Compensation and Retention

Compensation and Retention

The direct correlation between compensation and retention has been well documented over the years. Pay your employees more, and they are more likely to stay and perform. But what happens when you can’t pay them more? How do you keep your best? This is exactly the dilemma that a lot of Canadian companies are facing going into 2016.


According to a Mercer Canada’s 2015/2016 Canada Compensation Planning Survey, companies are limiting base pay increases to 2.8% in 2015 (down from 3.0% in 2014). Faced with the economic uncertainty and falling commodity prices, organizations will be extremely cautious and largely unwilling to increase their fixed costs.

While 2.8% is an average forecasted increase, the reality is that this will vary widely by type of industry, geography and individual performance.

  • About 7% of the workforce can expect raises more than 4.6% as “high performers.”
  • The weakest performers, about 3% of employees, will receive raises of just 0.2%.
  • 8% of organizations will freeze wages across the board, while 37% of organizations in the energy sector will freeze wages altogether.

And if the Canadian economic situation doesn’t give you cause for concern, consider the following. In an upcoming survey that Mercer Canada will be publishing in the next few weeks that looks at employee attitudes, your best employees may be already considering a job change.

  • 2 out of 5 private sector employees in Canada are considering leaving.
  • 3 out of 5 employees who say they are satisfied with the type of job they do, are considering a job change.
  • Of the 85% of senior managers who indicated they are satisfied with their organizations, 67% are actively seeking new employment.

So, given this economic climate and employee mind-set, how do you retain your best employees?

In recent years, many employers have introduced a number of retention-focused initiatives within their organizations that don’t necessarily impact base compensation.

Pay-for-Performance Rewards – The practice of tying short-term incentives (e.g. Bonuses) to goals that equate to overall company success, and rewarding employees when these goals are met or exceeded. This means the limited resources are allocated to top performers contributing to the company’s success, making a strong statement to those that are “weak” performers.

Work Environment – A lot has been written about making a work environment conducive to productivity, but in this case we mean the qualitative aspects that make going to work energizing and rewarding. An open culture with transparency around company goals and information is often cited as the primary reason why people stay with an organization. This includes making sure employees know how their role fits into the bigger scheme of things. Of course, this also includes a workplace that is safe, diverse, open and collaborative.

Opportunities for Growth – Committed employees want to do well and want to grow. Organizations can help support that by understanding individual goals and objectives, and helping employees realize their potential. This is more than merely offering training courses, it also places an emphasis on management acumen, and the ability for leaders to help their teams and staff take on bigger and more impactful roles.

Non-Compensation Benefits – Many leading employers are using non-monetary compensation to help keep their best employees. Flexible health care accounts, which allow employees to choose how they want to spend their health care benefits, have grown significantly in the last decade. Initiatives such as flexible working hours, working from home, or even part-time working arrangements, have also grown. Finally, many companies have also introduced childcare or eldercare programs, funded gym memberships, and allowed employees to take advantage of corporate discounts, all to great success.

Employers should not view retention as a separate initiative but as an integral part of the organization’s culture, or unique identity. Investing in technology, flexible workplaces and respecting the work life balance are all contributing factors to retention in today’s workplace. A solid balance of salary, benefits, rewards and culture can retain an organizations human capital and sustain the organization for continued success.