Pandemic-Related Uncertainty Leads One Third of Canadian Organizations to Freeze Salaries in 2020

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TORONTO — As many organizations approach their fiscal year end and assess the financial impact of COVID-19 on their businesses, the main question being asked is not about raises or promotions, but whether salary freezes are necessary to stay afloat. According to Morneau Shepell’s 38th annual Salary Projection Survey, more than one third (36 per cent) of Canadian organizations froze salaries in 2020, compared to a pre-COVID-19 forecast of just two per cent. This trend is likely to hold true for the coming year, with almost half (46 per cent) of employers uncertain about whether to increase or freeze salaries and 13 per cent already committed to freezing in 2021.

For the first time since the 2008 financial crisis, the survey saw the national average base salary increase projection drop below two per cent, driven by the combined impact of salary freezes and economic instability. In 2019, the average salary increase, including freezes, was 2.4 per cent year-over-year — a significantly higher number when compared to the actual base-salary increase of 1.6 per cent in 2020. For 2021, employers in Canada anticipate a slight recovery, with base salaries expected to increase by an average of 1.9 per cent, including salary freezes. With salary freezes and promotional adjustments excluded, employers are projecting salaries to increase by 2.5 per cent in 2021 — down from the actual 2.6 per cent in 2020, excluding freezes.

Although uncertain financial stability and the corresponding impact on salaries in 2021 is affecting employers across the country, some provinces are expecting to be harder hit than others. In Alberta, 16 per cent of employers are expecting more salary freezes, more than any other province, driven in large part by a dramatic decline in commodity prices. Meanwhile, Atlantic Canada is expecting to remain stable next year, with eight per cent of employers in New Brunswick expecting salary freezes, followed by nine per cent of employers in Nova Scotia, nine per cent of employers in Newfoundland and Labrador and 10 per cent of employers in Prince Edward Island.

The variance in freeze projections becomes even more significant when comparing results by industry. The survey found that 42 per cent of employers in arts, entertainment and recreation and 25 per cent of employers in educational services have committed to freezing salaries in 2021 as their sectors, largely reliant on in-person activities, continue to be negatively impacted by the pandemic’s physical-distancing restrictions. Industries performing well and not planning to freeze salaries in the coming year include 58 per cent of employers in real estate, rental and leasing, 57 per cent of employers in utilities, 56 per cent of employers in agriculture, forestry, fishing and hunting and 51 per cent of employers in finance and insurance.

“Uncertainty has been the buzzword of 2020, however, it’s extremely important to look beyond the term itself to understand the critical implications that employers’ instability has on our economy and Canadian employees and how to seek to mitigate that where possible,” says Anand Parsan, vice-president, compensation-consulting practice. “This year’s results are some of the most concerning we’ve seen since the survey’s inception in 1982. With nearly half of employers reporting uncertainty going into 2021, it’s important that Canadians recognize the impact on their financial well-being as we expect another challenging year. Employers should re-visit their total-rewards strategy and consider what they can do to support their employees in such times, including access to financial education, access to resources and emotional support, as financial stress has a huge impact on overall well-being, resiliency and productivity of the workforce.”

When analyzing uncertainty by industry, 68 per cent of employers in transportation and warehousing and 58 per cent of employers in accommodation and foodservice said they don’t know if they will freeze salaries in 2021. On the lower end of the scale, 31 per cent of employers in real estate, rental and leasing and 38 per cent of employers in utilities are unsure if they will freeze salaries in 2021.

Employers report COVID-19’s negative impact on their bottom-line revenue

The survey also highlights the financial impact of the pandemic beyond salaries alone. In 2020, the majority (76 per cent) of employers reported that COVID-19 had a negative impact on their bottom-line revenue, with 22 per cent reporting a severe decline, 34 per cent reporting a moderate decline and 20 per cent citing a mild decline. This is closely aligned to Canada’s reported gross domestic product (GDP), with the first and second quarters of 2020 indicating the lowest GDP since the fallout of the 2008 financial crisis. In the first quarter of 2009, GDP was down 2.3 per cent, compared to the latest decline of 11.5 per cent in the second quarter of 2020.

“The second quarter fell off a cliff in terms of growth, as is made plainly evident through Canada’s GDP and the numbers reported by employers included in this year’s survey,” says Guylaine Béliveau, principal, compensation consulting practice. “With our economy officially entering a recession, it’s important to be mindful of how Canadians are feeling across the country. Financial stability is an important piece of the well-being puzzle, and it’s critical that employers continue to maintain open communication with employees about the pandemic’s impact to their business. Ensuring and demonstrating good governance, risk management and communication around key compensation policies and programs are effective ways to help build confidence and an improved sense of security, even while acknowledging a challenging reality.”

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