Diverse group of mixed age and multi ethnic colleagues in discussion

Incentives are key during salary freezes, experts say

As salaries stagnate under the grip of COVID-19, organizations must find ways to keep their employees motivated and engaged

Diverse group of mixed age and multi ethnic colleagues in discussionTransparency and communication build trust and foster employee engagement during times of monetary restraint, experts say (Getty Images/10’000 Hours)

With a second wave of COVID-19 upon us, Canadian businesses are hesitant in their projections and conservative in their approach. 

One outcome of this is salary freezes. According to Morneau Shepell’s 38th annual Salary Projection Survey, more than one-third (36 per cent) of Canadian organizations froze salaries in 2020, compared to a pre-COVID-19 forecast of just two per cent. The trend may continue, with 46 per cent of employers saying they are uncertain whether salaries will increase or continue to stay frozen into 2021. 

“We’re seeing something that we haven’t seen since the recession of the early 1980s or even the financial crisis [2007-08] itself,” says Anand Parsan, vice-president, compensation consulting practice at Morneau Shepell. “It shows that companies are in survival mode because they need to conserve cash due to the uncertainty.” 

For those organizations conserving cash this way, here are three tips for mitigating repercussions on business performance and employee engagement. 


Incentives that go beyond a base salary are an effective way to keep employees fulfilled when salaries sit stagnant.   

These non-cash incentives—such as flexible work hours, extra vacation days, training opportunities and employee assistance programs—help deter talent from seeking new opportunities, while driving home the message, “we can succeed together.”

“Most employees view compensation as a mix between actual monetary [rewards] they receive, the [work] environment and opportunity,” says CPA Michael Kravshik, CEO and founder of LumiQ. “What is the full package? How can [employees] grow and learn? Is the environment supportive ... where they feel safe and comfortable?” 

In cash-strapped times, incentives can be projected over the longer term. For example, a company may offer compensation for performance to be received when business has stabilized.

“You have an incentive plan that says, ‘We’re going to make sure that when things recover, you’re going to be able to get that bonus back,’” says Christopher Chen, managing director at Compensation Governance Partners. “It’s a mentality shift away from the base salary as the main focus ...You get the rewards by sticking with the organization and driving it forward.”

How employee performance is managed also provides an incentive. Finding creative ways to acknowledge an employee’s success and assigning achievable goals that align with the business’s current situation (i.e. road to recovery) are key. With the shift to remote work, performance measurement and evaluation are changing, says Parsan.   

“Organizations are re-evaluating how they want to incentivize employees and how they want to deal with performance management,” he says. “I think the standard practices that have happened in the past will evolve over time.” 


From the onset, businesses must be clear about the reason for the salary freeze, how long it will be in place and how it will affect their workforce.   

Through the pandemic, communication with employees has increased for many organizations be it via weekly managerial check-ins or monthly town halls with the CEO. 

This, Parsan says, not only counters the isolation from remote work, but also increases transparency through the organization and its leadership.

“Transparency goes hand-in-hand with communication,” he says. “Whether it’s having more frequent calls, ... letting people know how the company is doing, ... so there are no surprises and people are aware of exactly what’s going on.” 

For Kravshik, transparency translated into communicating to his team that LumiQ’s management team was taking a ten per cent pay cut at the beginning of the pandemic.

“Our people are smart people. We tell them the situation, how much money we’ve got in the bank and here is what this allows us to do,” says Kravshik. 

“After we told them, a handful of staff came up to me and said, ‘If you need to, you can cut my salary as well.’ 

“I got to say to them, no we are not going to do that,” he says. “But it speaks to our [culture] that everyone wants to see this company succeed.”


A company that can’t keep up with salary compensation is at risk of losing talent to the competition, particularly those within industries COVID-19 hit the hardest. 

The Morneau Shepell survey found industries including arts, entertainment and recreation, as well as educational services, have already committed to salary freezes into 2021. Those industries that are performing well—such as real estate, renting and leasing, finance and insurance, as referenced in the survey—aren’t planning for them.

“Before the pandemic, there was always a war for talent and that will continue,” says Parsan. “Organizations that are able to increase salaries are going to try and draw the best talent and that could have an impact on organizations that have to freeze or roll back salaries.”

Beyond providing incentives to keep talent, another trend has emerged, says Chen. Furloughing, or a temporary leave of absence, keeps employees in their jobs, as they can return to work after a period of time instead of being laid off. 

Pandemic support measures, including Canada Emergency Wage Subsidy accessed through Canada’s COVID Economic Response plan, have enabled businesses to do just this, with more than $46.8 billion paid out by the government so far. 

Furloughing not only helps save jobs, but it helps ensure talent is not lost, says Chen. For the employee, it’s an assurance that they have a job during a time when the labour market is bleak.

“We will see how this [trend] plays out,” he says. “Not everyone may come back, but at least [organizations] are trying to keep people warm and in the system.”


According to the Morneau Shepell survey, 76 per cent of employers—with varying impact across regions and industries—reported that COVID-19 has negatively impacted their bottom-line revenue. Whether salary freezes continue into 2021 depends a lot on the brunt businesses face moving forward as Canada attempts an economic recovery, says Chen. 

“Every dollar that doesn’t fall into in the pockets of [Canadians] is a dollar that doesn’t get spent. As an economic impact, you're going to see the ripple effect that,” he says.

“Most organizations are being really cagey. They’re going to wait until the last possible moment to make a decision on this [salary freezes] ... and, most importantly, on how projections look in terms of business going forward.”


With a second wave of COVID-19 gaining ground, here’s how to prep your business to make it through to the other side. While you work to keep those doors open, watch for the signs that indicate your business may be in trouble. Looking forward, find out if your organization is ready for the next industrial revolution.