rates, by sector and industry (per cent)

Have retired in the Expected to retire in n past 12 months the next 12 months Overall 226 2.4 3.0 SECTOR Private sector 158 2.4 2.8 Public sector 68 2.4 3.3 INDUSTRY Communications, telecommunications, and media 6 3.1 3.9 Construction 6 2.9 0.7 Education 8 2.2 2.1 Finance 30 2.6 2.9 Government 28 2.7 3.5 Health 6 4.2 4.1 Insurance and real estate 18 1.8 2.9 Manufacturing 10 2.9 3.8 Mining, forestry, and agriculture 8 3.0 3.0 Not-for-profit 21 2.1 1.9 Oil and gas 18 1.8 2.2 Pharmaceutical and chemical products 5 1.7 1.4 Power and utilities 15 3.3 4.5 Retail trade 7 2.3 2.8 Services—accommodation, food, entertainment, personal 12 1.2 2.3 Services—professional, scientific, and technical 8 2.6 1.3 Technology 7 2.2 1.6 Transportation and warehousing 10 2.9 5.2 Wholesale trade 6 2.5 6.2

*sample size too low to report Note: Sample sizes reflect the number of organizations that provided a retirement rate for the past 12 months. Only industries with sufficient sample size are shown. Source: The Conference Board of Canada.

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Employee absences

The overall absence rate for the most recent Table 23 12 months among surveyed organizations was Absence rates, by sector and industry (days per employee) 7.0 days per employee, up from 6.7 days per employee last year. (See Chart 18.) Rates are n Days per employee higher in the public sector (8.8 days) than Overall 102 7.0 in the private sector (6.3 days). Government SECTOR Private sector 72 6.3 organizations had the highest absence rate Public sector 30 8.8 at 8.8 days per employee. (See Table 23.) INDUSTRY Finance 21 6.4 Government 11 8.8 Chart 18 Insurance and real estate 10 7.0 Absence rates—trend over time* Manufacturing 5 5.4 (days per employee) Not-for-profit 14 6.7 Power and utilities 9 7.6 10 Definition 8 Work absences: Absences (with or without pay) of an employee 6.6 6.7 7.0 6.5 6.4 from work due to his or her own illness, disability, or personal 6 or family responsibility, for a period of at least half a day but less than 52 consecutive weeks. Excludes maternity, adoption, 4 paternity and parental leaves, vacation and holidays, bereavement leave, and jury duty. 2 Note: Only industries with sufficient sample size are shown. 0 Source: The Conference Board of Canada. 2014–15 2015–16 2016–17 2017–18 2018–19 (n = 140) (n = 139) (n = 111) (n = 117) (n = 102)

*refer to Table 23 for definition Source: The Conference Board of Canada.

Find Conference Board research at conferenceboard.ca. 31 Appendices Appendix A | The Conference Board of Canada

Appendix A Glossary

Employee group Base pay increase definitions definitions

Senior executives: All executives reporting Range increase: Percentage increase to salary directly to the CEO. ranges (salary structure) among organizations with ranges (often associated with increase to Executives: All other executives. cost of living or economic adjustment). Management: Senior and middle management Percentage of employees receiving an who plan, develop, and implement policies increase: Percentage of employees receiving and programs. a base salary increase, as a percentage of all Professional—technical: Engineers, information employees in category. technology specialists, developers, etc. Average salary increase for those receiving Professional—non-technical: All other one: The total percentage increase to base professionals, such as accountants, lawyers, salary from all sources—range, merit, economic, doctors, excluding sales. and progression (excluding increases due to promotions). Does not include employees Technical and skilled trades: Technologists, receiving a zero per cent increase. technicians, millwrights, etc. Average salary increase among all employees: Clerical and support: Administrative staff, clerks, The total percentage increase to base salary coordinators, assistants, etc. from all sources—range, merit, economic, Service and production: Employees and progression (excluding increases due to providing service, production, maintenance, promotions). Includes employees receiving a zero transportation, etc. per cent increase.

Average base salary: The average annual base salary in dollars after the increases have been applied.

