Compensation Planning Outlook 2020
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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. Find Conference Board research at conferenceboard.ca. iii Compensation Planning Outlook 2020 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. Find Conference Board research at conferenceboard.ca. iv Summary for executives | The Conference Board of Canada 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.” Find Conference Board research at conferenceboard.ca. v Section 1 Compensation planning Compensation Planning Outlook 2020 Compensation planning 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.