Hope for higher pay

The squeeze on incomes is gradually easing up

JOHN SCHOFIELD November 25 1996

Hope for higher pay

The squeeze on incomes is gradually easing up

JOHN SCHOFIELD November 25 1996

Hope for higher pay


The squeeze on incomes is gradually easing up


Dave Gibbon works hard for his money. For $23 an hour, eight hours a day, the 33-year-old foreman at B.C. Rail’s lumber reload centre in North Vancouver uses his hands, his arms, his shoulders and just about every other muscle on his lean, six-foot frame. Gibbon and his gang move 20 million board feet of lumber a week, lifting it off rail cars and stacking it on trucks destined for the United States and overseas. It is back-straining, teeth-clenching labor, but it pays the bills—barely. After years of meagre wage increases and galloping tax hikes, Gibbon says it is getting tougher to stay afloat: “Over the years, my paycheque almost seems to be the same. I’m not complaining, but I don’t have any money in the bank.”

Gibbon may not be grousing, but many other Canadian workers are—particularly those on the lower rungs of the corporate ladder. According to KPMG, Canada’s largest firm of management consul-

tants, the base salary for the average chief executive officer has jumped 19 per cent over the past three years, a period during which inflation rose only 4.5 per cent. In contrast, wages and salaries paid to employees have fallen behind inflation in four of the past six years, says the Conference Board of Canada, an economic thinktank based in Ottawa. Take away taxes and the cost of necessities such as housing, food and transportation and, for many workers, there is precious little left.

At long last, however, there are predictions that the squeeze on salaries is about to ease up. Nonunionized employees can expect an average gain of 2.4 per cent next year while inflation should rise about 1.9 per cent, says the Conference Board. Some estimates go even higher. William M. Mercer Ltd., an international compensation consulting firm, predicts that nonunionized workers in the private sector will receive 2.9 per cent more in 1997. And a small but significant breakthrough lies in store for unionized workers. Their total income is likely to rise by 2.1 per cent, the

first increase above the rate of inflation in four years, the Conference Board reports.

Another hopeful sign is that only about nine per cent of Canadian companies plan to freeze wages in 1997, according to a survey of 411 businesses by Sobeco Ernst & Young, a Toronto-based consulting firm. Two years ago, about 25 per cent of the corporations questioned had a freeze in effect.

There is even hope on the horizon for employees in the public sector. Marcel Massé, president of the Treasury Board, promised last March to lift the six-year-old ban on pay hikes for federal civil servants when collective bargaining begins next year. That means unionized employees in the public sector can expect an increase, although the Conference Board predicts it will amount to a modest one per cent, compared with 1.9 per cent for nonunionized public employees. ‘You can only freeze wages for so long,” says Alisa Dunbar, a partner with Sobeco Ernst & Young in Toronto.

Granted, pay raises of one to three per cent are unlikely to make Canadian workers feel wealthy, especially when CEOs are reaping much richer rewards. “It just underlines the increase in inequality that’s going on and the obscenity of it,” laments Andrew Jackson, senior economist with the Canadian Labor Congress. Indeed, to most workers the increases will seem positively paltry by the standards of the 1980s, when wage gains were i \\\ v\ sometimes as high as 10 per cent. But when inflation is figured in, next year’s expected increases are not out of line with those years. In 1986, for example, salaries climbed an average of 4.5 per cent, but inflation weighed in at 4.2 per cent. “Employees hold the perception that they’re worse off than they were, but they’re not,” says Martin Harts, a KPMG partner.

The pay picture looks a lot brighter when total income is considered. The most fortunate workers in 1997 will be the increasing number who receive bonuses geared to performance or profits. The average nonunionized employee will receive a bonus of about five per cent on top of base pay next year, says Nathalie Carlyle, a Conference Board researcher and author of its compensation forecast for 1997.

