As we approach 2024, the corporate landscape is undergoing a transformation, reflecting the evolving dynamics of the labor market. Companies are setting their sights on pay raises and salary budgets with a newfound confidence, signaling a stabilizing job market. However, in response to the changing employment landscape, the approach to promotions is also undergoing a significant shift, transitioning from the era of the Great Resignation to the era of the Big Stay.
According to the latest data from Mercer’s U.S. Compensation Planning Survey in November, companies are projecting a total salary increase budget of 3.8 percent for 2024. While this figure is a slight dip from the 3.9 percent projected just three months prior, it demonstrates a continued commitment to competitive compensation packages. It’s worth noting that approximately 49 percent of companies still anticipate potential adjustments to their budget, acknowledging the ongoing uncertainties in the labor market, according to a report in The Playbook.
Lauren Mason, senior principal in Mercer’s Career practice, emphasizes in the report, “The labor market is continuing to stabilize, and we do see that compensation budgets for 2024 are moderating slightly, but still remain significantly elevated over historical norms. Competition for talent remains high, so this forecast is indicative of how employers are feeling about the current labor market.”
Notably, different industries have varying forecasts for merit increases in 2024. Insurance and services sectors are expected to lead the way with above-average merit increases at 3.7 percent, closely followed by energy and life sciences at 3.6 percent. Retail, with a significant number of low-wage workers, projects a 3.1 percent merit pay increase, while the healthcare industry anticipates a 3.2 percent increase. High-tech industries, on the other hand, fall slightly below the average with a projection of 3.2 percent, reflecting the instability witnessed in an industry marked by high-profile layoffs.
In contrast to the past, fewer employees are expected to receive promotions in 2024, with companies planning to promote approximately 9.3 percent of their workforce. This represents a decline from the previous year when employers promoted 10.3 percent of their employees. Promotions and other unbudgeted salary hikes were commonplace during the turnover tsunami, as businesses sought to retain talent amid a fiercely competitive hiring market. However, this approach often resulted in inflated payrolls and employees being compensated beyond the justification of their roles.
Rapid pay increases experienced during the COVID-19 pandemic have also left many companies grappling with internal pay structure challenges. Only 17 percent of surveyed employers reported no issues related to pay compression or pay equity, while 36 percent are actively making adjustments, and 11 percent have plans to address these concerns outside of the annual pay increase cycle. As employees increasingly share their salary information, and state and local governments require pay range disclosures, approximately 28 percent of companies are voluntarily including pay ranges in their salary data, with an additional 10 percent planning to do so.
“In the era of pay transparency, where employees have more access than ever to pay data, employers must be prepared to explain and defend an employee’s pay,” notes Lauren Mason in the report. “There’s no question that new joiners have experienced outsized premiums over the last two years, so employers will need to prioritize investments this year in high-performing tenured talent to right-size their compensation.”
In addition to Mercer’s findings, other surveys, such as the Salary Budget Planning Survey by WTW, reveal similar projections for pay raises in 2024. WTW’s survey suggests that companies are planning for a 4 percent increase in salary budgets for the upcoming year, a slight decrease from the 4.4 percent increase observed in 2023 but still notably above the pre-pandemic levels of 2021.
As wage growth appears to be decelerating, some companies are considering cost-cutting measures in employee benefits. Nevertheless, year-end bonuses are making a comeback, with 96 percent of employers, according to staffing firm Robert Half, anticipating awarding bonuses to their teams. Among them, 54 percent are even planning to offer more substantial bonuses than in the previous year.
In conclusion, as we peer into 2024, the employment landscape is defined by a balance between stabilizing salary budgets and evolving promotion practices. Employers remain committed to competitive compensation packages to retain top talent, but the era of the Big Stay is ushering in a more cautious approach to promotions and internal pay structures.