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Appendix B Respondent profile

Table 1 Respondent profile (total number of responding organizations = 326) Percentage of organizations INDUSTRY Communications, telecommunications, and media 3 Construction 3 Education 3 Finance 13 Food, beverage, and tobacco products 2 Government 10 Health 3 Insurance and real estate 7 Manufacturing 5 Mining, forestry, and agriculture 4 Not-for-profit 8 Oil and gas 7 Pharmaceutical and chemical products 2 Power and utilities 6 Retail trade 3 Services—accommodation, tourism, food, entertainment, and personal 5 Services—professional, scientific, technical 6 Technology 3 Transportation and warehousing 5 Wholesale trade 2 SECTOR Private sector 74 Public sector 26

(continued ...)

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Table 1 (cont’d) Respondent profile (total number of responding organizations = 326) Percentage of organizations OPERATIONS Canadian only 66 North American 13 Global 22 OWNERSHIP Publicly traded 20 Controlled by Canadian publicly traded company 4 Controlled by foreign publicly traded company 7 Privately held 25 Not applicable 43 MAJORITY WORKFORCE Atlantic provinces 4 Quebec 7 Ontario 48 Manitoba 4 Saskatchewan 6 Alberta 21 British Columbia 10 Northern Canada 0.3 ASSETS (CANADIAN OPERATIONS) $0–$99 million 17 $100–$999 million 20 $1 billion and over 37 Not reported 26 ANNUAL SALES/SERVICE REVENUE (CANADIAN OPERATIONS) $0–$99 million 22 $100–$999 million 31 $1 billion and over 30 Not reported 17 NUMBER OF FTE EMPLOYEES Fewer than 500 34 500–1,499 22 1,500–4,999 26 5,000 and over 19 Total number of FTE employees 1,485,336 Total non-unionized employees 707,766 Total unionized employees 762,654

Source: The Conference Board of Canada.

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Appendix C Participating organizations

A total of 326 organizations participated in the Compensation Planning Outlook 2020 Survey. The following participating organizations have authorized the publication of their name.

A&W Food Services of Canada Inc. ATCO Ltd. A. Raymond Tinnerman Manufacturing Hamilton, Inc. Atomic Energy of Canada Limited ABB Inc. Bank of Canada Access Credit Union BASF Canada Inc. Accessible Media Inc. Bayer Inc. Admare BioInnovations BC Hydro and Power Authority Aimia Inc. BC Pension Corporation Air Canada BDO Canada LLP Alamos Gold Inc. Bell Canada Alberta Health Services BlueShore Financial Credit Union Alberta Innovates BMO Financial Group Alberta Investment Management Corporation BP Canada Energy Group ULC Alberta Medical Association British Columbia Automobile Association Alberta Milk British Columbia Investment Management Corporation Alberta Utilities Commission British Columbia Lottery Corporation Alberta-Pacific Forest Industries Inc. Brookefield Residential Properties Inc. Algonquin College of Applied Arts and Technology Business Development Bank of Canada Algonquin Power & Utilities Corp. BWXT Canada Ltd. Allstate Insurance Company of Canada CAA South Central Ontario AltaGas Ltd. Calfrac Well Services Ltd. ARC Resources Ltd. Calgary Co-operative Association Limited ATB Financial Cameco Corporation

