Does Money Talk?

In this era of tightened belts, organizations are leveraging every tool in the compensation toolkit to attract and retain top talent

By Melissa Campeau

In recent years, the necessity of attracting and retaining top talent has become the mother of HR innovation. Back when direct compensation budgets had more give, outsized salaries and generous raises were the go-to tactic for drawing – and keeping – the best and the brightest.

For the past several years, though, direct compensation growth has been extremely modest. At the same time, Canadian workplaces have been facing a talent shortage in many key areas, resulting in fierce competition for workers with in-demand expertise.

Increasingly, organizations are finding the solution to these competing pressures lies in a more sophisticated understanding of what drives and inspires employees. While direct pay may always be the first reason people come to work, a tailored total compensation package can tap into all the other factors that help build loyalty and a strong employee-employer relationship. Organizations that can find just the right recipe for their total compensation mix have a far better chance at flourishing in a steady, no-frills economy.

Compensation projections

There are a number of factors at play impacting the current pay environment in Canada.

“We’re in a period of tenuous economic growth and the new normal for growth is smaller than what we were used to,” said Allison Cowan, director, Workplace Health, Total Rewards and Labour Relations Research at The Conference Board of Canada. “This does have an impact on pay.”

There is a hint of growth on the horizon, but it’s modest.

“For 2018, employers indicate that they will be back in the salary raise game, which is interesting because in 2016 and 2017, we had quite a number of employers projecting, and following through, on a plan for no adjustments, right across the board,” said Leslie Lemenager, regional president, International, Benefits and HR Consulting at Gallagher. “Still, employers are indicating that their salary adjustments are going to be in the 3 per cent or lower range with a lot of employers coming in at 2.5 per cent, so it’s still not a great story but it’s an improved story over where Canadian employers have been in recent years.”

Adjustments, by sectors

By industry, Morneau Shepell’s Trends in Human Resources for 2018 found employers are relatively optimistic about the coming year. Those expecting better financial performance in the coming year outnumber those expecting weaker performance by four to one. Despite the optimism, employers are still cautious about salary increases, likely reflecting a concern that rising interest rates could dampen economic growth.

The Morneau Shepell survey identified industry sectors expecting higher than average salary increases in 2018: utilities at 2.9 per cent and manufacturing and wholesale trade at 2.7 per cent. These industries may be catching up after lower than average increases over the past few years. Expected salary increases in sectors such as finance and insurance are expected to remain strong at 2.7 per cent next year.

Other industries are anticipating increases lower than the national average. Mining and oil and gas, for instance, expect salary increases to average 0.8 per cent. Salary increases for workers in public administration, health care and social assistance are expected to average 1.7 per cent next year, with educational services slightly higher at 1.9 per cent.

Contingent workers, thickening the plot

For HR professionals, one emerging piece of the compensation puzzle is the growing number of contingent and non-traditional workers within many organizations.

“We’ve seen signs that the contingent workforce is growing,” said Cowan. “I’ve seen estimates that it could be as high as 40 per cent of all workers in just a few years.”

That presents a challenge to the traditional policies and structures around compensation and benefits.

“I do think that organizations will need to continue to have a stable core workforce, but HR is really going to need to be ready and able to handle these new employment relationships in greater numbers,” she said.

Beyond salary, employers need to consider how the total compensation package might include those contingent workers.

“While I do think it’s true that some workers prefer to be in control of their own pay and benefits and retirement planning, not everybody is ready for this responsibility or ready for the unexpected situations when they come up,” said Cowan.

Offering a total compensation package to every employee – one that addresses the challenges contingent workers may face – is an investment in the health, wellbeing and productivity of the entire workforce.

Alternative benefit and compensation packages

In response to that challenge, “portable benefits” are cropping up on the radar for a growing number of employers.

“These are benefit plans that are portable from one employer to the next to support that contingent workforce,” said Cowan. “We might also see employers offering access to group insurance plans for better purchasing power for employees, but without being the plan sponsor – kind of a DIY model.”

Similar approaches could become popular for retirement planning as well, says Cowan.

“With any plan like this, it means employers would be riding that fine line between providing simple access to these things and not managing them in a hands-on way, but also putting supports in place to make sure people have all the information they need to make decisions,” she said.

Differentiating pay for top performers

Whether workers are contingent or permanent, there are top performers among them. How organizations reward that cream of the crop is changing, too, given today’s leaner direct compensation budgets. In the past, many organizations doled out incentive or bonus pay (sometimes called variable pay) to their highest performing workers. While that’s still happening, it’s been a muted, more modest affair for several years now.

