2024 Salary Increases Lower Than Projected

Salary increases for the year are coming in lower than employers projected back in fall 2023, indicating that pay raises look to be trending downward after years of substantial growth.

U.S. employers reported that 2024 annual merit increase budgets rose by 3.3 percent, on average, while total salary increase budgets jumped by 3.6 percent—down from the November 2023 projections of 3.5 percent and 3.8 percent, respectively, according to new data from Mercer.

Total salary increase budgets include merit awards as well as all other types of compensation increases impacting base pay, such as promotional increases, cost-of-living increases and minimum wage increases. For results, Mercer surveyed more than 1,000 organizations in March.

“Amidst a stabilizing labor market, employers are witnessing a welcome relief on wage pressures as compensation budgets inch closer to pre-pandemic norms,” Lauren Mason, U.S. Workforce Solutions and Innovation Leader at Mercer, said in a statement.

Not only are employers handing out fewer raises, they’re also offering up fewer job promotions. Mercer found that compared with what they reported in 2023, employers have promoted or are planning to promote a smaller percentage of employees in 2024—8 percent on average of all employees (down from 9.3 percent projected in November 2023).

Salary increases varied significantly by industry, Mercer found. Industries such as transportation equipment (3.9 percent), nonfinancial services (3.6 percent), mining and metals (3.6 percent), consumer goods (3.6 percent), and chemicals (3.6 percent) are providing merit increase budgets above the national average of 3.3 percent. By contrast, health care service and the retail and wholesale industries lag the national average with 2.9 percent merit increase budgets, along with the tech sector at 3 percent.

Employee Expectations Aren’t Declining

Interestingly, the findings from Mercer showing that employers seem to be slowing pay increases come as other data found that employees are expecting higher pay.

A survey out earlier this month from the Federal Reserve Bank of New York, for instance, found that the lowest average pay that people would be willing to accept to take a new job—also known as the reservation wage—jumped significantly over the past year, reaching $81,822 as of March. That’s a big jump from November, when, on average, people said they’d need an offer of $73,391 to accept a new job.

Other recent data from the American Staffing Association and the Harris Poll found that although inflation has dropped over the past year, its residual effects continue, with more than half of workers (53 percent) saying their paychecks are not keeping up with inflation. That survey also found that nearly 4 in 10 U.S. adults said their overall financial situation is more stressful than it was 12 months ago and are looking to their employers for help.

Amy Stewart, associate director of content and editorial at Payscale, a Seattle-based compensation software firm, said that although inflation is down from its heights in mid-2022, the impact is “still being felt, as pay increases have not offset price increases for many.” Meanwhile, she said, high interest rates are also making big purchases more difficult for employees.

For these reasons, some experts say employers shouldn’t slow down pay bumps too much if they want to continue to retain and attract talent.

Mason said it’s important for organizations to “remain vigilant during this cooling market, as robust job growth and low unemployment rates persist.

“With the added challenges of pay transparency and heightened visibility to pay information, now is not the moment to lose focus on compensation strategies,” she said. “It's time to be strategic and deliberate, ensuring that investments are directed toward attracting and retaining the skilled workforce necessary to drive business success.”