Roughly two-thirds of non-management employees now benefit from so-called variable-compensation plans, up from one-third in 1992. The growing popularity of such schemes reflects a continuing effort by companies to tie salary costs to profits. Organized labor, on the other hand, has generally resisted the trend. “Canadian unions have been very allergic to variable compensation,” says Prem Benimadhu, vice-president of the Conference Board’s centre for management effectiveness. Despite that, forest products giant MacMillan Bloedel Ltd. has introduced a variable-pay plan called “gainsharing” for unionized workers in 15 of 47 divisions. Workers whose divisions meet profit goals are eligible for bonuses of as much as 10 per cent of annual pay. The average payout is $3,500.

While variable pay plans appear likely to put more money in employees’ pockets next year, the biggest winners will be workers with scarce skills. That includes personal-computer networking specialists, software developers and technical writers. “There’s just a huge shortage of people with those kinds of skills,” says Harts of KPMG.

In fact, a survey by William M. Mercer Ltd. forecasts that the computer-software field will be the hottest sector for salary


1997 projected pay increases (%): Computer software 3.7

Pharmaceuticals 3.3

High-tech 3.2

Oil and gas 3

Manufacturing 2.9

Food processing 2.9

Service 2.9

Retail/wholesale 2.7

Finance 2.6

Nonprofit 2.3

Transportation 2.3

Utilities 2

Public sector 1.9


increases in 1997, with an average 3.7-per-cent rise in base pay. Nathalie Parent, manager of compensation and benefits at Cognos Inc., an Ottawa-based software company, will be offering considerably more—about seven per cent. Cognos currently has openings for about 80 software developers, and cannot find them fast enough. “We’re all competing very fiercely for qualified people,” says Parent. In several cases, the company has lost employees to competitors in the United States, where they can fetch salaries of $55,000 to $70,000 (U.S.), signing bonuses, relocation expenses and stock-option packages—all topped off by the lure of lower taxes.

Canadians with less coveted skills, however, are often willing to accept less money if it means keeping their job. For workers such as Randy Somerville, a letter carrier in Saint John, N.B., a reasonable assurance of stable employment is worth a lot more than a fat pay raise. While providing for only a modest one-per-cent pay increase per year, Somerville’s contract contains a no-layoff clause and a guarantee that employees will not be relocated outside a 40km radius. “The way most people look at it here,” says Somerville, 34, “we’re just lucky to have a job.”

True job security, however, is a dusty relic of the past, says Benimadhu, and most workers realize that. At the same time, he adds, companies—now leaner and more competitive—have become concerned that they may have exacted too heavy a toll on Canadians in low wage growth and job uncertainty. “What we’ve done is fired our own consumers while downsizing,” he says. “From a purely business perspective, executives are concerned about this lack of purchasing power.” Just as Henry Ford paid more than his competitors so that his employees could afford his cars, Benimadhu argues, Canadian businesses should open their purse strings a little more to boost consumer confidence.

There is little doubt that much of corporate Canada is in a position to be more generous. With costs under control in most industries, profits are rebounding, jumping seven per cent in the July-to-September quarter over the same period last year. Even so, wage increases in Canada next year will be the second lowest among the seven major industrialized nations, according to the Organization for Economic Co-operation and Development. Pay raises for nonunionized workers in the United States will average 3.3 per cent, and 3.7 per cent in Britain. “But I don’t read into those numbers that Canadian businesses are being tougher,” says Courtney Pratt, the president of Toronto-based resources giant Noranda Inc. ‘You have to relate it to the inflation rate in each country.” As for top executives, they are still among the lowest paid in the leading industrial countries, says Jim Moore, vice-president in charge of policy for the Alliance of Manufacturers and Exporters Canada.

In the end, the best money goes to those with the most up-to-date and sought-after skills, says Benimadhu. The most unsettling wage gap, he adds, is not between CEOs and their employees, but between skilled and unskilled workers. Savvy job shoppers look for progressive companies that will teach them new skills. Benimadhu points to the Bank of Montreal, which opened a $50-million staff training centre two years ago. ‘What I need as an employee is an organization to give me a portfolio of skills that I can use to market myself,” he says. “That is where the future of work is going.” Still, a little bit of extra cash next year won’t hurt.