“In our report, we’re seeing that organizations are finding it hard to differentiate top performers because of limited budgets,” said Marvin Reyes, principal at Mercer Canada. But in many cases, they’re still managing to do it. The Mercer 2017/2018 Compensation Planning Survey found that while salary increases are holding steady for average performers, they are creeping higher for top performers. According to Mercer’s data, top performers are slated to receive a salary increase 1.8 times higher than average performers in the coming year.

The Conference Board of Canada’s survey Compensation Planning Outlook 2018 found that in 2017, top performers received an average salary increase of 3.7 per cent, satisfactory employees were at 2.3 per cent and poor performers had just a very minor increase.

“As economic conditions improve across much of Canada, employers are looking to make strategic investments in top talent,” said Reyes. “But it’s important to get the investment right. This means looking at compensation holistically, from a total rewards point of view.”

“That right mix of rewards for all workers is something more and more organizations are working toward implementing,” said Michel Dubé, principal with Morneau Shepell’s compensation consulting practice. “In my view, money is not a strong motivator. The work environment needs to be very well suited to the culture of the people who work there to foster a sense of belonging that goes well beyond the value of direct compensation.”

Beyond direct compensation

“Non-monetary rewards are a really critical piece of the total rewards package,” said Cowan. “Many organizations invest considerable time, energy and financial resources into their programs.”

The most popular rewards or perks, says Dubé, include company cell phones, paid association dues and employee discounts for products and services, as well as referral bonuses. For more senior executives, he says business club dues and tax counseling are popular perks.

“Our national benchmarking survey showed that things like pharmacy benefits, dental and vision benefits, retirement planning and financial education are all still very important to employees across Canada,” said Lemenager.

Organizational health and wellness programs remain popular, and in many cases are becoming more sophisticated, addressing a broader definition of wellness that includes the physical, mental and financial.

“Sometimes organizations include health risk assessments and take an educational approach,” said Cowan, “or they might offer fitness reimbursements or an on-site fitness centre.”

Flexible work

Letting employees determine when and how they work is becoming more and more common, too.

“From our Canadian national benchmarking survey, we’re seeing that a number of employers are moving to flexible work hours,” said Lemenager. “More than half of employers – 56 per cent of them – engage in some sort of flexible work arrangements. In addition to flexible hours, flexible days are becoming important to workers, with 32 per cent of employers offering that as an option.”

Telecommuting and compressed workweeks are also in the mix, and nearly a quarter of respondents (22 per cent) offer unpaid sabbaticals as an option, as well.

Recognition

A 2017 Benefits Canada survey found most organizations are already engaging in another popular reward: 81 per cent of Canadian employers offer company-wide recognition programs.

“It may seem obvious, but recognition is one of the most important non-monetary rewards,” said Cowan. “It might take the form of peer-to-peer recognition, or a manager-to-employee program. Or it might be something more informal, like a handwritten note about a job well done or a word of congratulations in a crowd.”

The critical piece to understand, says Cowan, is that recognition is personal.

“It can be challenging to find a recognition program that suits everyone’s needs and all employees’ desires but there are some commonalities,” she said. “Recognition should be timely, sincere and given in the right environment.”

Opportunities for growth

Opportunity for career development is high on many employees’ wish lists.

“In previous years, we saw learning and development was top of mind for employees, but it’s not anymore,” said Reyes. “According to Mercer’s 2017 Global Talent Trends Report, right now, employees are thinking about pay, their careers and opportunities for promotion.”

For an employer, offering this kind of support can take many forms.

“An organization can support professional development, providing networking opportunities where employees can be either a mentor or the mentee,” said Cowan. “An employer can also offer increasing responsibilities or the chance to step into a new project.”

Holistic, strategic and personalized

With everything from mentor opportunities to flexible hours as possibilities, it’s an HR professional’s role to assess what best suits an organization and its workers.

“It has to be strategic,” said Reyes. “Everything, all put together, needs to serve a purpose and be aligned with the employee value proposition. Choices need to reflect values, belief and culture.”

Finding ways to personalize offerings for each employee is important, too, says Reyes.

“Employees want organizations that are going to invest in them, and the idea of investment could mean very different things depending on who you talk to,” he said. “Whether it’s pay, benefits, health and wellbeing or something else, the days of having one employee value proposition to meet the needs of the entire workforce are long gone.”

There’s also a need to look beyond the current employee population and consider talent mix to chart a course in the right direction.

“An organization needs to think about what they’re trying to achieve, what their industry looks like and how well they’re competing for the talent that will help them reach their next steps,” said Lemenager.

“You need to know where you’re going,” said Cowan. “And you need to have a total rewards strategy that is agile and able to match that trajectory.”