We’ve got projected salary increase budgets

October 14, 2020

2020 Canadian Compensation Pulse Survey – September Edition

Over the last several weeks, the amount of calls asking us for merit increase budget numbers has increased dramatically. It’s that time of year — everyone is working on budgeting. And you know that we typically publish our annual Canadian Compensation Planning Survey results in August. So, it’s understandable that you’re looking for that guidance!

This year is a little different though. With the global pandemic and its impact on the economy and labour market, we quickly realized that asking about compensation planning at one point in the year was probably not going to cut it this year. Instead, we opted to conduct a series of pulse surveys from May through July and then again in September. And, wow, are we glad we did! We’ve learned so much from you.

Compensation’s chicken or the egg story

Based on the pulse survey results, we’ve confirmed that many of you don’t finalize your annual increase budget for the coming year until very late in the current year (e.g., November or December). With the economic impact of COVID-19 still uncertain, we expect there will likely be adjustments to budgets as organizations determine their reinvention strategy for 2021.

In this latest edition of the pulse survey, of the over 450 organizations that participated, 55% indicated that they are in preliminary stages of their salary increase budget planning. Only 8% indicated their budget had been approved by leadership or the Board, while 17% had put forward their numbers for approval. And, we confirmed that this is not unusual. When we asked about budgeting timelines in a typical year, most indicated that they start the process in September/October and do not finalize budgets until November or December. As a result, those of you who use compensation planning numbers published earlier in the year are relying on very preliminary numbers and those very preliminary numbers are influencing what you propose for your organization’s salary increase budgets.

So which came first, the compensation planning data or the participants’ budget decision? It’s all interconnected.

What does this mean for you? It means that just like with many other decisions you’re being asked to make, you can’t just consider one input in isolation (i.e., the salary budget number in published surveys).

Amongst other things, when setting your salary increase budget this year, you need to customize your proposal by taking into account:

  • Your company’s economic situation
  • Competitive pay positioning of the critical jobs needed to reinvent and thrive in the future
  • Any planned hiring or reductions in force
  • Your differentiation strategy
  • The broader employee value proposition — your employees’ wants and needs. What do they value?
  • Your organization’s desired future state and the strategy to get there — what are the investments in people that you need to make now, in order to drive employee and business success in 2021 and beyond?

Salary increase budgets – what we do know

Of the organizations that plan to have a merit increase cycle and not freeze salaries (50%), the majority indicated that they will be setting a similar budget to what they did last year. About 3 in 10 companies indicated that they would be setting a smaller budget. Those that will be setting a smaller budget will plan to either be giving increases to fewer employees and/or increasing differentiation by performance, skills, or market competitiveness.

For those that reported a proposed merit increase budget, the average for all employees, including zeros (e.g., freezes) is 2.0%. When excluding zeros, that number increases to 2.4%. Total increase budgets, which include market and other adjustments, were reported to be 2.5%, excluding zeros.

Looking more closely at these numbers, there is some variation in budget projections based on how severely the company feels they were impacted financially by the pandemic. For those that feel they were the most negatively impacted, the average merit budget is 1.4%, including zeros and the total increase is 1.9%.

Be sure to participate in the November Canadian Compensation Planning Pulse survey!

Structure adjustments

With structure adjustments, the responses indicate that companies may hold off on moving their midpoints this year. Companies indicated that in a typical year, 69% adjust salary structures annually. However when asked if they will adjust structures this year only 35% indicated they will. The average projected structure adjustment reported is 1.9%.

Go forward with confidence

While responses aren’t as “final” as we’d like them to be, keep in mind that this aspect is really no different than other years. Take what you know from published compensation planning data and then consider what’s right for your company. Confidently develop a proposed annual increase budget and structure adjustment recommendation by considering the market data, but emphasizing your own company’s situation.

Not sure what to do? We’re here to help.

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