As organizations continue to prepare their salary budgets to attract and retain talent in 2024, the market data suggests a pullback on 2023’s final increase budgets.
Mercer’s “QuickPulse US Compensation Planning Survey” indicates employers are planning to raise their compensation budgets by 3.5% for merit increaeses in 2024 and 3.9% for their total salary increase budgets for non-unionized employees.
The Mercer survey projections are slightly lower than those in WorldatWork’s “2023-24 Salary Budget Survey” of 2,146 participating organizations, which found U.S. employers are projecting 4.1% pay increase budgets in 2024 and 3.6% merit increases on average. Mercer’s data fell in between WTW’s survey of 2,090 organizations, which projected average salary increases to be at 4%, and Payscale’s survey of 1,757 organizations, which projected a 3.8% increase average.
Lauren Mason, senior principal, career, at Mercer, said the projected decrease in salary budgets from 2023, which saw salary increase budgets average 4.4%, is likely a combination of economic uncertainty and labor market softening.
“We had 45% of employers citing economic uncertainty as being the top driver for the projected decrease in annual salary increase, with company financial performance following at 34% and then turnover pressures easing at 33%,” Mason said. “Should the labor market continue to remain extremely tight as compared to pre-pandemic levels, compensation increase budgets may continue to remain elevated above pre-pandemic levels.”
Sue Holloway, a compensation content director at WorldatWork, noted that the projections for 2023 fell well short of the actuals (4.4% actual versus 4.1% projected), which is good for compensation professionals to be cognizant of amid 2024 budgeting.
“It’s certainly noteworthy that projected budgets for 2023 were so far off from what actually happened,” Holloway said. “This is something to keep in mind along with how tight the labor market remains as organizations plan their 2024 budgets.”
Mason said while this did occur in 2023, she does not foresee as dramatic a disparity to occur in 2024 as the market starts to stablilize.
Much of the change, she said, has largely been driven by off-cycle increases which employers report are being driven by retention concerns, counter offers and other pressures.
“Fewer people are quitting, as the quit rate is back to its pre-pandemic norms but the number of job openings are also declining, so employees have fewer options,” Mason said. “As a result, these real-time pressures on compensation are easing. Employers should take a more strategic approach to setting their budget for 2024, factoring in areas where they continue to face high talent pressures, and making sure that any off-cycle increases provided are properly governed and provided in areas that are of strategic importance to the organization.”
Merit Increases
Mercer’s survey found organizations are projecting average merit increase of 3.5% for 2024, which compares to 3.6% projected in WorldatWork’s survey with a 3.5% median. This is slightly below the 3.7% average that organizations provided in 2023, according to WorldatWork’s survey, but matches 2023 projections from the previous year’s survey.
Mason said she anticipates merit increases being a main compensation lever for organizations in 2024.
“Merit awards have always been the most prevalent component of compensation increase budgets, and we don’t see that changing in 2024,” Mason said. “Many employers continue to report that they do not budget separately, if at all, for other types of base pay increases such as promotional increases or off-cycle increases. While the term “merit” implies a performance-based increase, in reality, at most organizations it’s a “catch-all” for a wide range of factors,” she said, such as market movement, equity and performance.
Other key findings:
- Healthcare services are projecting 2024 budgets that lag other industries, with merit budgets of 3.1% and total increase budgets of 3.4%, as the industry continues to recover from the financial impact of the pandemic.
- Recent layoffs and financial strain on the high-tech industry also appear to be impacting merit budgets, with projected increases of 3.3%, a reversal of historical trends where high-tech typically led increases across industries.
- Several industries, including energy and consumer goods, are planning merit budgets above the national average, projecting an increase of 3.7%.
- Employers are planning to promote less (8.7% of the employee population) and therefore will allocate less of their budget (1.1%) to promotional increases in 2024. In 2023, employers reported that they promoted 10.3% of their population, allocating 1.2% of their salary budget to do so.
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