Salary increases for 2024 : budgets remain high

This summer, more than 700 organizations across Canada participated in the 13th edition of Normandin Beaudry’s Salary Increase Survey. The detailed analysis conducted by our compensation specialists provides insights and trends that can be used to support strategic compensation decisions.

COMING SOON: Summary findings from our topical questions will be shared with all participating organizations in a separate. This year’s special themes cover:

• Annual performance bonuses;
• Telework and work schedule policies;
• Salary transparency;
• Managing compensation amidst economic uncertainty and difficult job market conditions;
• Equity, diversity and inclusion.

Taking a proactive approach in managing salaries will be more important than ever, given the uncertain economic climate, evolving inflation rate and difficult labour market conditions.

Many organizations across Canada are once again feeling the pressure to take action on salary increases for their workforce. Average salary increase forecasts in Canada softened compared to last year, but remain higher than normal with an average forecasted increase of 3.6% for 2024 excluding salary freezes.

Actual salary freezes in 2023 were reported by only 1% of survey respondents, while 2% of companies are forecasting a salary freeze for 2024. These particularly low numbers can be attributed to the current market conditions, as pre-pandemic wage freezes ranged from 3% to 5%.

The results show that organizations continue to adapt to market pressures with average salary increases granted in 2023 in Canada reaching 4.1%, exceeding the initial projections of 3.8% and 4.2% published in February 2022 and July 2023, respectively.

In Canada, more than half of organizations have no compensation cost containment measures in place to manage a possible economic slowdown, mainly a result of ongoing labour shortages.

Organizations of all ownership types remain under pressure when budgeting for annual salary increases. Minor variances across all company ownership types were observed for 2024 increase forecasts:

• Private sector (not listed on the stock market): 3.6%
• Not-for-profit organizations: 3.6%
• Private sector (listed on the stock market): 3.5%
• Public and parapublic sectors: 3.3%

In Canada, organizations in the professional, scientific and technical services sector reported the highest actual salary increase budget of 4.8% for 2023, compared with an initial forecast of 4.2%.

For 2024, the following sectors reported forecasted increases above the national average of 3.6%:

• Professional, scientific and technical services: 3.9%
• Real estate, rental and leasing: 3.9%
• High technology: 3.9%
• Pharmaceutical and biotechnology: 3.8%
• Durable goods manufacturing: 3.8%
• Accommodation and food services: 3.7%

Current economic conditions present challenges for organizations. Key economic indicators impacting organizations include:

• The unemployment rate, which rose slightly over the past year, but remains low: 5.5% in Canada, compared to 4.9% for the same period in 2022.
• The Consumer Price Index (CPI) deceleration in recent months: up 3.3% year-over-year in July in Canada, slightly above the Bank of Canada’s target range of 1% to 3%. While inflation is slowing down, interest rates remain high and have started to impact consumers.
• Labour shortages across North America, driven primarily by an ageing population, career changes and early retirements brought on by the pandemic.
• The risk of recession and increased volatility of organizations’ financial results, mainly due to:
  • Rising interest rates;
  • The labour shortage, which—despite an uptick in immigration in recent months—allowed the Canadian economy to bounce back in Q1 2023 with higher-than-expected growth.

Increases granted in 2023 (excluding salary freezes) were slightly below initial forecasts, with the average increase in Canada coming in at 4.1% compared to 4.2% projected last February. These figures may indicate that organizations are being more cautiously optimistic , since the reverse trend has been observed in recent years with actual budgets exceeding projections.

Quebec, Ontario, British Columbia and Yukon reported 2024 projections that were above or equal to the national average of 3.6%, while the other provinces and territories projected 2024 increase budgets that were slightly below the national average .

Nearly half of Canadian organizations allocated an average additional budget of 1.3% in 2023, which is slightly lower than the initial forecast of 1.4%. For 2024, forecasts show that 43% of organizations plan to secure additional budgets, averaging 1.0%. Organizations surveyed are planning on using these additional funds to:

• Make market adjustments (75%)
• Retain employees in strategic/critical roles (58%)
• Differentiate rewards for high performers (55%)
• Retain employees with a perceived retention risk (46%)
• Address compression and internal equity challenges (40%)
• Accelerate the progression of employees in the lower end of their pay range (39%)
• Grant off-cycle salary increases (24%)

With additional budgets on top of normal salary increase budgets, the average for total salary increases reached a Canadian average of 3.9%, with Quebec and Ontario leading the way with 4.3% and 3.9% respectively.

The average salary structure increase in 2023 in Canada sits at 3.4%, excluding organizations reporting a structure freeze, and 3.0% when including companies reporting a structure freeze.

Actual 2023 salary structure increases (excluding freezes) are higher than the Canadian average reported over the last three years:

• 2022: 3.0%
• 2021: 2.1%
• 2020: 2.2%

Forecasts for 2024 point to more modest salary structure increases, with an average of 2.9% compared to 3.4% for increases granted in 2023 (excluding freezes).

The salary structure increases reported serve as anecdotal evidence of a market under pressure, with organizations putting in the extra effort to improve the competitiveness of their pay structure while also trying to ensure their structures keep up with annual salary increases.

Despite another year of higher-than-normal forecasted salary increases, companies would be wise to exercise caution, as salary increases represent a permanent increase in fixed operating costs.

Organizations hoping to set themselves apart may benefit from adopting more creative approaches in finding the right mix of monetary and non-monetary components as part of their total rewards offering. Normandin Beaudry’s experts believe that striking the right balance is what can help organizations stand out from the competition.

Contact our specialists ignited by total rewards to learn more about the results of this survey.