- 2024 median pay raises are lower than in 2023. WTW data shows employers are taking a somewhat more cautious approach to their salary budgets.
- Reduced workforce mobility is influencing budgets. The report indicated employers are seeing longer-term stability within their employee base in the wake of a period of high resignations and turnover.
- Total payroll expenses moved higher. Nearly 3 in 4 surveyed organizations reported their total payroll expenses (which include salaries, bonuses, variable pay and benefit costs) were higher than last year.
A new research report found employers are taking a semi-cautious approach to their salary budgets for the current year, following a pattern from the recent past. The report also reflected the influence of increased retention, overall payroll expenses and artificial intelligence (AI) utilization.
Webinar: Salary Budget Planning for the Year Ahead
The Salary Budget Planning Report from WTW, a global advisory and solutions firm, found nearly half (47%) of surveyed U.S. organizations created salary budgets for the 2024 cycle that are lower than the previous year — as the overall median pay raise for 2024 fell slightly to 4.1%, compared with 4.5% in 2023.
(Note: WorldatWork will soon be releasing the top-line results from its 2024-2025 Salary Budget Survey. Check back to Workspan Daily and/or the WorldatWork Research page for updates.)
The WTW report, derived from surveys conducted from April to June, indicated employers are being slightly more conservative with their salary budgets because they anticipate lower demand, resulting from longer-term stability within the employee base following a period of comparatively high resignations and turnover.
“As the workplace stabilizes and employers look more toward the future, companies are reviewing and updating their compensation philosophies to ensure they align with business strategy,” said Lesli Jennings, WTW’s North America leader for work, rewards and careers.
In fact, while around two-fifths of employers (38%) reported having trouble attracting and retaining talent in 2024, that figure is nearly 20 percentage points lower than in 2022 (57%).
Total Annual Payroll Expenses Increase
Regarding overall salary budget increases, WTW’s report found that those budgets are expected to rise by 3.9% in 2025, which, despite declining year-over-year since 2023, remain fairly high.
In addition, total annual payroll expenses (which include salaries, bonuses, variable pay and benefit costs) continue to rise substantially in the U.S. A strong majority (73%) of surveyed organizations reported their total payroll expenses were higher than last year.
According to Jennings, inflation can impact salary budgets in either direction. Those organizations that lowered salary budgets cited concerns related to cost management, weaker financial results and inflationary pressures, whereas those that raised salary budgets this year cited inflationary pressures and a tight labor market.
“Companies are looking to make longer-term changes to their compensation programs,” Jennings said.
Activities Point to Pay Equity Emphasis
Jennings noted that 51% of employers that have made changes to compensation programs or workplace flexibility have also undertaken a compensation review for specific groups — almost half (49%) are hiring people at higher salaries, and 45% have undertaken a full compensation review of all employees.
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Clearly, Jennings said, pay equity is top of mind for employers. “Giving a big-picture view of what employees are offered ensures the salary increase process is clear and also emphasizes the connection to business performance,” she explained.
Additionally, the survey found organizations are taking actions to address current market conditions and employee needs, particularly providing more workplace flexibility (52%) and improving the employee experience (52%).
Russ Wakelin, WTW’s head of global product development for rewards data intelligence, said that while salary budget growth remains somewhat in check, only 6% of respondents indicated they are planning headcount reductions. He added that a clear majority — 62% of responding organizations — indicated they would maintain their headcount, with 32% planning to increase it.
“The number one response by organizations to these new priorities and budget sizes has been a focus on either full compensation reviews or targeted reviews, which is not surprising,” Wakelin said.
AI Emerging as a Tool to Enable Budgeting
What does surprise Wakelin is the degree to which organizations said they are utilizing AI within total rewards activities such as budgeting. According to the survey, more than 5% of organizations are currently leveraging AI or planning to use such technologies in salary benchmarking and rewards.
Wakelin added that 10% of respondents indicated they are using or are planning to use AI in their overall HR processes (i.e., learning and development, market insights, skills management, performance management).
“Considering how young that technology is, that’s a significant adoption rate,” he said. “It’s also a clear call to action for compensation professionals who have not considered AI to start looking at those options or risk falling behind in the continual struggle to attract and retain top talent.”
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