Manufacturers could do more to link pay to performance

Recent Mercer research indicates that variable pay can improve both productivity and employee satisfaction. The compensation survey, conducted by Mercer Human Resource Consulting for Canadian Manufacturers & Exporters also shows that although top performers contribute 50% more to an organization than average employees, most Canadian manufacturers and exporters only link a small percentage of their employees' pay to productivity.

78% of the 230 Canadian manufacturing companies surveyed offer incentives through bonus programs, 23% use profit sharing and 13% use gain sharing programs - incentives integrated into day-to-day operational activities and based on specific measurable improvements. Overall, however, incentives made up as little as 1.6% of total compensation at the "shop floor" level. This rose to 2% at the senior/specialist level, 3.7% at the supervisor level and 6.6% of total cash compensation at the manager level.

"While the majority of manufacturers put some pay at risk, they continue to rely heavily on salary to make up the bulk of each employee's compensation package," said Danielle Bushen, head of Mercer's Global Information Services business in Canada. "Opening up compensation by linking a greater portion of an employee's overall pay to performance can be instrumental in achieving financial and productivity results, as well as helping to align work culture and business strategy."

According to Ms. Bushen, "Mercer's research helps companies as they reassess their compensation options. Benchmarking against peer companies is one of the most effective ways for a business to determine if their compensation program is appropriate and to learn how others are handling pay for performance and other challenges," added Ms. Bushen. One of those challenges is Canada's overall economic situation. The survey results also demonstrate what companies are doing to address current conditions. Not surprisingly, 45% of respondents said they were implementing cost cutting measures in 2003. At 56% and 54% respectively, hiring freezes and layoffs were the most common measures followed by encouraged vacations (49%) and selective performance-based incentives (41%). Other measures included reduced work schedules (18%), early retirement (17%), salary freezes (16%), voluntary leave (8%) and work sharing (5%).

"For most companies, the cost of labour is their number one or number two expense but, it is important to remember that compensation is a controllable expense. While cost cutting may be necessary, particularly in challenging economic times, companies should also assess their overall compensation strategy to ensure they are paying competitively and protecting top performers while they manage their spending," added Ms. Bushen.

Mercer's Canadian Manufacturers & Exporters Compensation Survey 2003 includes data from 230 Canadian companies representing more than 23,000 employees in more than 300 positions. To purchase a copy of the survey, call 1-800-631-9628 or email info.services@mercer.com. Further information is also available on the Web at www.imercer.ca/cme-mec.