Recent data shows that the dramatic decline in crude oil prices is also punishing the Canadian energy industry.
A recentsurvey of 36 Canada-based energy firms by professional services company Towers Watson found most companies in the energy sector are considering and/or introducing a range of new compensation and workforce options related to the continued decline in oil and gas prices.
The TW survey determined that almost 90% of energy-related companies are either considering, planning or have already reduced salary budgets, frozen or reduced hiring, and/or slashed their travel and entertainment budgets. In fact, on average, actual 2015 salary increase budgets for O & G firms were down 1.5% from the levels originally planned, while western Canadian Utilities companies reduced salary budgets by an average of 1%. Of note, almost 25% of the energy sector survey respondents reported an overall salary freeze in 2015, and over 50% are projecting a freeze in 2016.
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Statement from the Director of Executive Compensation at Towers Watson
“We’ve already seen widespread reductions in discretionary spending such as training, travel and entertainment, but continued low energy prices are forcing organizations to make broader cuts. While companies are currently planning or have already implemented reductions in salary and headcount, it appears that decisions to date have been weighted with an eye to the rebound.” commented Stephen Burke, Director, Executive Compensation at Towers Watson.
Burke continued: “For example, our survey found that the majority of companies have not yet considered significant changes to goal-setting approaches for either their annual or long-term incentive pay programs. The survey also showed, however, that while it’s too early to gauge what types of adjustments might be made to these programs for 2016, discussions are underway.”
Canadian energy sector companies making tough decisions on hiring and compensation
Of note, the survey reported that 14% of the 26 firms in the survey have already undertaken a salary reduction program, while almost 70% of the energy-related firms reported some amount of workforce reduction either impacting all employees or just select group of employees. Responses to the survey indicated that professional and technical/business support staff in the energy sector saw the biggest layoffs, with an average 8% to 10% reduction across all firms.
Despite the urgent need to reduce labor costs, the recent TW survey also showed that energy sector firms are carefully assessing the nature and extent of potential cost savings while still maintaining their employer brand and keeping a healthy staff engagement.