Companies expect their employee compensation budgets for 2024 to take a sizable step back toward pre-pandemic rates of annual increase, following a few years of greater upward pressure on labor costs.
And perhaps surprisingly, the technology sector is among the leaders in moderating workers’ pay hikes.
According to an August survey of 932 human resources and compensation professionals, conducted by Mercer, U.S. employers plan to raise their compensation budgets by 3.5% for merit increases and 3.9% for total salary increases for non-unionized employees. Those are down from actual 2023 budgets of 3.8% and 4.1%, respectively.
The downward trend still leaves budgeted salary hikes well higher than they were before the COVID-19 pandemic, reflecting the ongoing tight labor market and low unemployment, said Lauren Mason, Mercer’s senior career principal.
But, she added, companies could well end up slashing their 2024 budgeted salary increases even beyond their current expectations. “If the labor market continues to stabilize and inflation cools further as we move toward year-end, compensation pressures are likely to continue to decline,” Mason said.
Only 12% of survey participants said they were “extremely confident” that their salary-increase budget would not change throughout the current budgeting season. More than a quarter (27%) said they were only slightly or not at all confident that their initial budget estimate would remain firm.
Whatever they budget for, actual compensation expenses frequently surpass the expected level. Over the past year, actual base salary levels climbed 5.6%, despite the smaller 3.8% hike in merit pay increases. This is a result of off-cycle pay increases, which 59% of employers reported that they provided in 2023, Mercer said. The top reasons cited for off-cycle increases were to address retention concerns, counteroffers, market adjustments, and internal equity.
About-Face for Tech Sector
Technology companies, which for years have been attractive to young professionals in part because of liberal compensation policies, are now retrenching. Their expected 3.3% expected rise in merit pay budgets for next year trails the consumer goods, energy, and insurance sectors, as well as the national average of 3.5%.
Pointing to financial strain and recent layoffs in the technology industry, Mason noted its salary outlook for 2024 represents “a reversal of trends where high-tech typically led increases across industries.”
Along with the overall trend in pay increases, companies are planning to promote fewer workers next year. In a similar Mercer survey one year ago, employers expected to elevate 10.4% of their employee population and allocate 1.3% of their salary budgets to promotions. Those figures have declined to 8.7% and 1.1%, respectively.
Clarification: The headline was updated to clarify that the pay hikes are not rising by 3.5% — merit pay is.