Compensation increases in Canada fall short of projections: report

Actual compensation increases being given to Canadian employees in 2024 are slightly lower than projected, indicating a trend toward tighter spending among employers.

In November 2023, Mercer reported that the projected national average merit increase budget for 2024 would be 3.1%, with a total increase budget of 3.6%. However, by March 2024, the actual figures showed a slight drop.

The average merit increase delivered was 3.2%, while the average total increase came in at 3.5%, a reduction from the original projection, found the survey of more than 430 organizations across various industries in Canada.

Despite lower-than-expected increases, salaries are still rising at a rate higher than pre-pandemic levels and above inflation, according to Mercer.

Industry variances and promotions

Several industries provided merit increases above the 3.2% national average. Mining & Metals led with an average merit increase of 3.9%, followed by Consumer Goods and Life Sciences, both at 3.5%. On the other hand, some sectors, including High Tech and Retail & Wholesale, reported merit increases significantly lower than the national average, at 2.6% and 2.8%, respectively.

Promotions are also seeing a slight decline, with employers planning to promote 8.0% of their workforce in 2024, compared to 8.1% in 2023. Despite fewer promotions, the average base pay increase for a one-level promotion is expected to be higher than last year, said Mercer.

According to the report, this increase could lead to higher spending on promotions, even with a lower percentage of employees being promoted.

Off-cycle increases and salary structures

Off-cycle increases remain a common practice, with 48% of survey respondents indicating they are giving these increases on an as-needed basis for reasons such as promotions, retention concerns, internal equity, and market adjustments.

Interestingly, the off-cycle increase spend is highest for the hourly population (0.9%), compared to non-executive salaried employees (0.8%) and executives (0.6%), found Mercer.

Regarding salary structures, most employers continue to manage pay through formal salary structures. Now that many companies have settled on hybrid or remote work models, 41% of organizations operating in multiple locations use a national approach to pay.

Employers that use geographic differentials typically have a national salary structure with variations based on cost-of-labour factors. The average salary structure adjustment for 2024 was 2.8%, but only 1.8% when including zeros.