Employers set to allocate 4% pay raises in 2024

Employers set to allocate 4% pay raises in 2024

By on Jul 23, 2023 in Best Practices, Blog, Compensation, Compensation Consulting, Government and Public Sector, HR Consulting, Human Resources consulting, Non Profit |

We’ve been keeping an eye on what the hot labor market means for employers’ pay increase budgets. Throughout 2023 we’ve been sharing what we’ve been learning, such as

2023 Compensation increases: A sign of recovery or cause for concern?

How employers are managing compensation challenges in 2023

Compensation forecast – January 2023

A recent SHRM article gives us insight into the amounts that are starting to use for planning purposes in 2024. In the face of a tight labor market and inflationary pressures, US employers plan to continue competitive pay raises for employees in 2024, with an average increase of 4.00%. Although the rate of raises may be cooling slightly, it remains higher than pre-pandemic years. The decision to offer higher salaries is driven by concerns over a tight labor market impacted by worker shortages, pushing companies to stay competitive in the ever-changing work climate. While layoffs are limited in some industries, overall job creation and relatively low unemployment are putting pressure on organizations to raise starting salaries to attract new talent. Employers are also making other compensation changes, like reviewing employee groups’ compensation and enhancing retention bonuses. The article suggests that while pay raises were significant in previous years, they may stabilize as economic concerns gain precedence over inflation and job market trends.

Consulting firm Mercer reported earlier in the year that U.S. employers’ 2023 annual merit increases averaged 3.80%.

It is likely that private sector firms in the US will continue to offer competitive pay raises to their employees in the coming years.

It is reasonable to assume that nonprofit firms in the US will also follow a similar trend as private sector firms in terms of compensation strategies. But nonprofits face various constraints that can impact their ability to implement competitive compensation strategies. Limited financial resources, public scrutiny, and mission alignment are among the key challenges they encounter. Nonprofits often compete with for-profit companies for talent but may struggle to match their salary offers. Despite these constraints, nonprofits can adopt creative approaches to attract and retain qualified employees, such as offering non-financial benefits, flexible work arrangements, skill development opportunities, and personal growth initiatives, thereby fostering a positive work environment and mission-driven culture.

Public sector organizations, constrained by limited budgets, government policies, public perception, and union contracts, are likely to prioritize non-monetary benefits and work-life balance initiatives to attract and retain employees. They may offer opportunities for professional development, job security, generous leave policies, and a sense of public service and mission-driven work. Striving to balance competitive compensation with financial responsibility, public sector organizations aim to effectively serve the public interest and fulfill their organizational objectives.

We have deep experience with base compensation benchmarking, incentive program development, and total rewards. Check out our updates on workforce strategy and compensation or contact us for other helpful resources.