With the Bank of Canada’s recent announcement on July 12, 2023 that it would be raising their policy rate by 25 basis points to 5%, the impact of inflation, which peaked at 8.1% last summer, is now back in the headlines. Although inflation has eased, and was last reported in May at 3.4% for Canada, its impacts are still being felt by consumers and homeowners alike, with many businesses looking to understand how they should respond in terms of salary budgets and pay increases for their employees.
The impacts of inflation on Salary Increase budgets
With wage growth reported at 4-5% in the Bank of Canada’s recently released statement, this supports the higher than normal salary increase budgets being reported by many well known salary survey sources.
While inflation and salary increases budgets generally move along a similar trajectory and mutually influence each other, they actually stem from different underlying factors. Although inflation is playing a factor in current wage growth, the cost of labour and ensuring an organization’s ability to attract and retain talent in what is still a tight and competitive talent market (even with recently reported layoffs) are also crucial factors. Whereas inflation is being driven by the increase by Consumer Price Index and the cost of a standard basket of goods. With tight labour markets persisting we will likely continue to see historically high salary increase budgets for at least the next year.
How should your company react?
A thoughtful and informed approach is always best, some important considerations include:
- Understanding the factors impacting your industry sector can be of particular importance during times like these
- Are you in a talent crunch?
- Are you having trouble attracting and retaining talent?
- If you answered yes to these questions, then a healthy increase budget at least in line with wage growth is likely wise.
- What can you afford?
- A competitive salary increase budget is important during these times but so is the affordability factor.
- Consider revenue growth, profitability, cash flow, and budget constraints when making these decisions, as well as the cost of voluntary turnover if competitors begin luring talent away.
What else can you do?
While salary increase budgets and the pay increases that follow are important drivers for employees, so are many other rewards that employers offer. Consider reviewing your:
- Employee benefits plan to ensure it’s competitive and capturing the desired items for your demographic of employees
- Taking a closer look at your overall employee experience. Are there areas to focus on to help improve company culture, smooth out some areas where opportunities have been raised.
- Consider who your most vulnerable employees are and analyze how the cost of living impacts your different employee groups, layering on which jobs have the greatest challenges in attracting and retaining talent. This will allow you to understand which jobs are the most critical to your business to create a targeted compensation strategy.
Similarly to many households who are looking for solutions right now in these challenging times, there isn’t a one size fits all response or solutions for employers either, however a holistic, considered and measured approach will put employers ahead of the game.
Written by: Emma Leaver, CPHR, Senior Consultant at White & Gale Consulting Inc.
To stay updated on the latest developments and learn more about compensation strategies, follow Laura Gale and White & Gale Consulting Inc. on LinkedIn, and visit our website.
Sources:
https://www.bankofcanada.ca/2023/07/fad-press-release-2023-07-12/