Aon recently released its annual Canadian Salary Increase Survey, which found that Canadian employees can expect an average total salary increase of 3.0 per cent in 2016. That is up from this year’s estimated average salary increase of 2.8 per cent, and suggests that employers are expecting an improvement in business conditions in 2016.

Aon surveyed more than 475 organizations across the country on expected salary increases through 2015 and next year, and found that there was wide variation in remuneration among industry and employee groups. For instance, resource-based industries are lagging other sectors this year and anticipate lower increases in 2016. As well, within their organizations, employers are increasingly emphasizing the importance of variable pay versus general increases, with sharp divisions arising between performance levels.

“Given the divergence in the fortunes of different sectors this year, it’s not surprising to see that employers are rewarding their workers in response to business conditions,” said Suzanne Thomson, senior consultant, Global Data Solutions, Aon Hewitt. “On the other hand, our survey shows that employers across sectors remain under immense pressure to keep costs in line while still attracting and retaining top talent. As a result, they are turning to variable pay as a way to recognize and reward performance without growing their fixed costs.”

Professional Services, Aerospace to see the highest increases, while resource sector lags
The Canadian economy in 2015 has been a tale of two realities: a decline in energy and other resource-related sectors, spurred by the oil price shock and global weakness in commodities demand; and a strengthening of manufacturing and services-oriented sectors, which benefit from a recovering U.S. economy and a devalued Canadian dollar. Aon’s Canadian Salary Increase Survey demonstrates how those two realities are impacting employee pay.

In the Services industry, the sector with the highest expected salary increase next year is Professional Services, which includes Advertising/PR, Accounting, Consulting and Legal Firms. 2016 increases are anticipated to average 3.5 per cent in the sector, following a strong 2015 in which increases are averaging 3.7 per cent. Also in Services, increases projected for employees in Application Services/Consulting (3.2 per cent), IT Enabled Services (3.4 per cent) and Retail (3.3 per cent) are above the national average.

In Manufacturing, meanwhile, Aerospace leads the way, with anticipated increases of 3.4 per cent next year, followed closely by the Consumer Products (3.3 per cent) and Pharmaceutical (3.1 per cent) sectors.

It is a far different story for resource-related sectors. After being at the top of all industries for the last few years, Oil & Gas reported a 2.5 per cent actual total salary increase in 2015 and is projecting 3.0 per cent in 2016. Other sectors with the lowest projected increases are Mining (2.7 per cent), Forest & Paper Products (2.6 per cent) and Metals (2.1 per cent).

The challenges in resources are reflected by geographical disparities. For example, Alberta in 2014 led the country in average salary increase, at 3.6 per cent. In 2015, however, increases averaged only 2.6 per cent, according to the survey. In resource-rich Saskatchewan, meanwhile, salary increases will average just 2.2 per cent – the lowest among all provinces. By contrast, Ontario (3 per cent for 2015 and 2016, up from 2.8 in 2014) has seen consistent increases year over year.

“The level of rewards that industries are able to offer employees vary widely and are typically based on competitive pressures and company performance,” added Thomson. “With the oil price shock and weakness in commodities, we are seeing a real impact on resource-sector compensation.”

Paying more for performance
In general, Canadian employers forecast higher salary growth in 2016 over 2015, largely in expectation of a strengthening economic recovery. According to the survey, however, these increases are unlikely to apply equally to all employees. In fact, employers expect general salary increases across employee groups to average only 1.3 per cent in 2016; factoring in the effect of salary freezes and pay cuts, that number falls to 0.8 per cent. Both of those general increases are lower than the 2015 levels of 1.5 per cent and 0.9 per cent, respectively.

In contrast, employers are emphasizing variable pay practices that reward more highly engaged employees with higher salary increases. While overall merit increases are expected to average 2.7% next year, the Aon survey revealed wide variance among different performance tiers. Top performers can clearly expect higher increases in 2015.

According to the survey, the expected variable pay averages across performance tiers for 2016 are:

• 5% for those who Far Exceed Expectations;
• 6% for those who Often Exceed Expectations;
• 5% for those who Meet Expectations.

“Competitive pressures are intense, and we are seeing many companies shifting more of their spending to variable pay,” said Thomson. “Pay is a top engagement driver for employees, and as the market continues to improve, organizations will need to differentiate through variable pay programs to attract and retain top talent.”

For more information, view Aon Hewitt’s Salary Planning Report 2015-2016.