‘Healthy’ Pay Raises on Tap for 2024

Economic concerns are pushing some employers to think more conservatively about raises next year compared with this year.

But overall, employers are reaching their 2024 salary consensus, and it's a good one for employees: They will be handing out competitive pay bumps, especially as their workforce continues to grapple with high costs of living.

U.S. employers are planning an overall average salary increase of 4 percent for 2024, according to the latest Salary Budget Planning Survey by consulting firm WTW, which surveyed more than 33,000 employers in December. Though down from the actual average increase of 4.4 percent in 2023, the numbers remain well above the 3.1 percent salary increase budget in 2021 and years prior.

Meanwhile, Mercer's U.S. Compensation Planning Survey 2023 November edition, also released this month, finds a slightly more modest average salary hike of 3.8 percent in 2024 and an average merit boost of 3.5 percent.

"We are seeing healthy salary increases forecasted for 2024," said Hatti Johannsson, research director of reward, data and intelligence at WTW. "Though economic uncertainty looms, employers are looking to remain competitive for talent, and pay is a key factor."

The WTW and Mercer pay forecasts are the latest insights into pay moves for next year. Other surveys predicting salary trends for 2024 were conducted earlier in the year, but the new pair of surveys, conducted in recent weeks, help paint a clearer picture of pay raises for 2024.

What's Driving 2024 Raises?

A couple of factors are contributing to employers' pay raise strategies for 2024: high inflation and the still-tight job market.

Even though inflation has cooled from its red-hot pace, which hit a 40-year high of 9.1 percent last summer, workers continue to struggle with steep prices for food, housing, health care and other expenses. The effects of inflation have yet to wear off and may have intensified, with a recent Bank of America survey finding that months of high costs of living have pushed employee financial well-being to an all-time low. Credit card debt has also hit a record high, while most workers said inflation is an obstacle to saving for a comfortable retirement, according to a recent Charles Schwab survey. More than half of employers (55 percent) surveyed by WTW cited inflationary pressures as the primary reason behind increased salary budgets.

Nearly the same percentage of employers (52 percent) cited concerns over a tight labor market as a reason for bumping up workers' pay, according to the WTW survey. Voluntary turnover and attrition are at 11 percent overall, WTW found. While attraction and retention are still common concerns, fewer organizations (48 percent) are reporting issues with finding and keeping workers, down from 60 percent in 2022.

"Competition for talent remains high, so [the 2024 forecasts are] indicative of how employers are feeling about the current labor market," said Lauren Mason, senior principal in Mercer's career practice.

Pay bumps aren't the only strategy employers plan to adopt in order to attract and retain talent, the WTW survey found. Employers say they are embracing more workplace flexibility (63 percent); a broader emphasis on inclusion, equity and diversity (60 percent); and improving the employee experience (55 percent). Additionally, most employers say they have committed to hiring staff in a higher salary range (55 percent); undertaken compensation reviews of specific employee groups (54 percent); and raised starting salary ranges (49 percent).

Johannsson said organizations should think strategically about pay tactics for the upcoming year and remember that pay levels are difficult to reduce if markets deteriorate.

"It's best to avoid basing decisions that will have long-term implications on their organization on temporary economic conditions," she said.