First look at increase budgets for North America

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September 27, 2021

US and Canada Compensation Planning Pulse Survey
August 2021 edition

Highlights

  • Merit increase budgets are projected at 3.0% in the US; 2.6% in Canada.
  • Employers are seeing a need to focus on certain critical job families, such as IT and Data Science.
  • Sign-on bonuses and retention bonuses are being used as a way to try to attract and retain employees.
  • Fewer employers report being transparent about salary ranges than in prior years.

While so many things related to the world of work have been thrust into relative upheaval, annual pay increases and structure adjustments seem to be untouched. With over 1,500 participants combined between Mercer’s US Compensation Planning and Canada Compensation Planning pulse surveys, we have a preliminary view into the annual compensation planning process underway right now. Take a look and see how this aligns with the budget you are planning for merit, total, and promotion increases and for salary structure adjustments.

Possible upswing in budgets

Although almost all respondents indicate that they are in the very preliminary stages of developing their increase budgets, it seems from their responses that increases may be budgeted slightly higher than in the prior couple of years. You may recall that actual merit increases, as well as total increases, took a dip in 2020 and 2021.

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This initial report is our first chance to ask employers what they think they will be budgeting for merit, total, and promotional increases.

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Looking a bit closer at the data reveals a return to optimism, which had dipped slightly in 2021. In this pulse, no US or Canadian employers indicated that they anticipate a company-wide salary freeze, whereas in November of 2020, 3% of US respondents and 4% of Canadian respondents indicated they planned to freeze salaries.

Differentiating increases

Employers in both countries will continue to use individual performance, among other criteria, to differentiate the distribution of merit increases.

Additionally, due to challenges in attraction and retention, compounded by the increasing criticality of certain job functions, some employers report that they will prioritize or spend more of their salary budget on job families, such as:

  • Data Analytics/Warehousing & Business Intelligence
  • Engineering & Science
  • IT, Telecom & Internet.

Employers holding back

While respondents in both the US and Canada are mostly using formal salary structures, which they adjust annually, they may not be communicating much about these structures to their employees.

Although many influences have increased the call for employers to be more transparent about their pay practices, the transitions seem to be slow. In both the US and Canada, survey results actually seem to show that fewer companies report being transparent with employees about salary ranges in 2021 than in 2019.

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Following typical patterns, employers do anticipate adjusting salary structures by an average of 2.5% in the US and 2.2% in Canada, with some variation based on the level of the grade/band (e.g., executive-level bands might be adjusted at a different percentage than professional, non-managerial bands).

Voluntary turnover on the rise

As the pandemic has unfolded, and the effects felt by employers and employees, in many ways the effects experienced in Canada seem to mirror those experienced in the US, with the effects felt a little bit later in Canada. That might be what is happening in terms of turnover, or perhaps the turnover situation in Canada is just different from that in the US and will remain that way.

As of early August, 55% of the 1,107 US respondents indicated that they have seen an increase in voluntary turnover compared to pre-COVID levels. Most felt the increase in turnover is company-wide, while some felt that it’s more significant in job families such as Customer Service & Call Centers, Engineering & Science, IT, Telecom & Internet, and Production & Skilled Trades. Additionally, it probably comes as no surprise that the US employers have seen increased turnover among employees making less than $50K. Any organization in the US that relies on hourly or lower-wage employees is struggling right now.

The picture in Canada is a bit different. When asked if they had seen an increase in voluntary turnover compared to pre-COVID levels, only 35% of the 434 Canadian respondents indicated that they had seen an increase. Of those, the majority (57%) felt that turnover had increased organization-wide. When they saw increases in turnover in particular job families, the increase was occurring in many of the same technical families as seen in the US. Although numbers are pointing to a slightly less dramatic situation, our consultants in Canada indicate that the situation is still challenging, particularly in terms of attracting hourly or lower-wage employees.

Financial incentives to attract and retain

Let’s look at what employers are doing to attract and retain employees.

We learned in the last US Compensation Planning pulse survey that, for the hourly population, employers were increasing starting pay. Beyond that, some were using sign-on bonuses to attract potential employees.

For the broader employee population, it seems that employers are selectively using sign-on bonuses to attract candidates and some retention bonuses to keep current employees, likely in key roles.

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But, employers likely have been listening to their employees—increasing pay or providing bonuses is not going to solve their challenges in this rocky talent market.

Employees have made it clear that they are looking for more. They want meaning in their work, flexibility to manage their family and work lives, affordable healthcare, and access to mental health providers.

What now?

First things first—make sure you are paying competitively.

Next, look at your annual increase budget for 2022 and identify any critical job families or other groupings where you may need to pay special attention in terms of providing pay increases or incentives.

Then, it’s time to take on the bigger task. What do your employees want beyond pay? What will make your jobs attractive to the qualified talent sitting on the sidelines? It’s time to dig deeper by listening to your employees and taking action. Get that on your project calendar and prepare to shake things up.

Current and potential employees are asking employers to hear them and to respond by providing customized rewards and benefits offerings that meet them where they are.

Looking for more compensation planning information? Participate in our next US or Canada Compensation Planning pulse survey.

surveys@mercer.com 1-866-605-1031

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