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© Copyright 2000 Rogers Media. The following article first appeared in the January 2001 edition of
BENEFITS CANADA magazine.
Money talks
Canadian employers may believe in total compensation. But they're way behind their U.S.
counterparts.
By Owen Parker and David Gore
Labour shortages are looming in most Canadian industries today and unemployment rates are at their lowest
levels in decades. This reality is compounded by the advent of an information economy and the rise of the
knowledge worker, and it has left organizations struggling to attract and retain employees.
Salaries and rewards are two of the most important tools for organizations to use in the competition for
employees. A recent report on reward practices in North America sheds some light on the different practices
between domestic employers and those south of the border.
The good news for Canadian organizations is that the survey reveals almost half of Canadian employees are
satisfied with their overall compensation. However, the same research (which incorporates responses from
410 diverse organizations of varying sizes, 80 of which are Canadian) reports that four out of five
employees in Canada do not look favourably on pay-for-performance schemes.
Organizations have a number of options at their disposal when it comes to recruiting, motivating and
retaining employees. Rewards can be either monetary or non-monetary. The monetary ones tend to be standard
and apply across most industries.
The study, conducted by Watson Wyatt, illustrates that Canadian employers do not widely use incentive
rewards. In fact, only 36% of Canadian respondents say they use sign-on bonuses and only 19% use retention
bonuses compared to 78% and 36%, respectively, in the U.S.
Signing bonuses, stock options and cash payments for overtime were used as rewards by about one-third of
the participating Canadian organizations. Meanwhile, only a quarter or less of these employers report using
other individual incentives, such as technical premiums paid for specfic skills.
DIFFERENT APPROACH
In Canada, compensatory time off, group incentives and overtime cash payments are three of the more
commonly used rewards, whereas American plan sponsors indicate that individual bonuses are their preferred
means of rewarding employees. These rewards include sign-on bonuses, stock options and retention bonuses.
The study's results demonstrate a difference in philosophy and approach to attraction and retention between
U.S. and Canadian organizations, at least in terms of monetary rewards.
Overall, Canadian employers tend to favour salary enhancement incentives or provide non-cash rewards. In
contrast, the prevalent practice in American companies is to offer cash-related bonuses or stock plans. In
addition, a higher proportion of U.S. organizations offer more rewards.
While it can be difficult to directly measure the results of reward programs and practices, the study
identifies particular activities that are directly related to an organization's overall financial success.
To explore this area, survey participants were divided into two groups--those reporting exceptional
financial performance (referred to as financially superior or high-performers) and all others. The report
then looks at the differences in reward practices among these two groups.
Survey respondents provided a self-assessment of their organization's financial performance compared to
other firms in their industry. To validate the measure, total shareholder return data (changes in stock
price and dividends paid) was collected for as many of the participating firms as possible.
With respect to monetary rewards, several distinctions were found among high-performing organizations. A
higher proportion of financially superior employers rely on group incentive programs and stock plans to
reward their employees, while other firms used time off for overtime and cash (see "Over-achievers," left)
as additional compensation. These findings indicate that, as with American organizations, Canadian
high-performers are more liberal in their use of cash-related rewards as incentives for employees than are
other organizations.
High-performing organizations use rewards to engage their employees and improve their business performance.
These organizations also ensure that their reward strategies and programs are clearly communicated and
understood by employees. The most financially successful organizations also reported greater flexibility in
their compensation programs to meet changing business needs and conditions.
BEYOND THE BASICS
With the increase in competition for talent, most Canadian organizations are using every means possible to
attract and retain employees. At the bare minimum, employees expect salaries that compare favourably with
those of others in their company, occupation and industry. An innovative reward structure, however, goes
beyond this basic requirement. It can give an organization the advantage it needs to become an employer of
choice.
As suggested by the survey results, many Canadian organizations are complacent about the role that rewards
play as productivity and retention incentives. Less than half of the domestic participants offer any
monetary rewards, and those used are often very basic.
To be truly effective, rewards and incentives have to support an organization's strategic business plan.
The directions and objectives of the strategy must be reinforced by the monetary rewards offered to
employees. Unfortunately, employers frequently initiate rewards based on their own preferences or the
current fads. They do not position their rewards in a larger organizational context, or assess how
incentives will support the company's goals.
The reality is, organizations no longer have the luxury of implementing rewards simply for their own sake.
A wide selection of rewards is available, but their true value comes from integrating them into a corporate
strategy. To recruit and keep the best people, Canadian organizations need to use a greater variety of
rewards in combination with other incentives--all in the context of a well-constructed business strategy.
Owen Parker is national research manager and David Gore is national compensation leader at Watson Wyatt
Canada in Toronto. owen_parker@watsonwyatt.com; david_gore@watsonwyatt.com.
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