As we look ahead to 2024, it is evident that many U.S. companies are tightening their belts on pay raises. A recent survey by WTW reveals a significant reduction in salary budgets, with future projections appearing equally bleak.
This article delves into the current state of pay raises, employer strategies, and the growing importance of pay transparency. Read on to learn more about how it impacts the labor market and prospects for 2025.
Current Salary Trends
According to WTW, 47% of U.S. companies have reduced their salary budgets for 2024. The median pay raises are expected to dip from 4.5% in 2023 to 4.1% this year.
One of the declining labor market challenges is that only 38% of employers report difficulties in attracting and retaining talent, a substantial drop from 57% last year. Also, companies anticipate salary budget growth of just 3.9% in 2025, lower than the previous two years but still above pre-pandemic levels.
Lesli Jennings from WTW highlights businesses are revising their compensation strategies to align with broader goals as the workplace stabilizes. Also, despite cutbacks, overall compensation packages are on the rise, with 73% of companies reporting higher total payroll expenses compared to 2023. Finally, nearly half of the companies hire at higher salaries, and 45% review all salaries.
Broader Adjustments In Compensation
Mercer's study shows that merit increase budgets have grown by just 3.3% in 2024, below the projected 3.5%, while total salary budgets have increased by 3.6%, less than the expected 3.8%.
62% of employers are offering "off-cycle" pay increases when necessary, up from 52% in November. Wage growth remains high compared to pre-pandemic levels, with the Federal Reserve Bank of Atlanta recording a median wage growth of 4.7% in March, down from 6.7% in 2022.
According to the New York Federal Reserve, the average "reservation wage" has reached an all-time high of $81,822, up from $73,391 in November.
The Shift Towards Pay Transparency
About the demand for transparency, the study shows that 60% of organizations now publish pay ranges in job postings, up from 45% last year, driven by new laws and recruiting pressures. More companies are posting salary information online or disclosing it during interviews.
Regarding employee inquiries and resignations, it was revealed that 27% of organizations report an increase in questions about compensation, and 14% note job resignations due to higher pay offers elsewhere.
The legislative impact in the District of Columbia enacted a pay-transparency law effective June 30, joining states like California, New York, and Washington. Earlier adopters include Colorado, Connecticut, Maryland, Nevada, and Rhode Island.
Indeed Inc.'s April 2023 data shows that about 45% of U.S. job postings included salary information, up from 20% before the pandemic.
Despite tightening salary budgets and the expected dip in pay raises for 2024, companies are adopting comprehensive compensation strategies. While the labor market faces challenges, businesses find new ways to attract and retain talent by ensuring transparency and connecting compensation to business performance.
