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Economic turbulence has negative impact on projected salary increases for next year

Canadian employers expect salaries to rise by an average of 2.6% in 2013, according to Morneau Shepell’s annual Compensation Survey.

This is a 0.2% drop from the responses in last year’s survey. The 2.6% average includes expected salary freezes and excludes promotional or special salary adjustments. Respondents say that projected base salary increases for 2013 are within the range observed last year, which was between 2% and 3.5%.

Overall, respondents appear to be less optimistic than last year in terms of growth and profitability in their organizations.

Morneau Shepell’s 30th annual Compensation – Trends and Projections survey was conducted between mid-June and mid-August, 2012, with input from over 250 organizations employing one million people in Canada. The benchmark organizations are mostly from the manufacturing (28%), services (24%), and finance (14%) sectors.

Respondents in the finance sector expect the greatest drop in salary increases, with a forecast of 2.7% increases for management and professionals in 2013, compared to 3.4% last year.

The overall expected average increase of 2.6% is twice the rate of increase in the Consumer Price Index, which at the time the survey was conducted was 1.3%.

According to survey respondents, for sponsors of defined benefit pension plans, the key priority is to rein in escalating pension costs. Although interest rates are at historical lows, these sponsors are implementing liability-driven, investing strategies. And as a response to exploding pension costs, employers are looking into all available alternatives to modify pension cost sharing and risk.

For sponsors of defined contribution plans, the trend is to establish a realistic retirement income scenario. In addition to retirement income calculators and other decision tools, the trend is to show a personalized scenario to participants so that they can make adjustments to their retirement savings strategy.

Survey respondents again identified cost control and disability management as their top priorities for 2013 for their benefits program. Faced with continuous cost increases and higher utilization rates of expensive drugs, employers are finding it a challenge to implement cost-control strategies without reducing access to medical therapies for employees.

Morneau Shepell has noted a trend to increased use of Employee and Family Assistance programs (EFAP) to address mental health issues in the workplace, as well as employees and family members accessing EFAP through new technologies which allow them to get help immediately.

According to the survey, for 2013, the key human resource priorities for employers are the same as last year—talent acquisition and employee retention—especially in the context of an aging population.