Compensation: Price war

Managerial salaries are beating the national average, but for how long?

Hired help isn’t as cheap as it used to be, especially at the management level. The real average hourly earnings of managers during the past decade grew by 20%, four times the average increase for other private-sector employees, according to Statistics Canada. Managers, it seems, are hot commodities these days, because they typically have a combination of technical expertise and leadership skills that lets them play a role in senior-level decision-making. “That is very valuable to companies today,” says Liz Wright, a compensation consultant at Watson Wyatt Worldwide’s Toronto office.

Indeed, many companies are upping wages to avoid the risk of losing key managers to the competition. “Loyalty is gone, and people will job-hop for more money,” says Prem Benimadhu, vice-president of governance and management research at the Conference Board of Canada. And that trend will likely continue in the near future, because baby boomers — many of them senior staffers and managers with plenty of experience — are preparing to retire en masse in the next decade or so. “That could create more of a shortage and, again, the trend may be upward compensation costs,” says Mike Gooley, Toronto branch manager at staffing firm Robert Half International.

Strong economic growth in the West is also helping to create labour shortages in other areas, with higher-than-average wage growth in the four western provinces fuelling an exodus of workers from Ontario, Quebec and the Atlantic provinces. Yet, even with a shortage of workers in the East — aside from displaced manufacturing employees — salary growth there is still expected to fall short of the national average.

One concern that is consistent across the country is how much a slower economy will hurt workers’ paycheques. For 2008, Watson Wyatt Worldwide predicts the average Canadian employee, including management types, will get a 3.5% increase in base salary, down slightly from 3.6% a year ago. But tough market conditions typically affect management more than other workers, since a larger portion of their pay consists of variable factors such as bonuses and incentives, which are tied to both individual and corporate performance. “There’s more at stake,” says Wright. “It might have a negative effect on managers.” So far, though, Canada’s job market is coping with the U.S. economic downturn.

Compensation is also closely tied to labour productivity, which is expected to climb after more than two decades of low growth, according to Richard Kelly, senior economist at TD Bank Financial Group. He expects productivity to grow 1.9% in 2009, compared to completely flatlining this year. “That’s ultimately the determining factor in how much compensation firms can pay out,” Kelly says.

Harder work deserves bigger rewards, after all, so in the next few years employers may need to dig even deeper into their pockets.