What are the important factors to consider in compensation planning?

As we move through the final quarter of 2021, many employers are thinking about salary increases or other forms of rewards for the upcoming year. For some, that may be a relatively smooth process, particularly if you have a clear compensation structure and philosophy in line with a strong vision and retention plan for the coming year. For others, however, this may feel like much more of a daunting task. We hope the information in today’s post will help guide these important decisions and, ideally, simplify that process.

Salary increase projections for 2022

Knowing what other organizations are doing in terms of increase rates can certainly be a helpful place to start, and this is the time of year when data is typically released. With that in mind, based on the average of the major firms gathering compensation data (Normandin Beaudry, LifeWorks Inc., Mercer, PCI Compensation Consulting, and Willis Towers Watson), the projected increase to Canadian salaries in 2022 is expected to be just over 2.7%, with BC among the highest at 2.9%. According to LifeWorks, the industries forecasting the highest increases (3%+) are accommodation, construction, food services, information technology, manufacturing, and wholesale trade. Normandin Beaudry also noted manufacturing (3%), construction (3.4%) and information technology (3.6%) among the highest increases.

What drives compensation decisions in your organization?

While the increase projection research provides a reasonable and effective baseline for what other organizations and industries are doing, it’s a good idea to base salary increase decisions not only on the market, but on your overall compensation philosophy. In other words, before moving forward with a raise percentage that works for other organizations, clarify the guiding principles that drive compensation decisions and what works for your organization:

  • What’s driving the need for an increase? Is it retention, merit, or your annual process?
  • What’s happening in the market? i.e., the competition, economy, industry overall
  • Where do you want to target in the market? At, above, or below the median? Are your salaries currently below where you want to target? Are they internally equitable?
  • Under what circumstances do you wish to provide increases? i.e., COLA, tenure, performance, promotions, and/or “just because”
  • What makes up your total compensation package? i.e., benefits, vacation, incentives, perks, RRSP, etc.
  • Can your organization afford it?

While it may seem like a lot to address, a solid compensation philosophy will support your decisions about increases going forward and provide you with a consistent and transparent platform to communicate to your employees – not just this year, but for subsequent ones, as well.

Alternatives to salary increases

Finally, whether or not your organization will proceed with increases or an alternative, it’s important to do so in a meaningful way. For example, while a 1% increase or less may be barely noticeable, there are other ways you can reward employees, where circumstances allow – particularly as employees are more focused on flexibility and balance than ever before. Below are a number of possible alternatives to salary increases:

  • Remote work flexibility and varying hours  
  • Financial support for remote work (e.g., chairs, internet/cell-phone allowances)  
  • Health and wellness allowances or plans
  • Performance-based pay, such as one-time bonuses  
  • Professional development, such as in-house mentoring programs and/or allowing time for employees to engage in lower-cost online training/research
  • Additional paid time off
  • Financial education and resources
  • Implementing or increasing retirement and savings plans

Regardless of whether you plan to implement increases, how much, and/or whether you look at alternatives, start with ‘why’: why you want to do so, and what you hope to achieve. From there, you can tackle the ‘what’ and ‘how’.

Let Jouta help you develop your compensation philosophy to get clear on the why, what, and how of total compensation planning.