- Raises of at least 4% are projected. Recent reports from Payscale, Gartner and WorldatWork each project pay increases for 2024 to be higher than the rate of inflation.
- Inflation remains a consideration. While inflation is down, it should continue to influence pay increase decisions.
- Push for transparency and fairness. With salary information more readily available to workers, employers should be able to answer for their pay decisions — and what drives pay increases.
Workers can expect salary increases in 2024 that are projected to outpace — not just approach or meet — inflation, according to the results of several recent studies.
Organizations are predicting an average base pay increase of 4.5% in 2024, according to Payscale’s 2024 Compensation Best Practices Report. Payscale placed average increases in 2023 at 4.8%. While global in nature, Payscale’s 2024 report was primarily comprised of U.S. respondents (82%).
A Gartner report noted that 71% of surveyed CFOs plan to increase average pay by at least 4% in 2024.
WorldatWork’s 2023-2024 Salary Budget Survey identified similar predictions, with participating companies from the U.S. and 17 other countries projecting a 4.1% increase for this year.
“While easing modestly over the past year, the U.S. labor market remains strong, with persistently low unemployment, solid job growth and moderating wage growth,” said Sue Holloway, a compensation content director at WorldatWork. “This landscape informs the findings in [Payscale’s] report about predictions for 2024 base pay increases being lower, as well as [informs] more focus anticipated on market adjustments and cost of labor being factored into base pay increases in 2024 compared to 2023.”
Pay increase predictions are fluid, said Amy Stewart, associate director of content at Payscale and author of that company’s new report. The latest projections for this year are significantly higher than employer predictions for their 2024 budgets in Payscale’s Salary Budget Survey, conducted last year.
WorldatWork similarly found companies increased salaries by 4.4% in 2023 after projecting a 4.1% increase for that year.
Taking a Closer Look by Industry
Payscale’s projected pay increases for 2024, broken down by industry, topped out at 6% for construction companies. Employers in the arts, entertainment, recreation, agencies and consultancies, and retail and customer service sectors also anticipated higher-than-average increases for this year, while employers in the government, health care and social assistance agencies sectors predicted some of the lowest increases, at 4.1%.
However, the percentage of organizations planning on offering pay increases this year (79%) is the lowest it’s been in years (another 14% said they are unsure, compared to only 3% that were unsure last year). Manufacturing and construction companies were most likely to plan on pay increases this year (84%), while employers aligned with agencies, consultancies and education had the lowest percentage of anticipated salary bumps (70%).
Agnostic to industry, 27% of organizations said they only address “severely underpaid” employees if their workers or managers specifically ask them to, according to Payscale’s report.
“Compensation professionals must continue to keep a close eye on the labor market,” Holloway said. “[The Payscale] study reports the majority of organizations award merit increases in the first four months of the year, so we’ll be watching to see if actual 2024 merit increases are close to predictions.”
What’s Driving Pay Increases?
Despite inflation being down this year, it remains a factor in pay increases — even in the current tight job market, Stewart said.
“We saw what happens when [inflation] is not a consideration during the Great Resignation — employees resign,” she said. “Underpaying employees or not rewarding employees, perhaps especially after a tough year, impacts morale. Labor markets are always cyclical. Undervaluing employees now will result in turnover later.”
Payscale found merit and performance will be the highest driver of base pay increases in 2024, with 79% of companies listing it as a factor, compared to market adjustment and cost of labor (57%), inflation and cost of living (47%), and internal pay equity (40%).
While cost of labor is a rising factor, employers shouldn’t downplay the importance of cost of living, according to Nancy Romanyshyn, senior director of total rewards strategy and solutions at Syndio.
“Employers are sticking to the fundamentals — ‘this is how we determine pay, based on cost of labor, not cost of living’ — but also being empathetic and sympathetic to their employees, such as looking at wages in more expensive markets,” she said.
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A more nuanced approach to pay increases may mean moving away from a one-size-fits-all strategy, Romanyshyn said.
“I think companies will keep to a budget, but they’re continuing to experiment and think differently about how they’re allocating that budget,” she said.
The continued push for pay transparency means now, perhaps more than ever, organizations should be able to answer for their pay decisions — and what drives pay increases, Stewart said. Payscale found more than 60% of organizations (up from 45% last year) are publishing pay ranges in job ads, whether or not they are required to by law in their state.
“Employees are part of the conversation now,” Romanyshyn said. “Prior to pay transparency, compensation was something that happened to you. Now, as an employee, ‘I have a say because I have information.’ That’s been a real game-changer.”
Addressing and Communicating Pay Increases
Even as inflation slows, employee expectations around competitive pay increases and fair pay are unwavering, according to the Payscale report.
Employers should clearly communicate their strategy and reasoning related to pay increases — for instance, by sharing how factors such as cost of living and merit influence pay increase decisions, Stewart said.
She also recommended that businesses allocate a budget for additional pay increases outside of the normal annual raise cycle to help address pay inequities, or for incentives for employees who may be considering leaving — particularly if the second half of the year becomes a job seekers’ market.
“Compensation is a core tenet of strategy,” Stewart said. “People work for money. Competitive pay is critical to both attracting and retaining talent. Employers need to be ensuring that pay is competitive and fair, both internally and externally to the market.”
Editor’s Note: Additional Content
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