"Engagement" has become the new answer for organizations – but what exactly is the question? Organizations are looking for some panacea to solve workforce issues that have arisen because of the stressful economy and strained resources. At a time when salary increases are next to impossible, but dissatisfied employees are unlikely to leave a secure job, it’s more critical than ever to keep people motivated, committed, productive and creative.

A few months ago, Canadian employers were planning to provide average salary increases of 2.8 per cent in 2010, but that number has now dropped to 2.6 per cent, according to a survey conducted by Hewitt Associates, a global human resources consulting and outsourcing company. However, while more than a third of employers were considering a salary freeze earlier this year-providing no increases in 2010-that number has since decreased. Moreover, even though 81 per cent of Canadian organizations will not provide a holiday gift or bonus, 79 per cent will celebrate the season with employees at a holiday party.

While Hewitt's 31st annual Salary Increase Survey, conducted in the summer, saw employers projecting higher salary increases, as many as 39 per cent were considering salary freezes for the coming year. That number has now decreased to 27 per cent, according to Hewitt's Salary Increase Update Survey of 641 organizations from across Canada.

"The vast majority of employers-73 per cent as compared to 62 per cent earlier this year-are providing raises in 2010, so that far more workers will get an increase next year than originally projected," says Jeff Vathje, Hewitt's Calgary-based national compensation leader. "2010 salary freezes are still more prevalent than the one or two per cent of organizations that typically opt not to provide raises each year. However, the thaw signifies increased confidence in the economy on the part of employers-and that's good news for employees."  

The average increase has dipped a little in most parts of the country, other than Saskatchewan, where employees can expect raises of 4.1 per cent, the same figure that was projected earlier this year. Those companies that are planning to decrease their original projections are doing so for three main reasons: the organization is undergoing cost reductions (58 per cent), has concerns about the economy (56 per cent), or is reacting to lower increases planned by its competitors (23 per cent).

Those who have decided to thaw their salary freezes or increase original budgets are responding to the economic recovery (58 per cent), higher increases provided by their competitors (27 per cent), or the fact that their expectations for corporate performance are better than initially forecast (22 per cent).

Renewed Talent Challenges
With the end of the recession, the war for talent will begin to heat up again as demand for skilled workers exceeds supply. "The focus is on both attraction and retention," says Prashant Chadha, a compensation consultant in Hewitt's Toronto office. "Employers are planning to recognize existing high performing employees and attract new talent by offering higher salary increases, greater variable pay payouts, and/or career growth opportunities."

While a differentiated rewards structure that recognizes employees who excel is not unusual, the emphasis on formal career development opportunities is a new tactic, according to Chadha. "Some employers took advantage of the lull in the war for talent during the recession to design detailed programs that chart a course for high performers so that they understand where they're headed at the organization and the training and guidance they'll be offered. If these employees see a clear future at their current employer, they'll be less likely to look elsewhere for a new position."

Employer attention can't be focused solely on high performers, however, when it comes to communication about pay. "Employers need to communicate to all employees their rationale for increasing or freezing salaries," says Maureen Simons, a senior communication consultant with Hewitt Associates in Vancouver. "It's essential that they equip managers to have those conversations so that everyone is sending and receiving the same message."

Simons recommends that employers consider expanding their communication efforts to include personalized total rewards statements. "These statements, whether online or on paper, provide a complete view of all that the employer provides to the individual employee-salary, benefits, retirement programs, time off with pay, and so on," says Simons. "With an understanding of the value of all that they receive, employees may not be as concerned about little or no salary increase."

However, only 39 per cent of responding organizations currently provide employees with total rewards statements. "If employers aren't making employees aware of the value of their total rewards, they run the risk of having them leave to join other companies that may offer more salary, but a poorer overall package. That's a missed opportunity," says Simons.  

'Tis the Season
Only 19 per cent of employers will provide their employees with a holiday gift or bonus at the end of this year, generally cash (38 per cent), a gift card or certificate (32 per cent) or a gift chosen by the company (22 per cent). However, for most employees, not receiving a holiday gift or bonus will be nothing new. "Only eight per cent of employers who do not currently offer a gift or bonus did so in the past and have discontinued their program," says Chadha. "The primary reason is the cost of these programs."

That doesn't mean that employers won't be making merry with their staff this season: 79 per cent of organizations will host a holiday party for employees. The most popular type of party is for employees and guests, entirely company funded by 61 per cent of employers. Less common is a holiday celebration for employees only (31 per cent), though 84 per cent of employers foot the entire bill for these festivities-on average less than $100 per employee. "We're seeing a lot of holiday lunches, rather than parties," states Chadha." Employers want to celebrate the season with their employees and show their appreciation, but need to keep costs down."

With a history of exceptional client service since 1940, Hewitt has offices in more than 30 countries, including Canadian offices in Calgary, Montreal, Regina, Toronto and Vancouver, and employs approximately 23,000 associates who are helping make the world a better place to work. For more information, please visit www.hewitt.com/canada. 

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.