This year is flying by! Many of us have made it through the annual increase and performance management season and are hopefully able to take a breath.

So, are you curious? I know I am. There is the continued anticipation of a recession and the labor market remains tight, companies report they are in a “growth” stage. Just how did employers spend their annual increase budget?

Let’s take a peek!

Sticking to predictions

In November 2022, participants of the Canada Compensation Planning pulse survey reported that they were budgeting 3.7% for merit increases and 4.1% for total increases (on average, including zeros). Now, in March 2023, when asked what was actually delivered to employees, it appears they paid out right around the predicted budget — average merit increases of 3.6% and total increases of 4.1%. Also, note that this is still higher than2022, when actual merit and total increases were 3.1% and 3.4%, respectively.

Other adjustments slowing

Earlier on in the labor shortage, we saw employers providing higher pay for new hires and making market and equity adjustments in greater numbers and/or percentage than in the recent past. The national average base pay change from January 1, 2022 to September 30, 2022 was 4.3%, which indicated that pay was being driven up by more than annual increases. However, when looking at base pay changes from October 2022 to March 2023, the national average base pay increase was only 3.6%, while the median was at 3.0%. Interestingly, the base pay changes in Canada were below what we found in the United States for the same period.

Mercer QuickPulse™

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Highs and lows by industry

There are some significant differences when you look at pay changes by industry. Retail and Wholesale, Other Manufacturing, and Consumer Goods all significantly outpaced the national average for actual merit increases. Banking, Chemicals, and High-Tech were lower than the national average merit, all delivering 3.4% average merit. However, both Banking and Chemicals provided total increases closer to the national average.

Incentives leveling out

We are seeing a return to more typical payout distributions for short-term incentives. Over half of companies who have short-term incentives reported paying out plus or minus 25% of target. Only 12% reported paying 125% of target or more. Perhaps this is a result of recalibrating performance targets, not necessarily weaker performance.

Approaching transparency more broadly

We are starting to see an uptick in companies choosing to consider revealing their pay practices to employees and prospects. Though not as much of a regulatory issue as in the US, the expected impact on compensation practices in Canada is expected to be significant as they feel the pressure to become more transparent about pay. While just under half of the participants report that they comply with local laws and have no plans to broaden transparency beyond what is required, another 26% plan to go beyond what is required by revealing pay ranges internally and externally with a more standardized approach. But, sharing pay ranges with the employee population does open a whole can of worms, so for most companies it’s likely to be an iterative process that includes auditing, education, and multi-phased communication.

Looking ahead

Are we seeing a slowdown in compensation, or just a return to normal? Maybe they are one in the same. In any event, it seems the difficulty in finding and keeping employees, particularly in certain sectors, is here to stay. It makes sense that organizations are setting aside the more reactive tactics of the past several years and looking more strategically at how they will be attracting and retaining much needed talent. According to the inaugural QuickPulse™ survey that collected data in March 2023, half of the US and Canada respondents plan to revisit their total rewards strategies in the next 6 to 12 months in order to increase their ability to attract and retain employees.

Do you need help adjusting your compensation strategy for the challenges today and to set you up for success in the future? Mercer’s got your back! Email us or call 1-855-286-5302.