More data is coming out to paint a picture of anticipated pay increases in 2024.
New research from Seattle-based compensation software firm Payscale finds that U.S. employers are budgeting for 3.8 percent pay increases next year—down slightly from this year's average 4 percent bump.
While more than three-fourths of U.S. companies plan to increase salaries in 2024 at the same level or higher than this year, according to the company's Salary Budget Survey, the percentage of organizations expecting to lower their salary increase budgets in 2024 has risen to 22 percent from 9 percent last year—a significant jump that may indicate employers are less concerned about attraction and retention than they have been in the past couple of years.
Payscale's survey comes on the heels of a report by WTW, released in late June, which predicted that employers are budgeting an average increase of 4 percent in 2024.
WTW's Salary Budget Planning Survey, which polled more than 2,000 U.S. organizations, found that number is down from the actual increase of 4.4 percent in 2023 and the 4.2 percent increase in 2022, but the projected 2024 figures remain higher than the 3.1 percent salary increase budget in 2021 as well as other increases in pre-pandemic years.
The two recent salary reports indicate that employers are remaining fairly aggressive both due to the continued tight labor market and to higher employee expectations around salaries—Payscale in its report says that workers may continue to expect higher pay increases to regain some of the lost value eaten up by high inflation last year—but that aggressiveness appears to be slowing.
With inflation decreasing from its red-hot pace—last summer it hit a 40-year high of 9.1 percent, but has eased to 3 percent in the Consumer Price Index's latest reading—and the labor market loosening, employers want to bring pay increases down to more conservative levels in 2024, said Ruth Thomas, pay equity strategist at Payscale.
However, she warned employers won't want to dip too much as "it is still very much an employees' labor market with skills shortages persisting in some sectors."
Employee expectations have increased around pay due to both inflation and the tight labor market. A massive employee survey of more than 32,000 workers this spring from the ADP Research Institute, for instance, found that the overwhelming majority of workers expect a bigger payday from their employers, and they may be ready to walk if they don't get it. Companies including Chobani, the Home Depot, Walmart and Delta have recently announced pay bumps for employees.
Although the surveys around pay predictions for 2024 are important gauges for HR leaders planning compensation strategies, analysts say the forecasts are just that—a forecast.
"This is a bit like looking into a crystal ball, as it is only July and we are talking about budgets for 2024," said Lesli Jennings, North America leader of work, rewards and careers at WTW.
The salary predictions usually change slightly in reality: For instance, Payscale last year found that employers projected a 3.8 percent pay hike on average, but the actual increase has been at 4 percent this year.
The wild card for 2024 salary predictions is a potential recession, which some analysts have warned about for months.
"When it comes to pay increases, the last few years have indicated that the new normal may be in the 3.5 percent to 4 percent range, but that could change if we go into a recession," Thomas said.
In addition to salary budget reports, Thomas noted, "organizations will need to keep an eye on wage growth trends and continue to invest in up-to-date market data to remain competitive and ensure that pay is fair."