Rewarding executives and other key employees in the future will mean more than simply handing over a sizeable paycheck.

Michael Thompson, national partner in the human capital consulting practice, and Iain Morris, principal, discussed the results of Mercer’s 2008 Canadian Compensation Planning Survey in Toronto yesterday. The survey data covers the non-union employees of 491 organizations, with a total workforce of over 1.5 million unionized and non-unionized employees in Canada.

Competition for top talent is fierce—particularly in Alberta and other parts of Western Canada—so it’s not surprising that 88% of Canadian employers named attracting and retaining top talent as a major challenge.

When it comes to rewarding executives, bonuses continue to be an important compensation strategy, with payouts of 1.25 to 1.5 times target. Stock options are less popular than they once were, due to recent pressure from regulators and the media, so some employers are replacing these plans with restricted share unit and preferred share unit plans.

However, Thompson predicts that the use of stock options as a reward mechanism will increase again once the governance storm dies down. He also believes that pension plans—the “sleeping giant” of compensation—and other non-cash rewards will rise in importance as time goes on.

Companies will increasingly need to look at options like flexible work arrangements, improved career development and training, and pension and benefits plans to strike the right balance between diverse employee needs and employer cost-containment. Comments Morris: “Employers should focus on non-cash rewards—at the end of the day, that may be where the war for talent is won.”

To learn more about the survey results, click here.

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