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Canada Lands Company CLC Limited Conestoga Meat Packers Ltd. Canada Post Corporation Corix Group of Companies Canadian Blood Services Cornerstone Credit Union Canadian Dental Association Covenant House Vancouver Canadian Foodgrains Bank Association Inc. Credit Union Deposit Guarantee Corporation Canadian Foundation for Healthcare Improvement Crombie REIT Canadian Institute for Health Information CSA Group Canadian International Grains Institute CSL Silicones Inc. Canadian Medical Association Cunningham Swan LLP Canadian Medical Protective Association dentalcorp Canada Canadian National Railway Company Dentons Canada LLP Canadian Pacific Railway Company District of Mission Canlan Ice Sports Domtar Corporation Capgemini Dynacare Capital Power Corporation Economical Insurance Group CapitalCare Group Inc. Edmonton Economic Development Corporation CBC/Radio-Canada EfficiencyOne Celero Solutions Emera Inc. Celestica Inc. Empire Life Insurance Company CGI Group Inc. Enbridge Inc. CI Financial Enerflex Ltd. City of Brandon Enmax Corporation City of Burnaby Enns Brothers Ltd. City of Calgary EPCOR Utilities Inc. City of Edmonton Ericsson Canada Inc. City of Greater Sudbury Export Development Canada City of Lethbridge Farm Credit Canada City of Markham Federated Co-operatives Limited City of Mississauga Fidelity Investments Canada Limited City of Ottawa Finning International Inc. City of Regina FortisAlberta Inc. City of Richmond FortisBC Energy Inc. City of Saskatoon GE Canada CLE Capital Inc. GEF Seniors Housing CNOOC Petroleum North America ULC General Dynamics Land Systems–Canada Cogeco Communications Inc. Gibson Energy Inc. College of Nurses of Ontario Golder Associates Ltd. Colliers Project Leaders Government of New Brunswick Comox Valley Regional District Graham Management Services LP

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Great Canadian Gaming Corporation McMaster University Group Medical Services Medical Council of Canada Halifax Port Authority MEG Energy Corp. Halifax Regional Municipality Mental Health Commission of Canada Healthcare of Ontario Pension Plan Meridian Credit Union Heritage Park Methanex Corporation Hewlett Packard Enterprise Canada Metrolinx Holstein Canada Metro-Richelieu Inc. Houle Electric Ltd. Moneris Solutions Corporation Husky Energy Inc. Mouvement des caisses Desjardins Hydro-Québec Muskoka Brewery Inc. IA Financial Group Nalcor Energy IBM Corporation National Bank of Canada Independent Electricity System Operator National Gallery of Canada Independent Order of Foresters NAV Canada Indigo Books & Music Inc. Newfoundland Power Inc. Infrastructure Ontario Newmont Goldcorp Red Lake Holdings Ltd. Insurance Corporation of British Columbia North American Construction Group Ltd. Intact Financial Corporation Northbridge Financial Corporation Interior Health Authority Northview Apartment REIT Interior Savings Credit Union NOVA Chemicals Corporation Ivanhoé Cambridge Inc. Nova Scotia Pension Services Corporation J.D. Irving Ltd. NuVista Energy Ltd. K+S Potash Canada Office of the Superintendent of Financial Institutions Kal Tire Ltd. Ontario College of Pharmacists Keyera Energy Inc. Ontario Hospital Association KPMG Canada Ontario Institute for Cancer Research La Capitale assurance et services financiers Ontario Lottery and Gaming Corporation Lafarge Canada Inc. Ontario Pension Board Lakeland Credit Union Ontario Securities Commission Law Society of British Columbia Osler, Hoskin & Harcourt LLP Law Society of Ontario Ottawa International Airport Authority Ledcor Group of Companies Ottawa Police Service LifeLabs LP Parkland Fuel Corporation Magna International Inc. Parmalat Canada Inc. Maple Leaf Foods Inc. PCL Constructors Inc Marriott Hotels of Canada Ltd. Pelmorex Media Inc. McDonald’s Restaurants of Canada Limited PenFinancial Credit Union Ltd. McKesson Canada PepsiCo Canada

