US employers plan more modest compensation increases in 2024

Today, Mercer, a global leader in redefining the world of work, reshaping retirement and investment outcomes, and unlocking real health and well-being, and a business of Marsh McLennan (NYSE: MMC), released the results of its August 2023 Mercer QuickPulse US Compensation Planning Survey. According to the survey, employers in the US plan to raise their compensation budgets by 3.5% for merit increases for 2024 and 3.9% for their total salary increase budgets for non-unionized employees. This compares to actual merit increases of 3.8% and 4.1% for total salary increase budgets for non-unionized employees in 2023.ⁱ

“While preliminary compensation budgets for 2024 are showing a slight decline, they remain well above pre-pandemic levels, reflecting the ongoing tightness of the labor market and low levels of unemployment. However, if the labor market continues to stabilize and inflation cools further as we move towards the end of the year, compensation pressures are likely to continue to decline. This could prompt further reductions in 2024 compensation increase budgets, as employers adjust their strategies to reflect the changing economic landscape,” said Lauren Mason, Senior Principal, Career, Mercer.

Across industries, Healthcare Services are projecting 2024 budgets that lag other industries, with merit budgets of 3.1% and total increase budgets of 3.4%, as the industry continues to recover from the financial impact of the pandemic. Recent layoffs and financial strain on the high-tech industry also appear to be impacting merit budgets, with projected increases of 3.3%, a reversal of historical trends where high-tech typically led increases across industries. Several industries, including Energy and Consumer Goods, are planning merit budgets above the national average, projecting an increase of 3.7%.

The survey also found that employers are planning to promote less (8.7% of the employee population) and therefore will allocate less of their budget (1.1%) to promotional increases in 2024. In 2023, employers reported that they promoted 10.3% of their population, allocating 1.2% of their salary budget to do so.

Looking back at actual compensation increases over the last year, employer base salary levels increased 5.6%ⁱⁱ on average, despite 2023 merit increase budgets of 3.8%. This is a result of off-cycle pay increases which 59% of employers reported providing in 2023. The top reasons cited for off-cycle increases were to address retention concerns, counteroffers, market adjustments, and internal equity.