Wage growth expected to surge

After much fretting about inflationary pressures in the economy, your clients may now finally see the upside — they could be in for their biggest pay increase in the past five years, according to a pair of reports released on Thursday.

A survey by Watson Wyatt indicates that cost-of-living adjustments in 2007 will likely average 3.5% across the board. A study by Morneau Sobeco essentially concurs, putting average pay increases at 3.4%.

However, inflation is not the only factor helping to drive wages higher; as well, the tight labour market in some areas is forcing employers to offer increasingly generous compensation packages to attract — and keep — the staff they need.

“The continuous growth of the Canadian economy, combined with historically low unemployment rates, are forcing employers to take a closer look at their compensation practices to ensure they’re able to attract and retain top talent in an increasingly competitive environment,” says Graham Dodd, Western Canada managing consultant with Watson Wyatt Canada. “Given these conditions, we expect that actual salary increases will likely exceed respondents’ forecasts.”

While Canadian employers are starting to tie pay to performance, the difference between the top performers’ raises and the average employees’ raises is still relatively small, according to the Watson Wyatt report. To put a bit of perspective on the average figures, top performers are expected to garner increases averaging 5.6%, while the average performer can expect a 3.1% hike.

“The move to differentiate compensation of low- versus high-performing employees is starting to take hold in Canada, as employers become more strategic about tying pay to performance,” said Dodd. “However, the survey findings reveal there is room for further improvement as the current difference in merit-pay increases is not particularly significant.”

Performance is only one factor affecting the level of pay increases Canadian workers can expect. The tighter the market, the fatter the pay packet, according to the report from Morneau Sobeco.

As a result of market conditions, not all provinces are facing the same pressures. Across Western Canada, 2007 raises should average 3.3% for staff-level employees and 3.9% for executives. Albertans can expect the highest salary increases, with employees expected to see wages rise by 3.5%, while executives can expect raises of 3.9%. In Ontario, raises are expected to average 3% for staff-level employees and 3.3% within the executive suite. In Quebec, raises should average 2.8% (staff) and 3.3% (executives), while Atlantic Canada should see raises averaging 3.1% and 3.4%.

Within each province, there will also be variation between industries, with workers in Alberta’s energy sector expected to receive raises slightly higher than the provincial average, at 3.8%. Meanwhile, central Canada’s manufacturing sector employees will lag behind the Ontario average, seeing wage increases of only 2.2%.

The two industries that are expected to receive the largest increases, according to Watson Wyatt, are “professional/business,” where the average raise is expected to be 3.8%, and finance, with an average salary increase of 3.7%.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com