Small Businesses Giving Biggest Raises

A new report shows companies with fewer than 100 employees are offering higher salary increases than large firms. The reason? Retention

Written by Deborah Aarts

In the ever-escalating war for good employees, smaller firms are more willing to put their money where their mouth is than their larger counterparts.

A new survey by Toronto HR consultancy Pal Benefits Inc. reveals that organizations with fewer than 100 employees plan to give their staffers higher pay raises than large corporations. On average, smaller companies will give employees a salary increase of 2.8%. That’s slightly higher than the national average of 2.74%.

This marks a shift from a year ago, when companies with between 2,001 and 3,000 employees were planning to offer the biggest raises.

Read: How Much Should You Pay Your Sales Reps?

While both the national average and small-biz breakout are lower than last year’s anticipated raise rate of 2.84%, researchers say this year’s numbers are indicative of an broader trend among employers to fork out for top talent. To wit: the percentage of employers that plan to freeze salaries in 2014 is only 8%; that’s down from 16% in 2010.

Why? According to Steven Osiel, vice-president, total compensation at Pal Benefits, “respondents indicated that concern over employee turnover is higher this year than it was at this time in 2012.” Indeed, nearly half of those polled said that their top organizational priority for 2014 is employee retention.

Furthermore, Osiel adds that 33% of respondents have experienced turnover of 5 to 10% in the past year—up from 29% a year ago. This increase could explain why fewer companies plan to freeze salaries in 2014 and why smaller organizations are planning to increase pay to a more competitive level,” he says.

How to figure out your raise rate

There are many ways to determine how much of a raise you should offer your employees, including inflation rates, third-party salary reports, industry standards. But according to the Pal Benefits research, these aren’t the sources most employers turn to first. For 38% of respondents, the biggest determinant of salary increases is internal budget constraints. Economic and/or market conditions, come second, with 22% of respondents these as guidance.

What if you’re not able to offer a generous raise—or even any at all? It doesn’t necessarily mean staff will bolt, says Osiel. “When it’s time to communicate annual salary increases, especially if an organization opts to give lower-than average raises, it’s important to let employees know the factors that went into the decision-making process,” he explains. “If they understand their employer’s rationale, and appreciate the other elements of their total compensation package, like bonuses and benefits, employees may not be as quick to look for another job.”

Read: What Keeps Your Employees From Leaving?

The survey was conducted in September and included responses from 243 organizations located across Canada, with the majority based in Ontario, Alberta and British Columbia.

How much of a raise, if any, do you plan to offer employees this year? How do you come up with your annual raise rates? Share your thoughts by commenting below.

Originally appeared on PROFITguide.com