Dive brief:
- U.S. employers are planning more modest compensation increases for 2024 than budgeted for 2023, even as next year’s budgets remain well above pre-pandemic levels, Mercer respondents said in a compensation survey in August.
- For 2024, employers said they plan merit increases of 3.5 percent, compared with actual merit increases of 3.8 percent in 2023, Sept. 25 results show. They also plan total pay increases (including promotion-related pay increases and cost-of-living adjustments) of 3.9 percent for non-union employees, down from 4.1 percent in 2023, the report said. In a reversal of historical trends, due to layoffs and financial stress, the high-tech industry has projected earnings increases below the national average of 3.3 percent, Mercer said. In contrast, the consumer goods, energy and insurance/reinsurance industries take the lead, with expected earnings increases of 3.7%, slightly higher than average. Projected budgets for health services are below average, with expected merit increases of 3.1%, according to the report.
- These slight declines reflect “the continued tightening of the labor market and low levels of unemployment,” Lauren Mason, a senior director at Mercer, said in a statement. “However, if the labor market continues to stabilize and inflation cools further as we move towards the end of the year, it is likely that compensation pressures will continue to ease,” Mason said.
Diving knowledge:
“Cautious optimism” may be the survey’s message, as compensation budgets appear in line with Mason’s prediction that employers will need to adjust their strategies to reflect the changing economic landscape if inflation cools and the labor market returns to pre-pandemic levels.
Wage budget surveys released by Payscale in late July and WTW in late June suggest that employers have been adjusting their 2024 compensation budgets as conditions fluctuate. US employers told Payscale they expect wages to rise 3.8% next year. According to the WTW report released a month earlier, employers were planning annual wage increases of about 4%.
Surveys confirm that employers remain concerned about remaining competitive amid skills shortages in an ever-changing work environment. According to Mercer’s September report, the labor market was still extremely hot: 3 million short workers (the gap between the number of job openings and unemployed workers), the firm noted.
Still, promotions are not expected to play as big a role next year in total reward packages, the report showed. According to the August 2023 survey, employers plan to promote 8.7% of their employee population in 2024 and spend 1.1% of their compensation budget on related salary increases.
By comparison, in an August 2022 survey, employers said they expected to promote more than 10% of employees by 2023 and set aside 1.3% of their salary budget to do so. “It’s not a huge change, but it seems employers are planning to promote a smaller population and allocate less of their budget,” Mercer said.
However, almost all (85%) of the 900 organizations of all sizes that responded (fewer than 500 employees to more than 20,000) said they were only in the preliminary stages of developing next year’s budget, Mercer found.
The survey also revealed that in 2023, employee base salaries increased by an average of 5.6 percent, despite budgeted merit increases of 3.8 percent, Mercer said. The difference was due to off-cycle raises, which nearly 6 in 10 employers reported providing. Employers said they used those increases to address retention issues, counteroffers, market adjustments and internal equity, the company noted.
The companies told WTW in 2022 that they planned to finance the projected 4.6% wage increases through 2023 by adjusting compensation and benefit plans, raising prices and through company restructuring and staff reductions.
Looking ahead, Mason offered a key piece of advice: When planning for 2024, it’s crucial that employers “move away from the reactive approach of recent years and adopt a more strategic approach.” This, he said, will allow employers to “focus their compensation investments on the most critical attraction and retention segments of their workforce, while ensuring that wage increases are distributed fairly and equitably.”
