Signaling an Employer’s Market, Fewer Organizations Plan Pay Raises in 2024

Fewer employers are planning to give pay raises in light of a stabilizing labor market and cooling inflation—but it doesn’t mean employers are scaling back too much amid employees’ heightened financial concerns.

In 2024, 79 percent of organizations are planning to give pay increases—the lowest number in years—according to new data released this week from Seattle-based compensation software firm Payscale. That's a drop from the 86 percent that gave pay hikes to employees in 2023.

Those are among the findings from Payscale’s annual Compensation Best Practices Report, which surveyed 5,735 participants between October 2023 and December 2023. The data offers a glimpse of where pay is for 2024, how many employers are embracing pay transparency and what employees want.

Employers are also generally eyeing smaller raises in 2024 than they did last year. Organizations predict an average base pay increase of 4.5 percent in 2024, compared to the average of 4.8 percent actually given in 2023.

Although amounts are cooling, Payscale noted that pay increases are still elevated compared to pre-pandemic levels and are viewed as an essential talent management strategy—especially as employee expectations have increased in regard to not only meaningful salary hikes, but also transparency about pay practices.

“Employers know that pay is critical and must be competitive and keep pace with the rising cost of living,” said Lexi Clarke, chief people officer at Payscale, during a press call last week discussing the results.

Meanwhile, some organizations said they are unsure of their pay raise plans for the year, so that may cause a jump in the number of employers actually boosting pay for employees, she noted. Some industries may increase pay as much as 6 percent, Payscale researchers said.

The data from Payscale indicating that pay raises are cooling is not surprising given falling inflation and the stabilization of the labor market—it’s swinging toward an employer’s market, with Payscale finding that voluntary turnover was at 21 percent in 2023, down 4 percent from 2022's level (25 percent).

But it is worth noting that Payscale’s findings come as employee financial well-being is taking a hit. Although government data found that inflation has fallen over the past year, the persistent high cost of living is still having an outsized impact on both employees and employers. A recent survey of roughly 2,000 workers from the American Staffing Association, for instance, found that more than half of workers (53 percent) feel their paychecks are not keeping up with the pace of inflation, while 38 percent of U.S. adults said their overall financial situation is more stressful than it was 12 months ago.

“Americans continue to feel the pain of inflation every time they go to the grocery store or the gas pump,” Richard Wahlquist, CEO of the American Staffing Association, told SHRM Online earlier this month. “And over the past few years, many went into debt to keep up with inflation.”

Ruth Thomas, pay equity strategist at Payscale, indicated that because of high employee financial stress, there is a risk if employers do not keep up with healthy pay raises in the coming year. Indeed, the Payscale survey found that nearly a third of organizations (around 30 percent) think they’re losing talent due to insufficient pay increases.

Still, rather than focusing on a specific compensation metric and comparing it broadly to other employers, Thomas urged employers to think about their own talent supply, employee concerns and the like.

“Prior to the pandemic, we always used to talk about the magic 3 percent [increase] number that was applied to pay across organizations. Then, since all the disruption that happened in the labor markets during the pandemic period and since then, there is no magic-wand number,” she explained. “What employers should do is focus on their talent supply. You may have two organizations in the same industry, but their talent supply requirements are completely different, and that's going to impact ultimately what you pay. Demand and supply is what actually drives wage increases at the end of the day.”

Employers said that compensation is their biggest challenge this year, cited by 50 percent of surveyed employers. That’s above other concerns such as recruiting (44 percent), retention (42 percent) and engagement (37 percent).

Pay Transparency Now a ‘Best Practice’

Aside from strategizing pay increases this year, employers are increasingly prioritizing pay transparency, Payscale research found.

The majority of organizations—roughly 60 percent— are now publishing pay ranges. That’s a 15 percentage-point jump from 2023’s figure of 45 percent.

It's “no surprise organizations, especially in 2024, can’t afford to be left behind when it comes to pay transparency,” said Lulu Seikaly, senior corporate employment counsel at Payscale. “Employee and candidate expectations and behaviors are changing socially and legally. Pay transparency is now a best practice. Without it, it will be increasingly difficult to attract and retain top talent.”

Indeed, the data finds that most organizations are seeing pay transparency have an impact on employees. More than a quarter of organizations (27 percent) said that employees are asking more questions about their pay, 14 percent have had employees quit because they saw job advertisements with better pay somewhere else, and 11 percent have had employees who saw an internal job posting for a similar role and realized they were being paid less.

Additionally, 14 percent said their employees have expressed appreciation for transparent pay practices.

However, there also has been a slight uptick in organizations resisting pay transparency over the past year, to 13 percent from 11 percent last year. That is more likely the case in areas and cities that do not mandate pay transparency, Seikaly said.

Meanwhile, the survey found, pay equity analysis is a planned or current initiative for 62 percent of organizations—but more than a quarter (27 percent) admit they do not address severely underpaid employees unless the employee or their manager asks.

Overall, Clarke said, employers should consider the needs of their workers when it comes to pay.

“The headline here is to meet employee expectations related to fair and competitive pay, as well as the pressure around pay transparency and pay equity,” she said. “Organizations have to have a compensation strategy and formal pay structures.”