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Pet Valu Canada Inc. Sleep Country Canada PETRONAS Energy Canada Ltd. Société de transport de Montréal Plains Midstream Canada ULC Sodexo Canada Ltd. Ports Toronto Sonoco Canada Corporation Princess Auto Ltd. Southern Alberta Institute of Technology Purdue Pharma Canada St. Joseph’s Health Care Hamilton Purolator Inc. StandardAero PwC Management Services LP Staples Canada Qualico Developments Canada Ltd. STEP Energy Services Ltd. Queen’s University Strathcona County RC Pets Strathcona Paper RCM Technologies Canada Corp. Suncor Energy Inc. Red River College Symcor Inc. Regional Municipality of Halton Tarion Warranty Corporation Regional Municipality of Niagara TC Energy Corporation Regional Municipality of Peel TCU Financial Group Regional Municipality of York TD Bank Group Retail Council of Canada Teck Resources Limited Richardson International Limited Teranet Inc. Richards-Wilcox Canada Terrapure Environmental Rocky Mountaineer The Beer Store Rogers Communications Inc. The Calgary Stampede Russel Metals Inc. The Chartered Professional Accountants of Safran Landing Systems Canada Inc. British Columbia Samsung Electronics Limited The Commonwell Mutual Insurance Group Samuel, Son & Co., Limited The Equitable Life Insurance Company of Canada Sanofi-aventis Canada Inc. The Great-West Life Insurance Company Saskatchewan Blue Cross The Royal College of Physicians and Surgeons of Canada Saskatchewan Government Insurance The St Lawrence Seaway Management Corporation Saskatchewan Indian Gaming Authority TMX Group Ltd. SaskPower Toronto Hydro Electric System Ltd. Savanna Energy Services Corp. Toronto Transit Commission Science World British Columbia Torys LLP Scotiabank Town of Banff Seaspan ULC Town of Quispamsis Servus Credit Union Trans Mountain Shell Canada Ltd. TransAlta Corporation SickKids Hospital TransLink Silvera for Seniors

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Treasury Board of Canada Secretariat Vancouver City Savings Credit Union UAP Inc. Via Rail Canada UNI Coopération Financière Ville de Montréal Université de Saint-Boniface Viterra Inc. Universities Canada Western Financial Group Inc. University of Ottawa Westminster Savings Credit Union University of Regina Woodbine Entertainment Group University of Saskatchewan Workers’ Compensation Board Alberta University of Waterloo Government of Yukon University of Winnipeg Zurich Canada Vale Canada Ltd.

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Appendix D Bibliography

Conference Board of Canada, The. Canadian Outlook Kusisto, Laura. “Young People Don’t Want Construction Executive Summary: Autumn 2019. Ottawa: CBoC, Jobs. That’s a Problem for the Housing Market.” October 2019. The Wall Street Journal, July 31, 2018. Accessed October 10, 2019. https://www.wsj.com/articles/young- —. Provincial Outlook Economic Forecast: Summer people-dont-want-construction-jobs-thats-a-problem- 2019. Ottawa: CBoC, August 2019. for-the-housing-market-1533029401?ns=prod/ Fields, Andrew, Sharanjit Uppal, and Sébastien accounts-wsj. LaRochelle-Coté. “The Impact of Aging on Statistics Canada. “Labour Force Survey, Labour Market Participation Rates.” Accessed September 2019.” The Daily. Statistics Canada, October 5, 2019. Ottawa: Statistics Canada, October 11, 2019. 2017. https://www150.statcan.gc.ca/n1/pub/75- https://www150.statcan.gc.ca/n1/daily-quotidien/ 006-x/2017001/article/14826-eng.htm. 191011/dq191011a-eng.htm. Employment and Social Development Canada. “Major WorldatWork. The WorldatWork Handbook Wage Settlements by Sector and Jurisdiction.” of Compensation, Benefits & Total Rewards: Accessed October 5, 2019. https://www.canada.ca/en/ A Comprehensive Guide for HR Professionals. employment-social-development/services/collective- Hoboken, N.J.: John Wiley & Sons Inc., 2007. bargaining-data/wages/wages-jurisdiction-sector.html. WorldatWork and Vivient Consulting. Incentive Ellig, Bruce R. “The Return of the Stock Appreciation Pay Practices Survey: Privately Held Companies. Right: Exploring the Key Features and Benefits.” Scottsdale, AZ: WorldatWork, 2014. Workspan, October 31, 2009. —. Incentive Pay Practices Survey: Privately Held Companies. Scottsdale, AZ: WorldatWork, 2018.

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Compensation Planning Outlook 2020 Kelsey Coburn and Allison Cowan

To cite this report: Coburn, Kelsey, and Allison Cowan. Compensation Planning Outlook 2020 Ottawa: The Conference Board of Canada, 2019.

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