Effective compensation programs involve more than base salary, says Hewitt

While salary increases are expected to be lower in 2009 than in 2008 for most employees, many high performers have opportunities to boost their overall earnings by more than the average 3.6 per cent increase, according to research conducted by Hewitt Associates, a global human resources consulting and outsourcing company. Organizations are relying on variable compensation – performance-related rewards that must be re-earned each year and do not increase base salary – and, in some locations and for some roles, perquisites to attract, retain, incent and reward key employees.

As the Canadian economy shows signs of a downturn in some sectors and in certain locations, salaries are not expected to increase by as much in the coming year as they did in 2007 and 2008, when raises averaged 3.8 per cent nationally. Even in Alberta, where salary increases still exceed those offered in the rest of the country, increases are expected to get smaller. In 2007, actual salary increases in Alberta were 6 per cent, decreasing to 5.6 per cent in 2008. Projected average salary increases for 2009 in Alberta are 5 per cent.

"Base salaries in Alberta will continue to increase, but not at such high rates," says Jeff Vathje, a senior compensation consultant in Hewitt's Calgary office. "Data from our 2008-2009 'Canada Salary Increase Survey' also indicates that fewer employers see a need to compensate workers in Calgary and Edmonton at a higher rate than those in other parts of the country."

In 2007, 52 per cent of employers paid workers in Calgary more than those doing similar work in other locations. In 2008, that figure dropped to 42 per cent. Edmonton also experienced a 10 per cent drop, with 25 per cent of employers providing extra salary to workers in that city in 2007, and only 15 per cent doing so in 2008. Two Alberta locations have not experienced a decline in employers offering extra pay, however: Fort McMurray held steady at 23 per cent, while 12 per cent of organizations in Grande Prairie did so in 2008, up from 6 per cent in 2007.

Hot jobs/hot locations
The supply of workers with certain skills or training-particularly engineering and information technology – is so low compared with the demand for these employees that 36 per cent of Canadian organizations make special compensation arrangements outside of base salary to attract and retain them. The same holds true for certain locations: 63 per cent of employers go to special lengths to recruit and hang on to workers in specific parts of the country, particularly Alberta.

This additional compensation takes a variety of forms. Sign-on and/or retention bonuses, a living or housing allowance (or housing loan or subsidy) are the most frequently offered monetary arrangements, while non-monetary awards include perquisites such as a cell phone, computer, internet hook-up, car allowance, flexible work arrangements, assistance in locating housing, and additional vacation time.

"Engineers in Fort McMurray are likely doing pretty well," notes Ian MacRae, a compensation consultant in Hewitt's Toronto office. "Not only are they receiving higher salaries than their counterparts in other locations, they're probably receiving a range of special compensation arrangements to ensure they stay with their employer."  

Compensation aligned with business objectives
Even employees who don't have hot skills or work in hot locations may have an opportunity to gain additional income over and above their base salary. "Eighty-six per cent of employers provide variable compensation programs," says MacRae. "Employees receive a bonus if certain corporate, divisional and/or individual goals are attained."

However, employers are finding that creating and implementing a successful variable pay program may be harder than it seems. Two-thirds reported difficulty in designing pay programs that give employees a clear line of sight between their achievements and their reward. In addition, 61 per cent cited enabling managers to have effective pay conversations with their reports as a challenge.

"Successful variable pay programs have the ability to help employers drive business objectives, as well as keep employees focused on their goals in order to realize their earning potential," explains Vathje. "The program must, of course, be designed appropriately and administered properly. However, it is also critical that employees understand how the variable compensation plan works. Without a clear grasp of what they need to accomplish in order to help the organization succeed and be rewarded themselves, the program isn't going to work. Employers run the risk of losing key talent to competitors that appear to pay more when that happens."

Copies of the Hewitt Associates' 30th Annual "Canada Salary Increase Survey" are available at www.compensationcenter.com.