US employers are planning smaller pay raises and fewer promotions next year, compared to what they gave this year.
That’s according to a new survey from human resources consulting firm Mercer. The survey was taken by more than 900 of its clients, who are employers of varying sizes across 15 industries.
Based on their replies, Mercer said compensation budgets for merit increases are expected to grow by an average of 3.5% in 2024, down from 3.8% this year. Merit increases are the pay bumps related to your prior year’s performance.
Meanwhile, budgets for total salary increases for non-union employees are expected to go up by 3.9% on average, down from 4.1% this year. These include both merit increases and base pay increases due to promotions and other reasons, such as minimum wage adjustments or off-cycle raises, which may be offered to do things like retain someone if a competitor tries to hire them away.
Also notable, employers surveyed said they plan to promote fewer people — just 8.7% of their staff, on average, down from 10.3% this year.
While the expected pay increases are lower, relative to 2023, they are still higher than they typically were before the pandemic.
The Mercer survey was conducted between July 31 and August 11, so the results are just an early look at what employers are thinking as they plan for 2024.
Compensation budgets for next year won’t be finalized until December or even January in some instances. And a lot can change between now and then.
The expected pay increases for next year reflect “the ongoing tightness of the labor market and low levels of unemployment. However, if the labor market continues to stabilize and inflation cools further as we move towards the end of the year, compensation pressures are likely to continue to decline,” said Lauren Mason, a senior principal in Mercer’s career practice.
In that case, employers could further trim their planned pay increases.
Or they could decide to further boost raises and increase promotions if conditions warrant — as they did this year, when merit increase budgets were set for a 3.8% boost but employers ended up raising base salary levels for employees who remained in their roles by an average of 5.6% instead.
“This is a result of off-cycle pay increases, which 59% of employers reported providing in 2023. The top reasons cited for off-cycle increases were to address retention concerns, counteroffers, market adjustments and internal equity,” Mason said.
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